-- Virginia could face budget shortfalls until the end of the decade despite recent tax increases and an improving economy, according to preliminary projections prepared by Gov. Mark R. Warner's staff.
The early budget analysis shows a $252 million shortfall in the 2007 budget year and a $31 million shortfall the next year. And senior Warner aides say they fear that decisions made when lawmakers convene in January could balloon the shortfalls to nearly $1 billion.
This year, Warner (D) pushed through tax increases that will add about $750 million a year to state coffers. And the booming Northern Virginia economy, driven by increased homeland security spending, will add another $700 million to $900 million this year, administration officials say.
But the analysis concludes that the additional money is likely to be consumed by spending approved in the protracted 2004 General Assembly session and by growth in entitlement programs during the remainder of the decade. Last month, Warner urged restraint.
"I got my first look at it yesterday, at a sort of first draft of the six-year financial plan," he said on his monthly "Ask the Governor" show on WRVA, a Richmond radio station. "What it shows is, while we look very healthy this year, in fiscal year '05-06, the next budget cycle -- fiscal year '07-08 -- we're going to be stretched a bit."
Legislative leaders say they agree with the need for financial caution. Del. Vincent F. Callahan Jr. (R-Fairfax), chairman of the House Appropriations Committee, said last week that Warner's concerns are right on the mark.
House Speaker William J. Howell (R-Stafford), who founded a nonprofit think tank to examine new ways of providing services, said his colleagues must not see the large pool of money as an invitation to increase the size of government.
"Our job -- mine and Callahan's and [Sen. John H.] Chichester's and the governor's -- is to convince these guys to stay true to their principles," Howell said, referring to state legislators, the majority of whom are Republicans. "I hope we can keep a rein on it."
Howell said he is skeptical of Warner's budget forecasting because the administration's "doom and gloom" talk this year turned out to be off the mark, which he said is illustrated by a booming economy. But he invited Warner to join him in finding ways to hold down the cost of government.
"This does show the need for a new way of delivering government services," Howell said.
Warner, Howell and the others are swimming against a torrent of pressure from interest groups and other lawmakers, many of whom say there are critical needs that can be addressed with the new money that is flowing in.
Already, internal requests from state agencies for additional spending total $1.5 billion for fiscal 2006, said John M. Bennett, the state finance secretary. And the governor has received letters seeking about $500 million more from groups working on behalf of police, teachers, doctors and others.
"The problem is that expectations for what might be available in the next session are in the stratosphere," Bennett said. "The reality is that everybody feels like, if it's there, they deserve a share of it. I'm hoping that everyone will understand the long-term implications of the budget decisions."
Advocates say they understand the need for careful budgeting. But they say their requests are dire and must be addressed.
The medical community, for example, is pushing for higher reimbursement rates for doctors. That would drive the state's Medicaid costs higher, but doctors say they could end up treating fewer patients if they are not paid a fair rate.
In a conference call with reporters Thursday, David Ellington, a physician with the Medical Society of Virginia, said increasing the rates for obstetricians and gynecologists this year is not enough.
"Now, the Medical Society of Virginia will ask the legislature to take the next step and increase Medicaid reimbursement to all physicians in the commonwealth," he said. "There has been no across-the-board increases in physician reimbursements in over a decade. The time has come."
Transportation advocates, too, are eyeing the $700 million to $900 million from the growing economy. They said the momentum will fizzle if the money is not set aside for building sorely needed roads and bridges.
Del. Timothy D. Hugo (R-Fairfax) is pushing a plan that would dedicate some or all of the extra revenue to paying back debt on road and transit construction.
"If we don't do it right now, when we do have this budget surplus, I don't think it will get done for a long time," Hugo said. "We're just saying it's transportation's turn."
Such comments worry Warner administration officials and senior lawmakers.
The draft of long-term projections assumes that most of the extra revenue would be spent on one-time projects that would not increase the state's obligations in future years. One-time spending could include paying for building improvements, buying furniture, contributing to an environmental fund, paying bonuses to employees or committing cash for a road project.
Even with that assumption, however, shortfalls start in 2007. If lawmakers commit themselves to ongoing expenses -- for example, promising salary increases to state workers -- the projected shortfalls would increase, Bennett said.
"I don't want to see another boom-to-bust cycle," Bennett said.
Earlier this year, the Virginia Chamber of Commerce endorsed Warner's tax increases. But in the same news release, it also issued a warning:
"If the General Assembly approves all or part of the Governor's plan, some other combination of tax changes, or simply retains the status quo and does nothing to reexamine and control spending, Virginia's dilemma will persist in the years to come."
The group's lobbyist, Steven Haner, said this week that he is not optimistic that anyone in Richmond would be willing to hold down spending.
"You might as well change the course of the stars," Haner said, though he acknowledged that his organization is lobbying on behalf of money for transportation. "I applaud folks for battling the tide. We shall see how successful they are."