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McDonnell readies Virginia budget plan

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RICHMOND — The good news has been trickling out of the governor’s office for the past week: billions more for the state retirement system; millions more for roads, state colleges and universities; bonuses for state employees; a boost in K-12 spending.

Now, Virginians await the bad news: what might get cut to pay for everything.

Gov. Robert F. McDonnell (R) will release his two-year budget on Monday, and while most details remain under wraps, it’s widely assumed that the tax-averse governor will seek to balance the bulk of spending increases with corresponding cuts.

McDonnell, for the most part, isn’t saying what gets the ax.

Speaking to hundreds of state employees Thursday afternoon at a town hall meeting, McDonnell ticked off plans to offer them bonuses and pump $2.2 billion into the retirement system. But, he warned, cuts are still coming.

“Now, that comes at the cost of not-as-big increases in some areas and some cuts in some things that I felt were lower priorities,” he said without elaborating.

Virginia’s biennial budget cycle makes this the first opportunity for McDonnell, who took office in 2010 and is often spoken about as a potential vice presidential contender, to lay out his priorities for the state and to articulate, in dollars and cents, what he stands for. But far above education, transportation and a stable state retirement system, McDonnell has championed smaller government and lower taxes.

So the commonwealth is bracing for cutbacks.

“It’s a very tough environment and I don’t know how you get the math to work,” said Katharine Webb, senior vice president at the Virginia Hospital and Healthcare Association. “Nothing short of a miracle in our economic growth is going to make enough money available to adequately fund the core services of government.”

Webb anticipates that the state will try to squeeze savings out of Medicaid, the federally and state-funded health program for the poor and disabled, presumably by cutting payments to doctors and hospitals.

“Those patients are still going to get sick and they’re still going to need care and they’re going to a hospital emergency room and we can’t say no,” she said.

McDonnell has suggested that through greater efficiency, innovation and incentives, Virginia can boost funding in some corners without wholesale slashing in others. The bonuses he’s dangling before state employees, for instance, will be awarded to workers who come up with ways to save the state money. McDonnell is offering up to $77 million in bonuses, but workers would have to come up with $160 million in savings to earn them.

In October, McDonnell asked state agencies for recommendations on how to cut 2, 4 or 6 percent, which could save as much as $220 million a year. Some agencies suggested doing away with new programs while others recommended layoffs, closing facilities and eliminating funding for health and public safety programs.

McDonnell said this week that the state will close the 700-inmate Mecklenburg Correctional Center in Southside Virginia, which will save about $10,000 per inmate each year. McDonnell also has recommended eliminating two state agencies, cutting 19 boards and commissions, and deregulating three professions, which would save an estimated $2  million a year.

Aside from those measures, McDonnell has kept any cuts close to the vest, even as he’s trumpeted big-ticket items included in his budget.

McDonnell seeks to pump $2.2 billion into the state retirement system, the largest employer contribution to Virginia Retirement System in history. He would pour $200 million into colleges and universities and millions more into the state’s clogged roads. Spending for K-12 education will go up by an unspecified amount.

The General Assembly passed a $78 billion budget for fiscal 2011 and 2012 with no general tax increase, but the budget did include several increases in fees and hundreds of millions of dollars in cuts, including to health care, schools and public safety, as it tried to close a $4 billion shortfall over the two years.

Virginia ended the fiscal year with a surplus of $403 million in 2010, and $545 million in 2011. Both came from higher-than-expected tax revenue and savings.

Democrats criticized McDonnell for declaring a surplus after years of cuts to core services; delayed payments to the retirement system; and a requirement that retailers pay sales tax a month early, allowing the state to receive money in an earlier fiscal year.

Virginia legislators learned last month that the state would not have enough money for the 2012-14 budget if Virginia continued spending at current levels. The Senate Finance Committee predicted that the state would face up to a $1 billion budget shortfall while the House Appropriations Committee put the hole at $1.5 billion.

Given the tough budget picture, even groups that have been promised more money are holding their breath until Monday. But Robley Jones, director of government relations and research for the Virginia Education Association, is not totally skeptical about McDonnell’s pledge to boost K-12 funding.

“The governor has been honorable in my interactions with him,” Jones said. “But at the same time, he’s not putting his cards on the table yet. And if I were him, I wouldn’t either.”

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