RICHMOND — Gov. Terry McAuliffe unveiled a raft of cost-cutting measures Wednesday, including up to 565 layoffs, in response to a projected budget shortfall that he blamed mostly on reduced federal spending.
The steps are intended to partially address a previously announced multi-year deficit of $2.4 billion. In a news conference, McAuliffe (D) called the budget cuts “the most difficult part of my job so far” and said the situation could grow more dire.
In addition to job losses concentrated in the state prison system, the state will mark up the price of liquor, sell an old state police airplane and wait longer than usual to fill some jobs. Those actions will take effect immediately.
“The reductions we are announcing today are a short-term response intended to insulate Virginia from the possibility of even further cuts,” McAuliffe said. “And in the long term, as I have said before, we must work together to grow and diversify our state economy so that we are no longer subjected to Washington uncertainty.”
McAuliffe’s finance secretary, Ric Brown, said an overall tightening of federal spending — including sequestration and cuts in defense contracts and research grants — is responsible for reducing state revenue with no immediate end in sight.
“It’s not going to go away overnight,” Brown said after the announcement.
The decline in high-paying jobs in procurement, lobbying and scientific research for the federal government hit contractor-rich Hampton Roads and Northern Virginia particularly hard, he said.
“That is the big driver of the Virginia economy. Virginia is a service-sector economy,” Brown said.
This year, McAuliffe announced that the state faces a projected $2.4 billion revenue gap over three years. Lawmakers have already trimmed more than $1 billion, leaving $882 million to be cut over the next two years. That’s $346 million in the current fiscal year and $536 million in the next.
This summer, in conjunction with the General Assembly, the administration agreed to a plan for carving savings fro the current spending plan, including the $92 million in departmental cuts that McAuliffe announced Wednesday.
House Speaker William J. Howell (R-Stafford) did not object to the cuts, but he called the process “arduous and difficult.”
“It is unwelcome news that so many of Virginia’s hard-working state employees will be affected,” he said in a statement. “The painful lesson of this experience is that we cannot continue to increase Virginia’s dependence on the federal government, as Governor McAuliffe has said repeatedly. Going forward, all of our budget and policy decisions must be made with this in mind.”
State employees who will lose their jobs mostly work in the Department of Corrections, where the state will close a prison, a residential facility and a diversion center, and will delay the opening of a women’s prison.
The job losses represent about one half of 1 percent of the state’s salaried workforce of 99,000. Brown stressed that some will find jobs elsewhere in state state government.
Among the other cuts McAuliffe announced: The state will sell a state police airplane and leave 41 trooper positions unfilled for longer than usual. Also, the Virginia Department of Alcoholic Beverage Control will increase the markup on distilled spirits to generate $2.5 million in revenue.
The national Distilled Spirits Council said Virginia, which the group said operates as a monopoly, already has the third-highest liquor tax in the country.
“Markups are nothing more than stealth tax increases on Virginia consumers,” said David Wojnar, vice president of the council.
The administration also plans to cut $100 million next year as well as $150 million over two years from higher education and funding for local governments.
McAuliffe said “nothing is sacred” and that he would weigh changing or eliminating tax preferences, which apply to everything from corporate income and retail sales to land and historic preservation. A 2011 study from the General Assembly’s research arm, the Joint Legislative Audit and Review Commission, found that these tax breaks and credits amounted to $12.5 billion in 2008.
“If a tax preference doesn’t make sense and isn’t doing what it was originally intended to do, outlived its usefulness, it shouldn’t be there anymore,” McAuliffe said.
On Dec. 17, McAuliffe will reveal a new budget projection and plan for how to save $536 million in fiscal 2016. The Republican-controlled General Assembly must vote on that plan.
Much could change before then, however. Just this week, the administration announced that state revenue is up 6.7 percent in the first quarter of the fiscal year, which is more than double the national estimate.
Also, taxes collected on real estate transactions were up in September, the first rise in 13 months. But Brown cautioned against drawing sweeping conclusions.
“After you get a new Congress, there are plenty of opportunities for the federal government to trip up here and for us to be in a different situation than we are right today,” he said. “Approaching the colder winter months, I’m glad we’re fattening ourselves up a little bit.”
In a dour speech to a joint committee of House and Senate lawmakers in August, McAuliffe said cuts mandated by sequestration will have a permanent effect on state finances, forcing Virginia to diversify its workforce and approach to job growth.
At the time, McAuliffe said the shortfall started with the “fiscal cliff” standoff of 2012, when high-wire negotiations in Congress over the debt ceiling led nervous investors to cash out stocks and gave states a one-time spike in their capital gains tax. Like many other states, Virginia enjoyed the surplus tax revenue last year, but state budget officials did not anticipate that it was a one-time event — and this year, Virginia is feeling the pinch.
Laura Vozzella contributed to this report.