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TIM KAINE ADMINISTRATION: VIRGINIA CEASES SPENDING, HIRING-THE WASHINGTON POST, JULY 18, 2008

Posted: Wednesday July 23, 2008

Tim Kaine Administration: Virginia Ceases Spending, Hiring

Gov. Timothy M. Kaine’s administration ordered state agencies to stop hiring, traveling and buying equipment and prepare for even more severe cuts as the state’s budget surplus is almost gone amid an economic slowdown.

In a memo to agency heads, Wayne M. Turnage, Kaine’s chief of staff, said a “troubling trend” has developed because income and sales tax revenues are growing at a slower rate than projected.

“While the exact magnitude of the revenue gap for the next [two years] is uncertain at this time, it may be significant based on our preliminary analyses,” wrote Turnage, who ordered agencies to stop all but essential hiring, review all contracts, cancel discretionary travel and halt purchases of new equipment and software.

Turnage’s memo, which comes as officials are scaling back highway construction and transit projects because of a lack of money, was released shortly after Secretary of Finance Jody W. Wagner issued a rare midsummer update on the state’s finances.

Wagner said the state’s surplus has dwindled to $5.4 million, down from more than $1 billion in 2006. She also said it will be difficult to reach revenue projections for fiscal 2009 and 2010. As part of Kaine’s two-year, $77 billion budget, revenue was projected to grow by 2.2 percent this year and 6.8 percent in fiscal 2010.

“We must begin discussing the actions that should be taken to prudently manage a continued decline in general fund revenue growth based upon the circumstance of the current economy,” Wagner wrote to Kaine on Wednesday.

Earlier this year, state officials thought that the sagging real estate market in Northern Virginia was driving the drop in revenue, but Wagner now says the economic slowdown may be much broader.

She said there appears to be “declining employment levels, slower income growth, lower consumer confidence and the continued downward trends in the housing market.”

In early 2006, Virginia was flush with cash because of a booming economy and a strong demand for housing. Now, Wagner said it is possible that the state will experience negative growth this year, which has not happened since the slowdown after the Sept. 11, 2001, terrorist attacks.

Robert Vaughn, staff director for the House Appropriations Committee, said revenue from payroll taxes has been growing by less than 2 percent over the past four months. Sales tax revenue has grown by less than 1 percent during the same period, he said.

“That is 70 percent of revenues performing poorly,” Vaughn said.

Final revenue results for fiscal 2008, which ended June 30, will be complete Aug. 18. State officials will then begin readjusting future revenue projections.

Virginia’s budget woes mirror those in other states. In Maryland, Gov. Martin O’Malley (D) is bracing for a $200 million shortfall in this year’s budget, even though he and lawmakers approved a $1.4 billion tax increase last year.

“This is not unusual,” Wagner said. “I think everybody from the Federal Reserve on down is a little disappointed in the way things are headed.”

Kaine (D) is on trade mission in Europe and unavailable to comment.

Del. Phillip A. Hamilton (R-Newport News), vice chairman of the House Appropriations Committee, said lawmakers may withhold some of the money that had been promised to state agencies, local governments and nonprofit organizations.

“It is going to require tough decisions and require us to define core service responsibilities of state government,” Hamilton said.

But Hamilton said he is “not surprised” that the Kaine administration may have to revise revenue projections downward.

During the fight over the budget in March, House and Senate Republicans warned that Kaine’s revenue projections may have been too optimistic.

Although Kaine revised the projections in February, he said the state would have enough money to fund several of his priorities, including his effort to secure more money to open subsidized pre-kindergarten to more four-year-olds.

“We were raising issues about revenue forecasts early, but the governor still maintained the 6.8 percent forecast for fiscal year 2010,” Hamilton said.

Wagner counters that some Republicans pushed to revise revenue projections upward to free up money for projects that interested them.” (Tim Craig, The Washington Post, July 18, 2008)

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TIM KAINE ADMINISTRATION: VIRGINIA CEASES SPENDING, HIRING-THE WASHINGTON POST, JULY 18, 2008

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