Slow Growth Will Force Cuts in State Budget

The News & Advance
Published: July 23, 2008

The soaring cost of fuel and a slumping economy have caught up with the state budget. That’s no surprise, really, but unless economic projections improve quickly, the state could be in for some hard times in the months ahead.

It’s the same situation facing families all across Virginia whose budgets have been decimated by fuel costs that have gone through the roof and are pushing up other prices, including those at the grocery store, along the way.

In a memo to state agency heads last week, Wayne M. Turnage, Gov. Timothy M. 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,” Turnage wrote.

He ordered agencies to stop all but essential hiring, cancel discretionary travel and halt purchases of new equipment and software.

Turnage seems to be preparing those agencies for budget cuts that may lie ahead in Kaine’s two-year budget that began on July 1. The memo also comes as state officials are cutting back highway construction and transit projects because of a lack of money.

So how bad are the revenue shortfalls and projections for the coming two fiscal years? The numbers don’t paint a pretty picture.

Secretary of Finance Jody W. Wagner said the state’s surplus has dwindled to $5.4 million, down from more than $1 billion in 2006. As for the current $77 billion budget approved by the General Assembly, revenue was projected to grow by 2.2 percent this year and 6.8 percent in fiscal year 2010.

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.

Wagner pointed to the broad economic slowdown as driving the drop in revenues.

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

The bottom line, she said, is that state agencies should expect to make further budget adjustments — or cuts in plain English — to compensate for the expected shortfalls in general-fund revenue.

The governor will address the Assembly’s finance panels on Aug. 18 with a review of the final results of the 2008 fiscal year just ended and anticipated shortfalls for the coming two years.

Kaine knows that any falloff in revenues must be matched with corresponding cuts in spending to keep the state’s budget balanced, as required by law. Sales taxes and individual income taxes provide for 72 percent of the general fund budget — the budget that provides for core services across the state.

When those revenues drop, the cuts must follow.

The hard part is yet to come — finding where to make the cuts that do the least damage to services that Virginians have come to expect from their state government.