State budget shortfall tops $3.2 billion

The hole is even deeper than expected.

The Senate Finance Committee of the Virginia General Assembly is projecting a budget shortfall of at least $3.2 billion for the 2008-10 biennial budget -- an even bleaker projection than the $2.5 billion Gov. Timothy M. Kaine had forecast previously.

And the shortfall in the $77 billion budget could reach as high as $3.5 billion if lawmakers retain an additional $350 million in high-priority, mandated programs approved last session, according to the committee's report, "Fiscal Issues Facing the Commonwealth."

"The economic picture has become clearer and uglier," the report states.

Kaine's administration already has taken action to address roughly $1 billion of the shortfall. But the Finance Committee report -- released yesterday at a bipartisan retreat for the state's 40 senators in Fredericksburg -- suggests lawmakers will need to carve out another $2.5 billion from state spending in the upcoming 2009 legislative session.

"A lot of painful decision-making is going to occur," said Sen. R. Edward Houck, D-Spotsylvania, a ranking member of the Democrat-controlled committee.

"This economy is still falling and declining, so we have to take measures to deal with it."

This week, the Republican-dominated House Appropriations Committee presented in Roanoke a similarly gloomy scenario for state revenues.

Anxious lobbyists representing all industries potentially affected by the cuts were on hand yesterday at the Fredericksburg Hospitality House and Conference Center to hear the dire news and make their case to lawmakers to spare their constituencies.

Lawmakers from both parties yesterday signaled that virtually nothing would be left off the chopping block when they reconvene Jan. 14 in Richmond. That includes spending in health-care entitlements such as Medicaid as well as public education.

"It's all up for grabs," said Sen. William C. Wampler Jr., R-Bristol, the ranking Republican on the Democrat-controlled Finance Committee. "I think the first thing you do is examine new spending.

"There is not one indicator today that says the economy has hit bottom," Wampler said. "And if we haven't hit bottom, we have no idea how long we're going to be there or when we're going to get back out."

The continued economic downturn and collapse of the financial markets this fall helped push Virginia, like other states, deeper into the budget hole.

Economic data on declining home values, tight credit markets, increased unemployment and drops in the manufacturing and service industries presented yesterday suggest that the recession will last longer than expected, well into mid-2009.

In turn, the Senate Finance Committee staff said a $2.5 billion budget shortfall originally projected was "underrated" and revised the shortfall estimate upward to $3.2 billion.

The report says that closing the gap will require a number of strategies, including across-the-board spending cuts, targeted cuts, and increases in fees, which could include hikes in tuition at state universities.

The report also suggests the state should consider reducing certain services, reorganizing agencies, and tightening criteria for who qualifies for services.

Reductions in state aid to localities, such as public education, and in state aid to individuals, such as Medicaid, also were cited as possible areas where state spending could be cut.

Wampler said Kaine should not have pushed for new spending in the budget, such as expanded funding of pre-kindergarten programs in at-risk communities that was advocated by the governor.

"I would argue that pre-K is something you're going to have to take a very strong look at," he said. "We have to take care of the core services."

Houck yesterday cautioned against reading too much into the specific options and strategies the report suggests as a way to make up the shortfall. He said lawmakers would place a priority on minimizing the impact of cuts on the state's neediest individuals.