Kaine to order cuts to offset shortfall

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Virginia Gov. Timothy M. Kaine yesterday said he is ordering state agencies to cut 5 percent of their budgets and that he is considering siphoning money from the state’s “rainy-day fund” to help cover a statewide shortfall that is projected to reach $641 million by next summer.

Mr. Kaine, a Democrat, told members of the General Assembly’s money committees the new financial forecast resulted from a shaky housing market, lower than anticipated sales- and income-tax receipts and a higher than expected number of Virginians taking advantage of land-conservation tax credits.

“The housing sector, which started slowing last fiscal year, continues to struggle,” Mr. Kaine said. “As you know, most of our metropolitan areas are expecting significantly slower housing sales and fewer housing starts.”

The trend, he said, helped create a $234 million shortfall for the fiscal year that ended June 30, and this year has led to a projected 16.1 percent dip in recordation taxes.

“The revised fiscal year 2008 forecast … leaves us with an aggregate revenue shortfall of $641 million to address immediately,” Mr. Kaine said. “I am asking all state agencies … to explore ways to reduce their operating budgets by 5 percent. This will include a 5 percent reduction of the governor’s office operating budget.”

Mr. Kaine said the cuts also will apply to grants given to entities not owned or operated by the state — such as museums or parks — and he might try plugging the financial hole with money from the Revenue Stabilization Fund, commonly referred to as the rainy-day fund, which is fully funded at $1.3 billion.

Delegate Vincent F. Callahan Jr., Fairfax County Republican and outgoing chairman of the House Appropriations Committee, yesterday scoffed at the idea as “premature” and said it is dishonest for Mr. Kaine to blame the entire shortfall on a souring economy when almost half of the grim financial picture is tied to errors his office made in its projections.

“This is a result of inaccurate forecasting,” he said. “Most of it is not an economic thing.”

Lawmakers said when the General Assembly dipped into the rainy-day fund to make ends meet in 2002, it was to offset a severe economic downturn, not fuzzy accounting.

“My preference is you would use the rainy-day fund when you are essentially having to cut essential services,” such as education or law enforcement, said Sen. William C. Wampler Jr., Bristol Republican, who is expected to be named Senate Finance Committee chairman.

This is the second year in a row that accounting errors have left the state budget out of sorts.

Last year, the Joint Legislative Audit and Review Committee discovered that the top finance officer for former Gov. Mark Warner, a Democrat, failed to notify the Kaine administration about a $137 million accounting mistake involving school funding.

Yesterday’s shortfall announcement comes about three months before Mr. Kaine releases his final budget proposal, which will run from fiscal year 2008 to fiscal year 2010.

The spending blueprint is one of the last chances Mr. Kaine will have to polish his gubernatorial legacy before he leaves office.

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