- The Washington Times - Wednesday, July 24, 2002

RICHMOND State government revenues for the budget year that ended last month were down 3.8 percent, the worst annual fiscal performance since the state began keeping records, Gov. Mark R. Warner told key legislators yesterday.

The downturn, prompted by a plunging stock market, corporate collapses and layoffs, also portends even worse shortfalls for the current budget cycle, but officials don't know yet how severe the problem will become, Mr. Warner and legislators said.

The governor met privately for about an hour with the heads of the House and Senate budget-writing committees to deliver the grim news.

"That is the worst revenue growth in the 40 years that we have been recording those statistics in the Commonwealth of Virginia the worst performance ever. I believe it was the worst income growth for individual Virginians for 30 years," Mr. Warner, a Democrat, said after the meeting.

Before briefing the lawmakers, Mr. Warner sent a memo to the heads of state agencies telling them to end all discretionary spending, such as replacing old office equipment and travel to conferences. He also imposed a hiring freeze.

State general fund income for the year ending June 30 finished $236.8 million below the state's revenue forecasts for the state general fund and more than double the forecast for revenue to be down 1.7 percent from the previous year.

Receipts from state individual income-tax withholding were down by $52 million, and income-tax refunds were $107 million ahead of estimates.

Citing lagging revenue collections last year and falling stock markets, Mr. Warner told lawmakers he would lower the official state revenue forecast next month, two months ahead of schedule. That gives legislators a head start in retooling the budget they adopted in March.

Present revenue forecasts call for a growth rate of 3.5 percent in the current fiscal year followed by a rate of 6.4 percent for the year that begins July 1, 2003, the final year of the biennial budget cycle.

"We just don't know the severity of the problem," said Sen. Kenneth W. Stolle, Virginia Beach Republican and a member of the Senate Finance Committee. "All of the easy solutions were used up last year."

Delegate Vincent F. Callahan Jr., who chairs the House Appropriations Committee, said it was unlikely that a special legislative session would be necessary to address the fiscal crisis, but he said it certainly would consume the General Assembly when it reconvenes in January.

"The plus side of this is that by reforecasting the revenues downward in August this year instead of in October, it gives us more time to work and determine the extent of the severity of this problem," said Mr. Callahan, Fairfax Republican.

"This is a tough situation and it's going to take some tough medicine to cure it," said House Democratic Leader Franklin P. Hall of Richmond.

"There will be no silver bullet to this one, and we have to make some very serious choices between what is necessary for government and what is not necessary."

Besides the stock market slide that has eaten into individual investments, the state also has suffered from layoffs, especially in the high-technology and communications sectors in Northern Virginia that fueled the state's unprecedented revenue growth in the 1990s.

"Just as we disproportionately gained from those high-paying jobs in Northern Virginia, we are now disproportionately affected by the loss of those jobs," Mr. Warner said.

The state also suffers from spending mandates that exceed their projections.

State reimbursements to local governments for the phase-out of the car tax will account for about $1 billion a year, higher than forecasts, while enrollment at public colleges and universities is exceeding estimates, Mr. Warner said.

The slide will not affect a lump-sum bonus due to state employees next month in lieu of a pay raise, Mr. Warner said.

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