- The Washington Times - Sunday, August 24, 2003

RICHMOND — The good news legislative budget writers will hear in Gov. Mark Warner’s report on the state budget today is that it’s nowhere near as bad as last year’s disclosure that the state had seen an unprecedented drop in revenue.

The bad news is that there are still tough times ahead.

Mr. Warner, a Democrat, will tell a joint meeting of the House Appropriations Committee and the Senate Finance Committee that barring a catastrophe the current budget will present no unpleasant surprises but that unavoidable spending increases will cause problems later.

“Even assuming a continued economic recovery next year, a number of expenditure drivers that we have little or no control over are rising at a more rapid rate,” Mr. Warner said in an interview.

Work toward a new budget for the 2005-06 biennial budget cycle gets started in December, when Mr. Warner submits his first original budget proposal. Lawmakers begin work on Mr. Warner’s budget when the 2004 General Assembly convenes Jan. 14.

The mandatory spending increases include an expected 8 percent jump in the costs of Medicaid — a federal-state program that subsidizes health care for the needy, aged, blind and disabled, and for low-income families with children.

Virginia is at least $525 million short of meeting its base share for public schools, according to figures from the legislature’s investigative arm, the Joint Legislative Audit and Review Commission. That doesn’t factor in steady enrollment growth in public kindergarten through high school.

On top of that, Mr. Warner plans to detail public education reforms of his own after Labor Day.

So far, he has avoided putting a price tag on his “Education for a Lifetime” initiative.

Other factors will also help force expenditures upward, Finance Secretary John M. Bennett said.

Three years of investment losses by the Virginia Retirement System will force a boost in the contributions the state will have to make toward the pensions of its employees.

Premiums for group life and health insurance will go up. Pay raises for state employees that take effect in December, five months into fiscal 2004, will have to be spread over 12 months during fiscal 2005 and 2006.

The state will begin paying debt service on bonds issued this year, Mr. Bennett said.

And the state’s cost of reimbursing localities for revenue lost to phasing out the car tax will continue to escalate, he added.

How big a revenue shortfall budget writers will face as they design the state’s fiscal blueprint for the 24 months from July 1, 2004, through June 30, 2006, is mostly an educated guess, even among the legislature’s top budget writers.

Senate Finance Committee Chairman John H. Chichester, Stafford Republican, said the consensus is that the gap will be about $1.1 billion.

That seems like petty cash compared with the $6 billion shortage Mr. Warner and legislators have reconciled during the past two years with a series of cuts, cost savings, consolidations, fund transfers, drawing down the state’s “rainy day” reserves and increasing some fees.

The state ended the last fiscal year June 30 with a $55 billion surplus, nearly all of which is committed to existing needs, particularly homeland security.

Exactly how tough drafting the budget will be depends on what Congress does on Medicaid reform, providing a prescription-drug benefit for the elderly and deciding how much federal money will be spent on highways and public transit.

“Because of the uncertainty of the expenditures on federally mandated programs and the actions of Congress, the question is how do you continue this slimmed-down enterprise that we’ve got right now,” the governor said.

Although economists point to signs of an economic recovery, employment figures remain weak, and Mr. Warner said he is tentative about the economy. The fragile, fledgling recovery could be knocked off stride by something as historic as a terrorist attack or as regional as the recent loss of about 1,000 jobs with the closing of Martinsville’s Pillowtex plant, he said.

“We can’t afford any more hiccups,” Mr. Warner said.

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