- The Washington Times - Monday, July 21, 2003

RICHMOND — State government finished a budget year of record expense slashing with $55 million to spare, but uncontrollable costs for required programs means the state will soon cope with shortfalls again, Gov. Mark Warner said yesterday.

“This is as much a reflection, after 18 months of trying to get our fiscal house in order, that we’ve made great progress. We look over the vast majority of other states who ended their fiscal year in crisis,” Mr. Warner said.

“Today is one day of good news, but we will be back, starting tomorrow, [working] on how we look at revenue projections and expenditure projections for [fiscal years] ‘05 and ‘06,” Mr. Warner said.

Much of the surplus is already spoken for, Mr. Warner said. About $21 million will be transferred to transportation needs, particularly the Transportation Trust Fund under a requirement in the state budget.

About $11 million, representing profits from the state lottery, must be allocated to public school use under state law.

A stagnant economy left the administration uncertain, right up to the June 30 end of the fiscal year, whether revenue collections would finish ahead of the amount the state had targeted to meet its revised spending needs. Finance Secretary John M. Bennett remained in suspense as late as mid-June about whether the final figures would come in just above or possibly under the official estimate.

“None of the cuts we enacted were easy. As we look forward, though, we see that as difficult as it was this year, we used up most of our options and we will face more serious cutting,” Mr. Bennett said in a telephone interview Sunday.

Mr. Warner said that barring an unexpected economic rebound, the state will find revenues falling far short of its spending needs when his administration goes to work in September, building a new two-year budget to present to the General Assembly in December.

If revenues are growing at an annual rate of only 4.6 percent while costs for such mandatory programs as Medicaid are increasing by 7 percent a year, that creates a shortfall, Mr. Warner said.

Toss in similar increases for such necessities as prison and correctional programs, minimum state funding requirements for public schools and reimbursements to localities to cover the phaseout of the local car tax, and the problem worsens, he said.

For the budget year just ended, collections fell short of their targets for individual income taxes and sales taxes, according to administration estimates. Both are major sources of cash for the state general fund.

Revenue from corporate income taxes, insurance premium taxes and the lottery significantly exceeded their estimates and made up the difference.

Last August, less than two months into the budget year, Mr. Warner announced that the state had suffered the sharpest drop in revenue collections in the more than 40 years the state had tracked its finances in such detail.

He ordered state agency heads to submit plans to pare their budgets by at least 7 percent and as much as 15 percent. In October, he imposed $828 million in cuts, slashing 1,837 jobs from the state payroll, the deepest one-time hit ever to a state work force of about 100,000. That included shuttering a dozen Department of Motor Vehicles branch offices and reducing operating days for all DMV offices, an action the legislature reversed this year.

State-supported colleges and universities were allowed to sharply increase tuition to offset cuts to state subsidies.

The state’s “rainy day” reserve fund, which had nearly $900 million two years ago, is down to $130 million as a result of lean times since then.

Now, the state is certain to face new shortfalls because of rising mandatory expenses for such programs as Medicaid, the Comprehensive Services Act for families of troubled youth, increasing school enrollment and mental health services.

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