- The Washington Times - Friday, September 26, 2008

The impact of Wall Street’s financial crisis on tax revenues struck home Thursday as the governors of Maryland and Virginia announced plans for sweeping budget cuts and the District disclosed a deficit of $131 million that reverses years of surpluses.

“Everything’s got to be analyzed this time,” Virginia Gov. Tim Kaine said, warning that some state agencies could lay off workers or endure cuts up to 20 percent. Even schools might not be spared in the next year, he cautioned.

The economic slowdown — though relatively mild to date — rising unemployment, the collapsing housing market and plunging stock prices have caused a more than $3.5 billion in projected revenue shortfall for the three local governments, all currently run by Democrats.

Maryland Gov. Martin O’Malley said Thursday that he has asked his budget director to work with state agencies to identify spending cuts of up to 5 percent, trimming hundreds of millions of dollars. He noted that 80 percent of the state budget is dedicated to public education, public safety and public health, and the cuts will “no doubt spark spirited debate in Annapolis.”

Maryland Comptroller Peter Franchot announced earlier this month that state revenues are expected to be more than $400 million below estimates for this fiscal year, which began in July, and more than $500 million short in the next fiscal year.

Mr. O’Malley said he would work with state lawmakers “to make these very painful cuts in a way that recognizes the burden middle-class families are facing and maintains the critical safety net of unemployment insurance, foreclosure prevention and energy assistance.” The governor plans to recommend his cuts to the Board of Public Works, which approves state contracts, when it meets Oct. 15.

“The more reductions we make now, the better off we will be in dealing with an extraordinarily difficult budget next year,” Mr. O’Malley said.

The District expects a $131 million revenue gap, about 2.4 percent of its $5.6 billion budget, and officials are drafting plans for unspecified budget cuts for the upcoming fiscal year, which starts Oct. 1.

The city is weathering the slowdown better than its neighbors, according to Chief Financial Officer Natwar Gandhi. Employment in the District rose 1 percent in June compared with just 0.1 percent nationally, he said Wednesday.

Mr. Gandhi said he expects tax revenues to increase by 3 percent in fiscal 2009 and 4.6 percent in 2010.

But the District’s pension funds have lost up to 7 percent of their value, even though they had no large exposure to devastated companies such as Lehman Brothers, AIG, Fannie Mae and Freddie Mac, he said.

In Virginia, Mr. Kaine addressed the budget crunch during his monthly radio call-in show on WRVA and the Virginia News Network.

“Some agencies may get cut 20 percent and some may get cut 2 percent and some we may decide we need to add a little bit to. I end up not making decisions across the board because not everything is equally important,” he said.

Mr. Kaine warned state lawmakers in August that no area of government would be spared cuts at a time when the expected shortfall was just $1 billion.

Mr. Kaine also said officials have to try to protect areas such as education, safety and health, but those areas still could see less funding. Mr. Kaine said any cuts to public education likely will be deferred until next year, since the current school year is already under way.

“We’ve done two rounds of budget cuts already. I was able to hold education pretty much harmless in the first two rounds, but everything’s got to be analyzed this time,” he said.

Virginia agencies are expected to deliver plans to trim their spending by 5, 10 or 15 percent by Friday.

Meanwhile, two prominent Virginia Republicans announced their own plans Thursday.

Attorney General Robert F. McDonnell, who is running for governor next year, said he is cutting his office budget by 9.1 percent, or roughly $3.8 million.

Mr. McDonnell also said he will return the official state vehicle provided for his use and that he and 10 of his executive attorneys are reducing their salaries by 2 percent.

Mr. McDonnell receives an annual salary of $150,000.

“These are difficult times,” Mr. McDonnell said. “This economic downturn and sustained uncertainty is forcing Virginia families and businesses to make hard decisions, and Virginia’s government must do likewise.”

Lt. Gov. Bill Bolling, who is running for re-election next year, said he would return funds amounting to 7.5 percent of his office’s fiscal 2009 allotment.

“While my office is very small and our actions represent a drop in the bucket toward reducing the commonwealth’s anticipated budget shortfall, I am happy to do my part to help address our budgetary challenges,” Mr. Bolling said.

Mr. Kaine is expected to announce revised revenue forecasts early next month before delineating where budget cuts will be made.

• This article is based in part on wire-service reports.

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