- The Washington Times - Wednesday, September 3, 2008

RICHMOND | The Kaine administration ordered heads of state agencies Tuesday to prepare contingencies for slashing their budgets by as much as 15 percent.

The order from the office of Gov. Tim Kaine, a Democrat, went to directors of state departments as the government copes with slowing economic growth and declining tax collections.

In the memo, officials were told to prepare separate blueprints for cutting their operating costs by 5 percent, 10 percent and 15 percent.

The mandated reductions represent the third round of state spending cuts imposed since October.

In July, the administration warned legislative leaders that major state revenue sources, particularly income and sales taxes, were not meeting projections on which the budget is based.

Tuesday’s memo from Mr. Kaine’s chief of staff, Wayne Turnage, was the first indication of how deep the cuts might be once the full extent of the shortfall is known by the first week of October.

On July 16, Mr. Kaine ordered most hiring frozen and an end to discretionary spending after alarming preliminary revenue figures for the fiscal year that had ended barely two weeks earlier.

Out of a total general fund budget of $17.2 billion for the 12 months that ended June 30, the state finished with just $5.4 million to spare - a cushion of just a fraction of 1 percent.

Continued discouraging results, Mr. Turnage wrote, “suggest even more strongly that we will not reach the revenue collections needed to support the current level of appropriation in fiscal year 2009 and fiscal year 2010.”

Over the past four months, sales tax collections have grown by only 0.8 percent, far short of the 4.9 percent growth forecast on which the two-month-old current budget is based.

State income taxes withheld from paychecks have grown over that time by 1.6 percent, just one-fourth of the forecast rate of 6.4 percent growth. Income taxes account for nearly three-fifths of the state’s total general fund, which supports such core services as public education, public safety and health services.

The last time the state ordered agency chiefs to pare their operating budgets on such a sliding scale was in the fall of 2002 during a sharp downturn in the nation’s economy. To cope with shortfalls that totaled nearly $6 billion over three fiscal years, then-Gov. Mark Warner ordered contingencies for cuts of 7 percent, 11 percent or 15 percent. Governors have to obtain legislative approval to cut more than 15 percent. Mr. Warner and his staff chose among the options and ordered the final cuts.

In 12 pages of instructions and guidelines on how and what to cut, the Department of Planning and Budget recommended focusing on “lower-priority activities” that don’t degrade essential services, to look for ongoing savings over one-time cuts, to not propose ideas that would lower expenses of one agency while increasing them in another and to be wary of layoffs because of severance and other costs required under the 1995 Workforce Transition Act.

It also cautioned agency chiefs, “Don’t close the Washington Monument” - a warning against trying to avoid cuts by proposing one so impractical or unpopular that public outrage would prevent it. A federal agency once tried to escape cuts by proposing to shutter the District’s landmark obelisk.

The deadline for agencies to submit the proposed cuts to Mr. Kaine’s budget planners is Sept. 26. Mr. Kaine will finalize them in early October after meeting with economists and top business executives.

Mr. Kaine will determine by mid-October how sharply to reduce the forecast of general fund revenues through the current fiscal year, which ends June 30, 2009, and the fiscal year after that.

Accurate predictions are critical because the state constitution prohibits Virginia from ending a fiscal year in a deficit.

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