February 12, 2008

Governor spells out additional budget cuts

The state will need to cut an addtional $1.4 billion in spending to balance its budgets for the remainder of the current fiscal year and for the 2008-2010 biennium that begins July 1.

Gov. Tim Kaine issued a revised revenue forecast on Tuesday that reflects the fallout from an economic slowdown brought on by a stagnant housing market. He then announced a budget reduction plan designed to deal with the worsening shortfall.

The plan for the new biennium includes a 5.4 percent reduction in state funding to local governments, excluding SOQ and car tax funding. Under Kaine's proposal, localities would determine for themselves how they would take their 5.4 percent reduction in state funding. In addition, state funding for school capital costs is virtually eliminated. Further, some initiatives from the introduced budget (including a portion of employee salary increases) are slated for reduction (see below).

The General Assembly's budget writing committees will use the revised forecast numbers and proposed budget reduction plan as they develop their respective budgets, which are to be released on Sunday.

"We will scrutinize proposed reductions in local aid, which come at a time when local governments are struggling to balance their budgets with declining real estate values," said House Appropriations Committee Chairman Lacey Putney, responding to the Kaine budget reduction plan.

The revenue shortfall for the remainder of this fiscal year is projected to be $339 million. In FY09, the shortfall is slated at $520 million, and in FY10, a total of $532 million.

Kaine's plan to address the $339 million shortfall in the current fiscal year includes no additional reductions to localities. Localities already experienced a $19.3 million funding reduction in October. The current year plan calls for an additional $162 million withdrawal from the Revenue Stabilization Fund, targeted reductions in spending and cuts to state agencies, and the increased use of bonds to pay for existing capital projects.

Beginning in FY09, localities are slated for a 5.4 percent reduction in state funding, excluding SOQ and car tax funding. In addition, programs and new initiatives slated for reduction include the following:

• Virginia Preschool Initiative. Changes the eligibility for participation from 100 percent of free lunch and 100 percent of reduced price lunch (as in the introduced budget) to 100 percent of free lunch and 75 percent of reduced price lunch, for a savings of $4.6 million in FY09 and $5.5 million in FY10. Other reductions for the expansion of the preschool initiative program are included under the Department of Social Services.
  
• School construction grants program. Eliminates funding for the school construction grants program, at a state savings of $27.5 million a year. These grants required a local match.
  
• Lottery profits. Transfers to the state 50 percent of lottery profits currently distributed to localities, and uses those lottery profits to pay part of state basic aid. Currently, about 38 percent of lottery profits are transferred to localities, with a local match based on the composite index required; at least 50 percent of the lottery profits must be used for capital, non-recurring expenditures. The budget reduction plan thus takes that 50 percent dedicated for capital expenditures in order that the state can use those funds to help pay its cost of basic aid for education. (The actions to eliminate funding for the school construction grants program and 50 percent of the lottery profits puts an end to direct state funding of school construction.)
  
• Employee compensation. Makes 1 percent of the proposed 3.5 percent salary increase in FY10 for teachers contingent on revenue growth, and makes one percent of the 3 percent salary increase in FY10 for state employees and state-supported local employees contingent on revenue growth.
  
• VRS rates. Increases the amortization period for calculation of VRS retirement rates from 24 years to 30 years, at a savings of $27.3 million in FY09 and $27.9 million in FY10. Localities realize some savings as well, as the retirement contribution rate for teachers will be reduced.
  
• Foster care rates & training. Reduces the funding from the introduced budget to raise payments to foster care and adoptive families by $1.5 million in FY09 and $2.2 million in FY10; reduces the funding from the introduced budget to enhance training of foster care workers by $1.1 million each year of the biennium.
  

See details:

Governor's proposed budget reduction plan

VML will forward additional information about the proposed cuts and an analysis later this week.

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