WASHINGTON - Virginia Gov. Timothy Kaine yesterday proposed issuing $350 million of tax-exempt bonds as well as tapping about $490 million from the state's rainy-day fund, implementing a 30-cent per-pack cigarette tax increase, and cutting more than 2,000 jobs to close a nearly $3 billion revenue gap in the state's two-year budget.
The revised shortfall is almost $400 million more than the $2.5 billion he predicted just two months ago for the state's $77 billion biennial budget.
"We have revised the official forecast in this budget downward by an additional $138.6 million in fiscal year 2009 and an additional $229.6 million in fiscal year 2010," Kaine said in a statement. "While Virginia's economy is still stronger than the nation's economy as a whole, we are definitely feeling the effects of the national downturn. The consensus opinion of the various boards and experts consulted has been that the economy in Virginia will continue to be sluggish, at least through the end of calendar year 2009."
The governor's proposal, which he made to state House Appropriations, House Finance, and Senate Finance committees yesterday, includes issuing about $250 million of bonds in fiscal 2009 and $100 million in fiscal 2010 to cover the costs of capital projects instead of using general funds. The $350 million of bonds is $100 million more than Kaine proposed in October.
The $490 million he proposed be taken from the state's rainy-day fund is $90 million more than was in his October plan.
But while the state is facing financial hardships like many others across the country, it appears its gilt-edged rating will remain intact.
The state's rainy-day fund is "obviously much less of a cushion against larger gaps going forward, specifically in fiscal 2010," said Moody's Investors Service analyst Nick Samuels. "If the gaps become larger than what is forecast, it means that the state will face substantially harder choices ... They're going to have to look at much more painful budget cuts or other types of revenue enhancements."
All three rating agencies affirmed Virginia's triple-A rating with a stable outlook in mid-November when the state sold $226 million of general obligation bonds. Virginia has about $1.5 billion of GO debt outstanding.
In addition to the bonds and reserve funds, Kaine proposed the elimination of 1,833 positions through fiscal 2010, which include about 531 layoffs of current employees in this fiscal year, and an additional 545 layoffs in fiscal 2010. He also proposed permanently eliminating 757 vacant positions. The numbers would be in addition to an expected cut of 950 to 1,150 jobs over the course the next two fiscal years at the Virginia Department of Transportation.
Further, Kaine said a 2% raise for state employees that was originally planned to go in effect last month and was postponed to July, will not take effect during the next two fiscal years.
The 30-cent per-pack tax on cigarettes will generate another $148 million for the state's health care fund, which supports Medicaid, according to Kaine's proposal.
In addition, the governor proposed 15% cuts to most state agency budgets, including state colleges and universities. Community colleges' budgets will be cut by 10% and K-12 education will lose $400 million, though no teachers would be lost, according to Kaine.
The General Assembly will take up Kaine's proposal on Jan. 14 when lawmakers return to Richmond for a 45-day legislative session.
