WASHINGTON - Virginia Gov. Timothy Kaine will meet with state legislative finance committees today to begin to address what could be a nearly $1 billion shortfall in the state's biennial budget as revenue estimates are expected to be revised downward for fiscal 2009 and 2010.
The shortfall could slow down a proposed $1.4 billion bond package, state officials have said.
Kaine, along with newly appointed Secretary of Finance Ric Brown,will lay out their plan for finding ways to address the shortfall during a joint meeting of the state's House Appropriations Committee, House Finance Committee, and Senate Finance Committee. The governor will first speak about the state of Virginia's finances, and then Brown will give a thorough explanation of the declining revenues.
"From that point we'll sort of lay the ground work for events in the future as we go up to December," Brown said in an interview late last week. The governor must have a revised budget ready for legislators by Dec. 17.
While Brown said that he could not give a "hard number" for the shortfall because revenue projections for fiscal 2009 and 2010 have yet to be revised formally, sources have indicated that state's revenue collection estimates could be nearly $1 billion short from those forecast the state's two-year, $77 billion budget, which was approved in March for the two-year period beginning July 1.
Because the state's two general fund revenue sources most closely tied to the economy - payroll withholding and retail sales taxes - experienced a significant slowdown in growth during the second half of this fiscal year, state finance officials expect the same for the coming fiscal years.
"If the trends continue what we're seeing now, those could obviously cause a downward adjustment in revenue and that would cause cuts in the budget," Brown said. "That's what the governor will talk about - the prospects of all of that. That's our heavy lifting for the next few months."
While the state's surplus for fiscal 2008 was higher than projected at $5.4 million, the budget's projections that revenue will grow by 2.2% during fiscal 2009 and by 6.8% in fiscal 2010 will have to be revised downward in light of the economic slowdown plaguing the nation.
Brown said that even though the state was in relatively good shape at the end of fiscal 2008 on June 30, "The big concern in Virginia, when you look at the last quarter of the year ... revenues slowed and those trends call into question the budgetary assumptions that were put together for 2009."
Declining employment levels, slower income growth, lower consumer confidence, and the continued downward trends in the housing market have led to shortfalls in withholding, sales, and recordation taxes in the second half of fiscal 2008, according to a report released last month by the secretary of finance.
Sen. Edd Houck, a senior Democrat who represents the area around Fredricksburg, on the state's Senate Finance Committee, said he anticipates the next few months to be a long process, but that the revenue revision was anticipated.
"[Today] is no surprise," Houck said late last week. "We've been seeing all along that revenue collections were slowing."
Since former state Finance Secretary Jody Wagner, who resigned earlier this month, told Kaine in late June that revenues would drop significantly, the governor has asked government agencies to limit spending and seek cabinet-level approval for all new hires.
Kaine could institute a hiring freeze, begin layoffs, or cut spending. The state also could tap its nearly $1 billion rainy-day fund.
Wagner officially announced on Friday her candidacy for Virginia lieut. governor.
Wagner said last month that the lower revenue projections are unlikely to undermine a $1.4 billion bond package that the General Assembly approved in late April for construction projects for colleges, parks, and mental health facilities, although the state could "slow down" the issuance of the bonds.
About $1.02 billion of the bonds are to be issued by the Virginia College Building Authority for higher education projects, and the remaining $437.7 million will be issued by the Virginia Public Building Authority for parks and mental health facilities. The two agencies will use the bond proceeds to finance 75 projects.
The current economic troubles also come as Virginia faces a nearly $3 billion shortfall in funding for transportation projects after the General Assembly ended a special session last month without passing legislation that would have raised money through tax increases to cover the gap.
Virginia has been a triple-A rated state since 1938 and has historically been viewed as fiscally conservative and economically strong. But the state was not immune to the last economic downturn after the Sept. 11, 2001, terrorist attacks.
Moody's Investors Service placed the commonwealth on negative watch in 2004 because of projected revenue shortfalls, but ultimately allowed it to keep its gilt-edged rating because the state's resurgent economy, a freeze on some popular tax cuts, and a readjustment of its tax code reestablished its position of financial stability.