Virginia Lawyers Weekly

ROANOKE—In dismaying detail, legislative budget writers got their fullest look last week at a darkening fiscal crisis that will soon force them to cut government priorities once held harmless.

“You are at the juncture where all the low-hanging fruit is gone,” members of the House Appropriations Committee learned from the chief of the committee staff, Robert Vaughn.

An economy expected to recede for another year before improving may force Gov. Timothy M. Kaine to further reduce the state’s official revenue estimate next month for the second time since October.

Just five weeks ago, Kaine revised the state operating fund tax collections forecast from 2 percent annual growth to a 4 percent decline. He ordered 567 state employee layoffs, cut college funding by at least 5 percent, closed some older prisons and postponed state employee raises to deal with a $2.5 billion government budget shortfall.

If Kaine is convinced after huddling Dec. 2 with the board that advises him on revenue estimates that the fast-cooling economy will cut into revenues more deeply than feared just two months ago, an even lower revision is due next month.
Administration officials would not discuss the likelihood of another downward revision, or how deep it might be pending Kaine’s meeting with his advisers.

“We’ll let the data drive the decision,” said press secretary Gordon Hickey.

Kaine warned on Oct. 9 that starting in January, he and legislators would have to cut even core state priorities, from Medicaid and basic aid to public education, areas that have avoided cuts in the past.

Those cuts will be even deeper if Kaine has to lower the official revenue estimate on which budgeted spending is based.
Virginia Education Association lobbyist Robley Jones is girding for the legislative battle of his career, acknowledging the difficulty of protecting state support for school funding but not conceding the cuts as inevitable.

“The children, especially in the poorest counties, they did nothing to cause this recession,” Jones said after sitting through the briefing. “From a public policy position, is compromising their education the best way to head out of this recession?”

Somber after a day of mostly discouraging reports, delegates on the powerful committee were resigned to the likelihood that the shortfall will be worse than Kaine’s early October projection.

“It should occur, based on what’s happened with the markets back in September,” said Del. S. Chris Jones, R-Suffolk.

“The stock market being off 35 percent is real and people are not spending money right now, and our economy is driven right now two-thirds by the consumer,” said Jones, a pharmacist who sees business down in the drug store he owns in his hometown.

Patients sometimes aren’t filling all the prescriptions doctors give them because of tight family budgets, Chris Jones said. “They’re really confused right now. They’re hurt, and they don’t know what to do.”

In one Powerpoint slide after another, the depth of the recession and its consequences became clear. It is reflected in every major segment of the economy: employment, real income, production and sales.

The credit crisis has brought an end to discretionary shopping and consumers are avoiding frills, explaining why upscale retailers are suffering and discount chains such as Wal-Mart that cater to basic needs remain profitable, said legislative fiscal analyst Ann Oman.

“Americans don’t stop spending when they run out of money. They stop spending when they run out of credit. That’s what appears to be happening,” she said.

Across the economy, real signs of economic woe are hard to miss, according to the reports to the committee.

In the hard-hit real estate sector, Virginia in October saw a tenfold increase in the number of home foreclosures since 2004. People who held onto their homes have seen their equity wither the past two years.

One telling measure from the Washington market is that the percentage of people who forfeited deposits they had put down on contracts to buy houses increased from 4 percent in 2005 to spike at 66 percent in August, largely a measure of buyers who could not secure financing, according to a George Mason University analysis.

Legislators were told to expect a grim 2009, look for a recovery late that year or early 2010, then anticipate a more robust economic expansion in 2011.

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