Kaine’s Plan to Address $4 Billion State Shortfall to Slam Localities

School, Tax Collections to Feel Big Pinch

The grim parameters of Virginia Gov. Tim Kaine’s annual budget message in Richmond last week confirm that localities like the City of Falls Church, Arlington and Fairfax County will be much harder hit with funding shortfalls, as bad as they were already projected to be, than previously thought.

“The difficulties of the worst economy in a generation,” Kaine said, adding, “These are the toughest national economic conditions since the 1930s,” that have created “an unprecedented challenge.” State support for local education and core tax collection services will be among the many severe cutbacks proposed to address a $4 billion state revenue shortfall, Kaine announced.

That level of cuts comes on top of $7 billion previously trimmed from the state’s $37.5 billion budget, and leaves the state miserably short on such things as Medicaid reimbursements and waivers for persons with intellectual and developmental disabilities, for day support, for the elderly, disabled and Alzheimer’s victims. Federal stimulus dollars that helped mitigate the shortfall last year to the tune of $4 billion will not be available in the coming year.

Fairfax County’s Board Chair Sharon Bulova, in her year-end report issued prior to Kaine’s message, said, “We continue to be very much affected by a severe breakdown in our economy.” She noted that the primary source of the county’s revenue, the value of residential and commercial real estate properties, declined by almost 10 percent in Fiscal Year 2010 and are expected to sink another 12 percent in 2011.

With its one million residents, Fairfax County’s $3.3 billion budget is expected to face another shortfall of $316 million, beyond the $650 million shortfall it had to absorb last year. This is based on a projected loss of revenue of another $232.5 million, and assumes no funding for salary adjustments or inflation.

For “The Little City,” Falls Church, the ratio of shortfalls to its $67 million annual budget is similar, but it is not yet known how much worse Gov. Kaine’s news will make things.

For example, under Kaine’s proposal, school systems will no longer be reimbursed by the state for the health insurance they provide employees in the same way. Instead of being provided a lump sum that can be used to stabilize the systems’ programs, it will be done on a carefully-scrutinized per capita basis.

Kaine’s plan will introduce severe consequences in all localities, as the state will cease funding its treasurer and commissioner of the revenue offices, except for the salaries of the elected principals in each. The burden for shifting these vital tax collection services operations will revert to the localities.

In Falls Church, Treasurer Cathy Kaye and Revenue Commissioner Tom Clinton told the News-Press that conference calls with their counterparts across the commonwealth were slated for Tuesday to devise a strategy for coping with this new reality.

Kaine also proposes cutting $950 million in reimbursements to localities to compensate for reduced personal property (car) tax charges, putting the burden on localities to levy a proposed one percent income tax hike on their residents.

In his statement, Kaine said, “With this revenue forecast, the budgetary challenge is daunting. If we just take the expense line items in the FY 2010 budget, already adjusted downward after $7 billion in budget cuts, and project them forward with no increase, and then add only items that are absolutely mandated in the new biennium – debt service payments, economic development contracts, increases in the state’s Medicaid rolls – the budget gap in the upcoming biennium exceeds $4 billion. A significant part of that gap is created by the end of federal stimulus dollars in 2011. Closing that gap will require painful choices – choices that no one will like but that have to be made.”

“It will be our challenge to try to minimize the impact of some of these proposed cuts, especially regarding vital public services and education,” State Del. Jim Scott told the News-Press Tuesday.   Scott will head to Richmond for the launch of the new legislative session in mid-January.

“There are going to be real difficulties in all localities,” he said, adding that in the area of higher education, George Mason University and the Northern Virginia Community College are among the fastest growing in the state, which will cause the proposed cuts to impact them disproportionately.