Martinsville Bulletin, Inc.
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| Tax collection rebound is slow |
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Wednesday, November 18, 2009
By BULLETIN AND AP REPORTS -
RICHMOND — Virginia needs to cut at least $250 million more from a ravaged budget already in place, and then it faces a projected shortfall of nearly $3 billion for the next two years, legislative budget writers learned Tuesday.
Tax collections won’t rebound quickly enough from the economic downturn to offset sharp increases in mandated state spending, analysts told the House Appropriations Committee. Deep cuts are likely, even to priorities once considered off-limits.
The grim forecast means more reductions soon to a current budget already pared by $5.6 billion in the past 18 months.
“I’m not surprised,” said Del. Ward Armstrong, D-Collinsville. “The economy is not recovering as quickly as we had expected.”
Armstrong, the House minority leader, did not know how lawmakers might trim the budget to make up for the shortfall.
“It’s not going to be easy,” he said. But “we’re going to have to tighten our belts even further.”
He added that Gov. Tim Kaine will present a budget proposal in about 30 days and “the General Assembly will take it from there.”
State Sen. Roscoe Reynolds, D-Ridgeway, was at a meeting in Patrick County and could not be reached for comment Tuesday night.
Persistent high unemployment continues to erode state government’s chief sources of general revenue — income and retail sales taxes. And when employment improves, it will be modest, warned Jeffrey M. Lackey, president of the Federal Reserve Bank of Richmond.
“This recession seems likely — like the last two recessions — to be one in which net job creation is particularly slow,” Lackey said.
In the recessions of the 1950s through the 1970s, laid-off workers were recalled to their old jobs when business rebounded, he said.
“This recession and the last two, it looks like far more layoffs are permanent separations of a worker from a firm,” Lackey said. “Net job growth depends on creating new jobs — new firms or firms that exist expanding — so you want to focus on innovation, investment and their ability to ramp up employment in growing or expanding sectors.”
Del. Johnny Joannou, D-Portsmouth, asked Lackey how the state could recoup billions of lost dollars for essential programs and services such as public safety, health care and education.
“That’s a tough question,” Lackey replied. “I’m sure I don’t have the answer.”
With general fund receipts lagging well behind revenue forecasts, another round of reductions is certain next month when Kaine submits his final budget before leaving office Jan. 16.
Incoming Republican Gov. Bob McDonnell’s pledge to veto tax increases leaves little besides spending cuts to close what Appropriations Committee staff director Robert Vaughn estimated to be a $2.6 billion to $2.7 billion gap over the two-year life of the new budget for 2010-12.
“You’re clearly going to have some tough decisions to make,” Vaughn told unsmiling committee members.
Sharp increases in Virginia’s mandated share Medicaid costs in 2011 and 2012 account for nearly three-fourths of the projected shortfall. The use of federal stimulus funds into 2011 covers part of Virginia’s share for the federal-state program that pays for health care for needy families, the disabled, aged and blind.
But when the stimulus cash is gone, Virginia has to find an additional $611 million in 2011 and nearly $1.3 billion in 2012, or reduce benefits for recipients in a state where Medicaid benefits are already among the nation’s leanest.
Virginia’s real estate industry continues a slow climb out of a three-year collapse, said Anne E. Oman, a fiscal analyst on the Appropriations staff. For the first time since World War II, new housing starts in 2008 fell below 1 million nationally, she told the panel. And Virginia ranks 11th nationally in the rate of home mortgage foreclosures, she said.
“I think you are going to see some stabilization. The question is, how low can you go,” Oman said, noting that the tax collected to record real estate deeds as well as contracts and lawsuits has declined for 43 months in a row.
Del. Clarence E. “Bud” Phillips, D-Dickenson, proposed starting statewide austerity with the General Assembly itself by ending its scheduled 60-day 2010 winter session 15 days early.
“I think that 45 days is plenty for us to do what we need to do,” said Phillips. “These budget numbers are scary, and they’re stark.” |
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