Crumbling tax revenues have led Virginia into a new $800 million budget hole, but an even larger infusion of federal stimulus cash will prevent deeper cuts in the state budget, Gov. Tim Kaine said Monday.
Virginia can expect to see about $800 million in Medicaid funding and an additional $216 million in discretionary money under the stimulus plan that passed Congress on Friday, Kaine wrote in a letter to the heads of the legislature’s budget committees.
The governor, at a Monday news conference to explain the letter, also said he anticipated the federal package could net the state about $700 million in highway funding, some education money for local and state governments and “significant tax relief” for working families and small businesses.
“I am confident that these programs … will stimulate Virginia’s economy so that by December 2009, our revenue picture will be healthier,” Kaine wrote.
The announcement is mixed news for the state. It reflects a dramatically sharper economic downturn than Kaine predicted in his December budget cut proposal, in which the governor forecast a $2.9 billion shortfall through fiscal 2010.
The shrinking tax coffers are caused by especially stark holiday sales and job losses at major Virginia employers such as Volvo and Circuit City, which is closing. Kaine late last week said that tax collections through January were the worst on record for the first seven months of a fiscal year.
At the same time, the incoming federal money means the shrinking tax base won’t prompt further gutting of core services such as Medicaid and K-12 education, both of which were facing about $400 million in reductions under Kaine’s December budget proposal.
The infusion would allow the governor to reverse some of those Medicaid cuts. Kaine said he would be able to undo his funding delay for community-based care for mentally retarded residents and remove a cap on enrollment growth for a program serving the elderly and disabled.
Any transportation money from the stimulus package wouldn’t help the shortfall but would allow highway planners to scale back some of the recent cuts they have made to Virginia’s six-year plan. The Commonwealth Transportation Board on Friday cut about $2 billion from more than 800 projects.
President Obama is expected to sign the $800 billion economic stimulus package into law today.
Kaine, in his letter, cautioned “that these resources have a limited life and cannot be counted upon long term.”
Budget committees in both the Virginia House and Senate released their budget proposals last week. The House opted to approve its spending plan, while the Senate voted to wait for the new tax data and stimulus figures.
Del. Phil Hamilton, R-Newport News, a House budget conferee, said it is not clear to what extent the windfall would allow lawmakers to restore the cuts made in Kaine’s December budget. He said the money won’t be used to expand existing programs.
