Even as Virginia added jobs for the first time in three months, Gov. Bob McDonnell on Tuesday warned that he’ll continue to slash state spending in the two-year budget he plans to unveil next month.
With the national economy still dragging and deeper federal budget cuts looming, Virginia lawmakers recently said the state’s next budget shortfall could top $1 billion. McDonnell offered no shortfall estimate of his own, but he emerged from an hours-long, closed-door meeting with the Governor’s Advisory Council on Revenue Estimates, a consortium of corporate CEOs and lawmakers, predicting more dark days ahead.
“There’s still some degree of pessimism based on the sheer uncertainty of what’s going on both in Washington and in the world,” McDonnell said after the meeting. McDonnell asked state agencies in September to prepare for cuts of 2, 4 and 6 percent. The Washington Examiner recently reported that a 6 percent across-the-board cut would mean $442 million in cuts and 223 layoffs and could include reductions in services for seniors and pregnant teens and less money for local jails and libraries.
Forecasters expect state revenue to grow by 3.7 percent through the current budget year and 3.3 percent through 2013, but that’s not enough to cover the rising cost of state services or the loss of aid from the federal government.
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The sour forecast contrasted with the announcement by the Virginia Employment Commission that seasonally adjusted unemployment dipped slightly in the state from 6.5 percent to 6.4 percent following three months of increased joblessness. Seasonally adjusted employment grew 14,000 in October, third-highest in the country, and continues to outperform the nation overall, which has an unemployment rate of about 9 percent.
McDonnell will deliver his first two-year budget on Dec. 19, and his announcement Tuesday indicated it’s likely to include reductions in services and personnel. The House of Delegates Appropriations Committee recently predicted a shortfall of $885 million to $1.5 billion in McDonnell’s budget, while Senate forecasters say it will be $600 million to $1 billion.
“My goal is to make sure we preserve core services and make sure we don’t inflict too much pain in any one area, unless it’s an area that we feel government shouldn’t be involved in,” McDonnell said.
The failure of the congressional supercommittee to produce a deficit reduction plan could substantially affect Virginia’s economy, which is heavily reliant on government contractors that could take a financial hit in 2013 when at least $1.2 trillion in automatic budget cuts kick in. Those automatic cuts would be divided between domestic spending and the defense budget. Defense cuts would hit Virginia especially hard, and McDonnell is already lobbying Congress to override the automatic cuts and focus on instead on reforming entitlement programs like Medicare and Medicaid.
“To me it’s a little heavy on the defense side,” he said.
