GOVERNOR KAINE ANNOUNCES $300 MILLION IN SPENDING REDUCTIONS AND SAVINGS
- 5% cuts address about half of $641 million revenue shortfall
- Efficiency, savings, Stabilization Fund to meet remaining shortfall

FROM THE OFFICE OF THE GOVERNOR

October 01, 2007

Contact:                 Kevin Hall
Phone:                   (804) 225-4260
Cell Phone:           (804) 393-9406
Internet:                www.governor.virginia.gov


RICHMOND – Governor Timothy M. Kaine today announced state agency savings and spending reductions of $300 million and additional steps he will take to address a $641 million revenue shortfall in the current budget period, which ends on June 30, 2008.   The Governor’s decisions, based on agency proposals to trim government spending from 5 to 7 percent, protect core services in public education, public safety and public health.

            “Since last May, when we detected a significant slow down in revenues because of the weakening housing market, our administration has closely monitored and reduced discretionary spending across state government,” Governor Kaine said. “In August, it became clear that more belt-tightening would be required to balance the budget. 

“We have combed through the budget, looked at spending, found ways to do things more efficiently and made some tough choices about where to cut back on spending.  This has not been easy, but it is an exercise that is familiar to any individual or business that has ever faced tight financial times,” the Governor said.

The revenue shortfall is in the General Fund, which represents 48 percent of Virginia’s budget. About two-thirds of the General Fund budget was exempt from cuts because (1) it funds programs required by the state Constitution or by the state Code, or (2) it is dedicated to debt obligations or (3) because the expenditures support crucial programs, such as funding for public schools, prison security and Medicaid.

Since August 20, Cabinet secretaries have worked with their respective agencies to present spending reductions in the remaining 16 percent of the budget that supports non-exempt, General Fund programs. These programs include funding for core agency operations, direct services, aid to localities, higher education and funding for non-state agencies. For the most part, these cuts will go into effect immediately.

“Throughout this difficult process, we made a determined effort to keep these budget cuts from impacting our most vulnerable citizens,” Governor Kaine said. “In fact, we  rejected proposals to cut programs such as Meals on Wheels, children’s mental health, safe indoor plumbing projects, free health clinics and campus security,”  Governor Kaine said. 

Governor Kaine has approved reductions of about $54 million in discretionary spending. These cuts include actions to reduce travel, training and the purchase of supplies and equipment across state government.  Nearly $39 million of the cuts come from reducing personnel costs: about 74 state workers will be laid off, and about 312 other positions will be eliminated through attrition. State government employs about 100,000 people.

In addition, The Governor directed agency leaders to design ways to provide the same level of service to citizens in a more cost-effective way. These savings from improved business practices and efficiencies total more than $92 million:

·        For example, the Department of Medical Assistance Services was able to save nearly $60 million by negotiating lower administrative fees for insurers participating in Virginia’s Medicaid managed care program.

·        State Police will save over $1.3 million per year by using police vehicles longer before replacing them.

·        The Department of Forestry will implement steps to reduce energy consumption, saving $133,000 per year.

·        The Department of Health found savings of nearly $100,000 by converting paper publications to an electronic format. 

In addition to the spending reductions and improved efficiencies, the plan also includes additional sources of revenue:

·        For example, due to expansion of store hours in some locations, the Department of Alcoholic Beverage Control expects to realize additional revenue of $1.5 million. 

·        We also anticipate interest revenues of over $20 million to be generated by disbursing General Funds dedicated to transportation as the funds are needed, instead of making a lump sum transfer at one time.

·        While these strategies include some modest fee increases, like a 5 percent increase in state park fees, fee increases make up just over $500,000 of the shortfall reduction strategy.

Governor Kaine will propose addressing the remaining portion of the $641 million shortfall through the carry-over of unspent balances, and through use of the Revenue Stabilization Fund, which currently holds about $1.2 billion.

“The Revenue Stabilization Fund was created for just this type of budget situation—a sudden, unexpected change in economic conditions after a budget has been adopted by the General Assembly,” Governor Kaine said. “The Fund has specific triggers that have to be met before it can be used, and those triggers have been met this year.”

 The Governor noted that, even with the use of the maximum allowable $303 million from the Revenue Stabilization Fund, he still was required to make difficult choices about cuts to important services. “It will not be possible, unless we use the Revenue Stabilization Fund, to protect law enforcement, health, and education from deep cuts.  And we can do so with a withdrawal of just a portion of the $700 million we have placed into the Fund since I began as Governor 21 months ago,” Governor Kaine said.

            Virginia, which has been ranked by independent, nonpartisan analysts as the country’s best managed state, and the most business friendly, is one of only seven states to still maintain the best-possible Triple-A rating from the three bond rating agencies.

            Many of these spending reductions will be incorporated into agency base budgets as Governor Kaine and his finance team continues to work on the 2008-10 biennial budget, which will be submitted to the General Assembly in December. In addition, the Governor has instructed budget officials to look for opportunities to expand money-saving practices and procedures adopted by several agencies to address the current budget shortfall to more areas of state government.

“We look forward to working with the General Assembly in a bipartisan way to produce a balanced 2008 budget and approve a budget for the new biennium that maintains Virginia’s reputation for fiscal responsibility and our commitment to serving all of our citizens with a high-performance focus,” Governor Kaine said.