McDonnell tells agencies to prep cuts

RICHMOND, Va. (AP/WAVY) - Gov. Bob McDonnell told state agency heads Thursday to plan contingencies for cutting their operating budgets by up to 6 percent next year, despite a slow rebound in the state's finances.

"I think we have got to continue to find ways to increase efficiencies, reduce spending in non priority areas, so we can make the investments in the things we really need to," said McDonnell.

The memo, e-mailed Thursday, tells the directors of state bureaucracies to submit contingencies for reductions of 2 percent, 4 percent and 6 percent for his consideration.

The administration sent the memo out as McDonnell huddles with teams of economic advisers in preparation of drafting his first comprehensive package of amendments for the fiscal year 2012 budget. He submits it to General Assembly money committees on Dec. 17.

"I have priorities next session for higher education, transportation and economic development," McDonnell said. "My job is about setting priorities, so some areas may need to be cut some more to free up more money in other areas."

The first-year Republican governor's directive notes increased spending mandates, particularly growing costs of Medicaid from increasing enrollment and use, as a warning to tighten state spending elsewhere.

The memo tells agency chiefs that the worst state fiscal slump in decades is not likely to improve soon, and the 2012 state fiscal year budget is likely to be as austere as the current bare-bones budget.

For two consecutive fiscal years, the state posted significant declines for the general fund, which pays for such core government services as health care, schools and public safety.

Reports for the first three months of the fiscal year that began July 1 showed marginal improvement, closing 1.7 percent behind the first quarter of the previous fiscal year but still within reach of the modest annual growth rate of 2.6 percent, the revenue presumption upon which state spending is now based.

"We are seeing some positive signs in the Commonwealth," McDonnell added. "We have grown at about 4% so far this year which is about on track with our forecast."

McDonnell's chief of staff, Martin Kent, wrote that the governor "must prioritize the state's budget to address the most critical needs, the increases in mandated services, and the programs that will revitalize the commonwealth's economy. This means that he must evaluate the entire budget to assess the value of the lowest priority spending against the above demands."

The administration's decree caught senior legislative budget writers by surprise.

House Appropriations Committee Chairman Lacey Putney said he had been with McDonnell during a recent meeting with the governor's board of economists, and McDonnell made no mention of it.

"But I do think it's prudent," said Putney, a conservative independent from Bedford who organizes with House Republicans.

"The revenue picture is not as bright as we thought it would be at this stage of the game. Consumer confidence has not picked up appreciably. The governor is being extremely cautious," Putney said.

Senate Finance Committee Chairman Charles J. Colgan, D-Prince William, was also caught unaware.

"I think he wants to end the year with a small surplus and stay in the black," Colgan said. "But I talked to him last Wednesday for an hour and he didn't mention anything like this."

The legislature's most powerful Democrat, Senate Majority Leader Richard L. Saslaw, saw a more sinister intent.

"He wants to eliminate the general fund," said Saslaw, who represents Fairfax County.

A leading critic of the administration, Saslaw has led his party's charge against McDonnell's plan to privatize Virginia's state-owned liquor business.

The Senate's ruling Democrats, concerned that McDonnell's policy priority would further harm an already reduced general fund, are resolute behind Saslaw in opposing it. Last month, McDonnell's own advisers conceded that the private-sector booze sales would yield $47 million a year less than the present state-run system.

Saslaw said a diminished general fund would impose hardships on middle-income households, particularly on state-supported colleges and universities, putting their cost out of reach for all but the state's most affluent families.

"The way it's going, the only people who can afford the University of Virginia will be northern Virginians. That's fine for us northern Virginians, but if I lived in the rest of the state, I'd be pretty damned unhappy about it," Saslaw said.