Budget standoff forces hiring, spending, building freezes

By Dan Heuchert

The effects of the ongoing budget impasse in Richmond are buffeting Grounds, and political observers say the situation may not get any better soon.

The state Senate and House of Delegates, locking horns over Gov. Jim Gilmore's proposed phase-out of the car tax, were unable to agree on a compromise set of amendments to the current and coming fiscal year budgets before their Feb. 24 adjournment. As a result, the two-year, $50 billion budget passed in the 2000 General Assembly remains in force.

Revenue growth anticipated in that budget has not met projections, and state law requires that the budget be balanced. Minutes after the legislature adjourned, Gilmore issued an executive order mandating $421 million in spending cuts over the remainder of the two-year budget cycle, including $189 million during the last four months of the current fiscal year.

To achieve those cuts, Gilmore ordered an immediate statewide freeze on hiring and discretionary spending, and directed state agencies not to enter into new contracts for capital projects. Hiring offers made before the freeze will continue to be honored, University officials said, and positions not supported by state funds are not affected by the freeze.

State agencies had until noon March 2 to submit their spending reduction plans to the state Department of Planning and Budget. Less than 72 hours earlier, the University was informed that it would have to reduce its current operating budget by up to $2.4 million and next year's budget by $6.7 million. The Medical Center is exempt from the cuts, University officials said.

The cuts do not reflect potential savings from the capital outlay freeze and "likely represent a worst-case scenario," executive vice president and chief operating officer Leonard W. Sandridge explained in a Feb. 28 memo.

Immediately affected at the University were two high-profile construction projects ‹ the Special Collections Library and the new studio art building, both of which are being financed with a combination of state and private funds. Also put on hold were a major electrical upgrade project, a new sprinkler system for the Chemistry Building, and replacement of structural cables at the Law School.

Looming down the road is the prospect of a salary freeze. Classified and faculty pay increases in the 2001-02 fiscal year were part of the disputed budget amendment package.

"I want to avoid any furloughs or layoffs to the greatest extent possible," Gilmore wrote in a Feb. 27 e-mail message to state employees, "Š Layoffs will only be considered as a last resort."

The political background to all of this is complex, but political analysts say it comes down to one thing: the car tax.

Gilmore made the phaseout of the unpopular tax the centerpiece of his 1997 election campaign. The 1998 General Assembly passed a plan to phase it out over the next four years; the rollback hit 49.5 percent in the current fiscal year and was scheduled to increase to 70 percent in 2001-02 and finally 100 percent in 2002-03.

Though revenues failed to meet projections, Gilmore appears committed to seeing the tax phased out as he leaves office in January 2002. His proposed budget amendments included the 70 percent figure, but in order to achieve that, he proposed a $249 million bond package to raise revenue for several major projects that had been slated to receive general funds.

The Senate Finance Committee, although dominated by Gilmore's fellow Republicans, rejected Gilmore's plan on a 17-1 vote in the early days of the General Assembly. Their chief objection was that the state should not go into debt to finance a tax cut. Instead, the Senate passed a spending plan that increased the car tax rollback to only 55 percent.

Members of the House of Delegates — all of whom are up for re-election this fall, and thus hesitant to come out against a tax cut, it has been widely reported — sided with Gilmore and passed his proposed budget amendments.

House and Senate conferees were unable to resolve the unprecedented impasse before the General Assembly's scheduled adjournment. Gilmore — who has placed the blame for the situation squarely on the shoulders of the Senate — said he will call a special session later this month in another attempt to resolve the crisis, but pledged that he will not compromise on the 70 percent car-tax rollback.

Larry J. Sabato, director of U.Va.'s Center for Governmental Studies, said earlier this week that he has been in touch with several legislators and Gilmore administration officials. "I expected everybody to say, 'yes. This is going to be resolved,'" he said. "But what I'm hearing is the opposite. People are firming up their opposition and digging in."

Should no agreement be reached, the original budget would stay in effect. Gilmore could also veto any agreement that does not achieve the 70 percent reduction, and it is unlikely the legislature could muster enough votes for an override, Sabato said.

William H. Wood, director of U.Va.'s Sorensen Institute for Political Leadership, noted that the conflict between Gilmore and the Senate has reached a high level, and said "the odds are against" reaching a deal.

"Because the arguments lasted throughout the General Assembly session and some got personal toward the end, the two sides are dug in," Wood said.

Sabato agreed. He said one state senator told him that "hell would freeze over before he would vote to do anything Gilmore wanted."

The public, Sabato said, was behind Gilmore, noting that polls show that two-thirds of Virginians support complete abolition of the car tax.