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State programs face 'fiscal cliff' threat

 Virginia Gov. Bob McDonnell has ordered state agency heads to prepare contingency plans for potential cuts.
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Date published: 11/14/2012


AP Political Writer


--Virginia state finances can weather a continued sluggish economy, but the so-called "fiscal cliff" could threaten core state programs unless Washington can reach a deficit reduction deal.

That's the assessment House of Delegates budget writers heard Tuesday from their own experts in a two-day tutorial preparing them for another year of austere budgeting in the 2013 General Assembly.

It came as Gov. Bob McDonnell's administration announced a 15.7 percent spike in general state tax collections in October over the same month a year earlier.

Strong receipts from individual income taxes withheld from paychecks and two additional deposit days in October 2011 moved overall revenues ahead of forecast for 2.9 percent growth, on which budgeted spending is based, for the first time four months into the fiscal year.

Staff analysts and economists told the House Appropriations Committee at its annual autumn retreat in Suffolk that Virginia will continue to experience modest revenue growth in an economy that will continue to struggle in restoring jobs to their 2008 pre-recession levels.

While Virginia's unemployment rate of 5.9 percent is the nation's 12th-lowest and below the national average, the state slipped from its ranking of 18th in job growth in September 2011 to 35th two months ago.

Even more ominous, the state's economic dynamo, Northern Virginia, is showing signs of slowing, according to reports presented to the committee.

Among metro areas of 1 million people or more, the Washington/Northern Virginia market had one of the smallest annual rates of job gains in August, falling from No. 1 in August 2011 to 15th out of 26 major markets this August.

An austere two-year budget enacted by the General Assembly that took effect July 1 will make it easier to protect the state's fiscal fitness, but it becomes far more difficult if Congress can't agree on a strategy to arrest government debt that had spiraled past $16 trillion by Jan. 2.

"Sequestration," as the cuts are known, would direct federal discretionary spending cuts of 9.4 percent for defense programs and 8.2 percent in non-defense appropriations.

One-third of Virginia's gross state product comes from direct federal expenditures, the highest percentage in the nation.

The ratios are even higher in its two most populous regions--Washington's Virginia suburbs and Hampton Roads, home to the world's largest U.S. Navy base in Norfolk.

Under a worst case, Virginia could lose more than 82,000 jobs in two years, inflicting an average annual toll of $330 million in lost state sales taxes, individual income taxes and corporate income taxes on Virginia's treasury.