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From The Roanoke Times

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RICHMOND -- Gov. Tim Kaine asked Virginia lawmakers Wednesday to approve a budget plan that doubles the tax on cigarettes and "cuts spending in virtually every area of state government" to help offset a projected $2.9 billion shortfall.

Although Kaine's proposal cuts state funding for essential state services such as public schools, health care and public safety, some Republican lawmakers warned that the shortfall in the two-year budget may be more severe than the governor outlined in his presentation to the General Assembly's money committees. Kaine defended his approach.

"I don't believe there's a compelling reason to lay off more state and local employees at this time of year 'just in case,' " Kaine told legislators. "I don't think there's any compelling reason right now to carve deeper into core services for vulnerable people just 'to be on the safe side.' "

The plan Kaine submitted Tuesday calls for the elimination of 1,500 government jobs, including 1,100 layoffs; the elimination of pay raises for state employees and public schoolteachers; cuts to the Medicaid program; and further cuts to public colleges. Kaine noted that the Virginia Department of Transportation is expected to cut about 1,000 more jobs through retirements, attrition and restructuring.

The layoffs include 570 that Kaine announced in October. Many of the additional layoffs announced Wednesday are tied to closing or restructuring of mental health facilities, including 100 from the closure of a mental health treatment center in Staunton and 28 from the closure of an adolescent unit in Marion.

Kaine said that none of the mental health care services expanded this year in response to the Virginia Tech shootings will be cut.

The budget caps some services provided under Medicaid, and either freezes or reduces most provider reimbursement. Kaine said his plan "will limit enrollment growth but not displace persons currently being served."

Kaine already had cut funding for four-year colleges by as much as 7 percent for the current fiscal year, and called Tuesday for a 15 percent cut next year. He asked lawmakers to increase need-based financial aid by nearly $26 million to cushion the impact of tuition increases.

This is the fourth round of budget cuts proposed by Kaine since the spring of 2007 and the second since lawmakers passed a two-year, $77 billion budget earlier this year. The shortfall is in the general fund portion of the budget, which totals $34.6 billion.

Virginia is one of 41 states dealing with budget shortfalls driven by a national recession.

Lawmakers in both parties credited Kaine for making tough decisions on spending cuts, but many questioned his proposal to double the tax on cigarettes to 60 cents per pack. Revenue from the tax increase, about $148 million annually, would cover Medicaid costs. Kaine cited a Centers for Disease Control and Prevention estimate that smoking-related illnesses account for $400 million in annual Medicaid expenses for the state.

Republican leaders questioned the wisdom of increasing taxes during a recession and some warned that targeting cigarettes could jeopardize jobs created by tobacco giant Philip Morris USA, which has its corporate headquarters and major operations in the state.

Bill Phelps, spokesman for Altria, parent company for Philip Morris USA, said that raising the tax would affect not just smokers but growers, wholesalers and retailers.

"We think it's unfair to single out one industry to bear this burden, particularly when the leader in that industry is based in Virginia and provides jobs to more than 5,000 people who pay taxes to the commonwealth."

Kaine also proposed scaling back the state's land conservation tax credit and eliminating a "dealer discount" that allows some small retailers to keep a portion of sales taxes they collect.

Kaine said he wanted to avoid a tax increase, but: "It got to the point where I had to either cut another $150 million out of Medicaid or do something with the cigarette tax."

Kaine likely will face opposition to the tax increase from tax-adverse Republicans and perhaps from Democrats who represent rural areas.

Tobacco "is a part of our economy that means a lot to a lot of people," said Sen. Roscoe Reynolds, D-Henry County, a member of the Senate Finance Committee. "It's trying to recover from some adverse effects of policies that have been adopted at the federal level."

Del. Onzlee Ware, D-Roanoke, who sits on the House Appropriation Committee, said he'd support many of the proposed cuts, but thought the cigarette tax increase "is a little over the top."

"I don't believe generally in raising taxes when there's a downturn in the economy," Ware said.

Despite the shortfall, Kaine's budget includes a $1 million grant for the Virginia Federation of Food Banks, which has seen its supplies depleted and its demand increase during the economic downturn.

Some Republicans questioned whether Kaine underestimated the shortfall's severity. Kaine said revenue estimates can be adjusted again in February, if necessary.

"Nobody likes to be the bad guy in these situations, and the governor certainly made some tough decisions," House Majority Leader Morgan Griffith of Salem said. "I think he needed to make about 600 million [dollars] more."

Sen. William Wampler, R-Bristol, a member of the Senate Finance Committee, said: "I will predict by February he will have to revise those numbers again."

Kaine told lawmakers that solving the budget crisis is "not just about the tools we have."

"It's also about character," Kaine said. "Adversity reveals character. Our citizens will be watching us this session to see how we handle things."

mike.sluss@roanoke.com (804) 698-1585

mason.adams@roanoke.com 981-3253