McDonnell asks for cuts, blames federal uncertainty

Governor Bob McDonnell instructed his Chief of Staff Martin Kent to have his agency heads to prepare for 4% across the board cuts to their current spending plans. The potential cuts are a starting point as Kent and McDonnell begin their review of the biennial budget situation to determine if any updates are necessary in the off year.

But while the memo and the process are routine, they were loaded with political overtones. Kent pointed to the looming "fiscal cliff" and military sequestration as problems that if Washington can't solve could lead to an economic retraction or even recession.

Kent claims that national economists are warning not to expect a vigorous recovery and even warned of rising health care costs that could impact Virginia within this budget cycle. The tone indicates that Washington needs to get its act together. A message that has interesting timing given President Barack Obama's re-election just a few days ago.

In an interview Thursday night, Governor McDonnell didn't mince words. He said that while this is routine and something that needs to be done every year, the need wouldn't be as urgent if the federal government ran things a bit better.

"We are always looking for ways to conserve the taxpayer resources I wish they'd do more of this in Washington, D.C. and maybe we wouldn't be $16 trillion in debt," McDonnell said. "I think this something governors across the country are doing and it is part of our routine."

McDonnell pointed out that this is something they do every year.

"I may take all of their recommendations, I may not any use of them," he said. "We will have to see."

Our full interview with McDonnell can be found below.

 

Martin Kent's memo to agency heads can be found after the jump:

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November 8, 2012

M E M O R A N D U M

TO:	Executive Agency Heads
CC:	Cabinet Secretaries
FROM:	Martin L. Kent, Chief of Staff
SUBJECT:	Budget Reduction Strategies

As the Governor and his Finance team continue the process of budget development in advance of the 2013 session of the General Assembly, it has become clear that several factors are placing immense pressure on the Commonwealth’s finances and, therefore, will necessitate immediate action to plan prudently for the future. Foremost among them is the unprecedented uncertainty in Washington and its detrimental effects on this state. The so-called fiscal cliff in the third quarter of FY2013, including the sequestration provision of the Budget Control Act of 2011, could touch off an economic retraction or even a second recession. National economists have down-played any expectations of a near-term, vigorous recovery and confirmed the direct connection between the existing economic uncertainty and the potential for future revenue stagnation or losses. In the face of this uncertainty, it is our constitutional responsibility to prepare for the associated risk.

The rising cost of health care will appear within this budget in several forms. First, statewide Medicaid costs will further strain budget resources in the coming year. Medicaid is second only to K-12 education as the largest driver in the state budget and comprises approximately 20 percent of the general fund budget; mandatory growth in the program will demand significant, additional resources. Further, additional health care cost increases are presenting themselves within the employee health insurance program and the cost of providing inmate medical care. Balances sufficient to cover this continued growth do not exist.

On the revenue side, nearly all of the FY2012 budget surplus has been spoken for by constitutionally or statutorily required deposits (e.g., to the Revenue Stabilization Fund and the Water Quality Improvement Fund) or by the bonus to be paid on December 1st. Most, if any, new revenue growth was anticipated in the revenue forecasts adopted last year and, therefore, already have been programmed into the budget. Any new growth likely will be limited.

As a member of the Governor’s leadership team, I know that you have followed these matters closely, and that none of this information comes as a surprise. I reiterate it because, based on the foregoing, I must ask for the following from each executive branch agency:

By no later than November 21, 2012, please prepare for the Governor’s review savings strategies for FY 2014 equal to four (4) percent of your agency’s legislative general fund appropriation.

Your respective analyst in the Department of Planning and Budget will contact you with any adjustments to your reduction base and the exact reduction target for your agency.

We understand that the ongoing hiring freeze has placed additional responsibilities on state employees. Therefore, as has been asked annually as part of your ongoing efficiency reviews, these savings plans should focus on identifying the lowest priority activities in your respective agency, rather than on personnel. To the extent you have submitted a savings strategy in a prior year of this Administration and it has not been accepted, please do not resubmit it.

While we welcome any and all valid savings strategies, it is important that the majority of your reduction strategies emphasize recurring savings rather than one-time savings. Additionally, you should not submit reduction strategies that simply pass or add additional costs to another state agency or that reduce revenue to another state agency. Please specifically look at service and program areas where state funds are used to match federal funds or other nongeneral funds. You need to ask if the use of these funds, state and federal, is achieving outcomes that are of the highest priority for use of the general fund match. You should not consider these programs as “off-limits” for savings and efficiency strategies just because they may result in the loss of matching funds.

Please also focus on strategies that call for the modification or elimination of existing responsibilities that have been placed on you that are not mission critical for your agency. Ask your policy or appropriate liaison to meet with the Governor’s Policy Office to discuss any necessary statutory amendments to remove such requirements from the Code of Virginia.

Because of the very short timeframe within which we must act on these strategies, please ensure that your recommendations are both practical and consistent with known priorities or directives of the Governor. To the extent an agency submits a savings strategy that does not meet these criteria, the Governor may reduce that agency’s base appropriation after consultation with the Department of Planning and Budget.

Your final plans must be submitted in DPB’s performance budgeting system and are due no later than November 21, 2012. DPB will issue guidance for this submission later today. This timeframe is necessary so that the Governor has sufficient time to appropriately evaluate these strategies for inclusion in his budget to be submitted in December, should such savings become necessary. (NOTE: These plans will be considered official budget submissions and, as such, will be sent to the General Assembly within five (5) days of receipt by DPB. They will also be available to the public and media.)

Institutions of higher education are not included for purposes of this memo, but will be addressed in a separate communication.

Thank you for your continued efforts in governing the Commonwealth in a time of great economic uncertainty. The Governor and I appreciate your service to the public and your continued support to make Virginia the best place to live and work.

Comments

[Janice Paterson]

Wow, so this is how some of you are going to act because President Obama won re-election?? I guess losing this state two elections in a row is cutting you to the core. Damn, the confederacy here still lives! Really?? Destroying innocent people's lives because President Obama won?? Why wasn't this announced before?

[Thomas Roberts]

I see he really working across the boards for a better union. Or trying to position himself for 2016 as a republican front runner. this is a wake up call people this is what take's place when you don't ensure a good team to support your president. He slip through the cracks last year because we thought were good because obama was elected. we have to give him a team that will support his change. So the upcoming governor's race is very important our job is not done yet. let's truly make virginia a blue state.

[Pauline]

So I should surpopt Patrick Murray in the 8th because he gives a good presentation; or maybe because he gives me a tingling in my leg? Somehow I think Murray's confused running for the United States Congress with running for Prom King.I would like to see some original ideas for solutions to serious issues come from that campaign. That would show true leadership!