RICHMOND - Gov. L. Douglas Wilder, warning all levels of Virginia government to brace for "a new reality" of slower economic growth, called Friday for local officials and state agency heads to begin prioritizing government programs.
Wilder asked state and local officials for recommendations on both where more money is needed and "where they are willing to accept reduced support in exchange for greater funding elsewhere."
The governor said he would convene a meeting this spring to discuss priorities and the choices available to policymakers in addressing the state's service needs amid slow revenue growth.
"Taking control of our destiny, yet recognizing the limits of our resources, requires that we focus our attention on specific policy choices and forgo the customary rhetoric," he said.
Wilder spoke at the conclusion of the Governor's Symposium on Virginia's Economic and Budget Outlook, which featured presentations by private economists and state finance officials. About 600 state and local officials attended the event.
Lawrence Chimerine, senior economic adviser at Data Resources Inc./McGraw-Hill and a fellow at the Economic Strategy Institute in Washington, set the stage for a discussion of Virginia's prospects by noting that the national economy's sluggishness is likely to continue for the foreseeable future.
Chimerine said a variety of factors are inhibiting economic growth.
For example, the commercial construction industry, which enjoyed a boom in the 1980s, is now in what he termed a "depression."
Moreover, many firms are finding they not only cannot raise prices on their goods, but they must offer steep discounts to move their products.
In addition, commercial banks, which are designed to fuel economic growth through loans to businesses, now hold more Treasury securities than loans, Chimerine said.
He said the economy will improve slowly in the hear term and cautioned officials when they write their budgets not to "forecast higher growth until [they] see it." He said the 1990s will be the slowest decade for economic growth since the 1940s.
"In sum, I think you have to be very cautious," Chimerine said.
Alan Schick, a public policy professor at the University of Maryland and an adjunct scholar at the American Enterprise Institute in Washington, said the state share of joint federal-state programs is likely to continue increasing, reducing the amount of money available for state-run programs.
For example, Schick said that by 1997 more than one-quarter of states spending will go toward Medicaid.
Schick said that if state officials are to achieve greater budget flexibility, they must insist that no new spending mandates be imposed on states by federal officials.
Against a backdrop of the current slow economic growth and rising federal spending mandates, Paul W. Timmreck, Virginia's finance secretary, said officials project 3.9% annual average growth in wages and salaries from 1991 through 1994. That translates into just a 3.5% annual average increase in state general fund revenues.
Between 1995 and 2000, officials forecast 5.8% growth in wages and 5.9% growth in general fund revenues.
These modest projections contrast sharply with the 8.7% increase in wages during the 1985-through-1990 period, and an 8.3% rise in state revenues.
Timmreck said job growth also will be slow, averaging about 0.8% through the year 2000.
But Timmreck cautioned that even those modest projections could be higher than the state will achieve. "Every forecast is wrong from the day it is issued," he said, noting uncertainties and changes in assumptions.
Karen F. Washabau, the state's planning and budget director, said Medicaid, corrections, mental disabilities, and education consume the greatest proportion of the state budget.
She pointed to an increase in the number of Virginians eligible for Medicaid and in the number of people in Virginia prisons and jails and schools.
Washabau said that assuming just 2% increases in pay and capital outlays annually, the state's general fund budget would grow to $9.8 billion in fiscal 2000 from $6.7 billion in fiscal 1994. To support that growth, she said, revenues would have to grow more than 6% annually.
Because revenues are projected to climb at a much slower rate, "our challenge is to find new ways to operate these programs at less cost," Washabau said.
Wilder, in sounding his call for new thinking in budget matters, noted that it currently costs the state $20,000 a year to keep a felon in prison. By contrast, it costs the state about $4,000 annually to educate one student at a Virginia university.
"For what we spend to incarcerate one prisoner, we could educate five students," he said.
"The bottom line is that governments, like, many businesses today, are going to have to make adjustments in order to remain viable organizations," he concluded.
