Virginia’s prison system is bearing the brunt of state spending cuts to close a revenue gap in this year’s budget, with layoffs of up to 506 employees in that field alone, and closure of a correctional center in Powhatan County, a work center in Augusta County, and a diversion center in Clarke County.

The layoffs in the Department of Corrections represent 90 percent of the 565 employees to be released throughout state executive branch agencies to help cut spending by $92.4 million this year under the strategy on which Gov. Terry McAuliffe and General Assembly budget leaders agreed in order to close a revenue shortfall projected at $2.4 billion in the two-year budget.

The executive branch cuts McAuliffe announced Wednesday are part of a plan that also includes reductions in state aid to colleges and universities and local governments to cut spending by $346 million in the fiscal year that began July 1. The state must cut an additional $536 million in the next budget year, which the governor will address with proposed budget amendments in December.

In addition to layoffs, McAuliffe said he will increase the markup on liquor sold through the state ABC store monopoly, eliminate an additional 146 vacant positions and delay filling others, cut back use of outside consultants and attorneys, raise administrative fees, and replace general fund tax money wherever possible with other revenues.

“Making these budget reductions has been the most difficult experience of my term so far,” said McAuliffe, who took office in January.

The announcement came one day after the administration released a positive revenue report for September, in which all major sources of state revenues — including recordation taxes on real estate transactions — gained over the same month a year ago and tracked ahead of projections for the first quarter, which ended Sept. 30.

McAuliffe and Secretary of Finance Richard D. “Ric” Brown welcomed the positive news but noted that state revenues were ahead of projections in April, before May income tax collections plummeted and led to a $438 million shortfall in the fiscal year that ended June 30.

D.C. uncertainty

“As we saw last year, an unexpected revenue decline could be just around the corner,” the governor said. “In the midst of uncertainty in Washington over sequestration and the federal budget, we have an obligation to prepare Virginia as much as possible for the reduction in federal spending that we all know is coming.”

Brown said the 5.3 percent gain in September over the previous year was “not statistically significant,” especially so early in the fiscal year in a state that relies on income taxes due May 1.

“The revenue situation is going to be lower for the foreseeable future, relative to what we had expected coming out of a national (economic) recovery,” Brown said in an interview later.

Powhatan layoffs

The planned layoffs represent one half of 1 percent of the state’s full-time workforce of about 99,000 employees. Most of the layoffs — 264 — will come at the Powhatan Correctional Center. The medical unit and receiving center at the Powhatan facility will remain open, and 75 positions will transfer from the main Powhatan facility to the Deep Meadow Correctional Center, which is part of the same complex.

The corrections department also is closing the Cold Springs Work Center in Augusta, with 45 layoffs, and the White Post Diversion Center in Clarke, with 34 layoffs. The Culpeper Correctional Center for Women, created at the site of a former juvenile corrections facility, also will not be opened as scheduled, resulting in an additional 163 layoffs and the elimination of more than 200 positions.

State officials said they hope the department will be able to place affected employees in other jobs, but Corrections Director Harold W. Clarke told employees Wednesday that the scope of spending cuts will make that difficult to accomplish.

“Unfortunately, in this reduction we will have significantly fewer opportunities for placements because of our need to save an additional $3,272,602 in vacancies,” Clarke said in a memorandum to department employees. “Therefore, we cannot expect to have the same level of success in placements that we had in the past.”

The department is reducing its budget by $20.3 million this year, continuing into the next fiscal year. In addition to layoffs and leaving job vacancies unfilled, the corrections department also is losing $4.1 million in this fiscal year.

“We will begin to move offenders out of the affected facilities very quickly so that we can stop operations at those facilities,” Clarke said.

Sparing K-12

State officials said the Corrections Department took deep cuts in part because McAuliffe and assembly leaders have promised to spare K-12 education from cuts in state aid. The department, like other state agencies, had to identify potential cuts of up to 5 percent the first year and 7 percent in the second.

The remaining layoffs are spread across state agencies. The Department of Behavioral Health and Developmental Services will have is suffering 20 layoffs, including nine employees at Western State Hospital in Staunton and six at Central State Hospital near Petersburg. The Department of Forensic Science is losing 10 employees. The Library of Virginia is losing six employees and the Science Museum three.

Other affected agencies include the Department of Taxation, with five layoffs; the Department of Forestry, with four; the Board of Elections, with three; the Compensation Board and Southwest Virginia Higher Education Center, each with two; the Department of General Services, the Department of Health, the New College Institute; and the Jamestown-Yorktown Foundation, each with one.

“It’s definitely something that we didn’t want to see,” said Johnna Cossaboon, communications director for the Virginia Governmental Employees Association. “When you see that big of a shortfall, it’s not a big surprise, but it is a disappointment.”

The actions cut $56.7 million in budgeted spending and redirect $35.7 million in other unspent resources to fill the gap. Those additional resources include $2.5 million from marking up the price of liquor sold through the Department of Alcoholic Beverage Control and about $500,000 in higher administrative fees, state budget officials said.

ABC markup

The ABC Department currently marks up the price of every bottle of distilled spirits by 69 percent before applying excise taxes, which is why the agency generated a net profit of $240 million last year. ABC officials said the percentage markup — and the effect on liquor prices in state stores — has not been determined. The last time the state marked up liquor prices was in 2008, when they were increased by 4 percent.

The department will ask for comments from stakeholders, such as vendors and suppliers, according to a statement from ABC on Wednesday. “Over the next few weeks, ABC’s executive leadership team will make a final decision about the increase and its effective date.”

The Distilled Spirits Council of the United States accused McAuliffe of threatening a “stealth alcohol tax” on the state hospitality industry.

“We urge Governor McAuliffe to modernize elements within the state system to generate new revenue — not punish consumers with higher taxes,” DISCUS Vice President David Wojnar said.

Additional cuts

This will not be the last of the spending cuts weathered by state agencies, which face a reduction of $100 million in the second year of the budget under the deal that McAuliffe reached with leaders of the House of Delegates and Senate last month. The reductions for executive branch agencies represent about 4 percent of their total budgets.

Higher education institutions will be required to make cuts totaling $45 million each year of the biennium, although the amounts vary by school, and local governments will be required to identify $30 million in cuts each year through reversion accounts. This approach allows local governments and higher education either to identify cuts in specific revenues or pay the state back a portion of their aid.

McAuliffe and the General Assembly also will have to find $272 million in spending cuts in the second year of the budget to make up the $882 million shortfall projected after the governor issued a revenue reforecast in mid-August.

The new forecast reflected the final numbers for the previous fiscal year, as well as lowering tax projections to reflect a more pessimistic economic outlook recommended by the Joint Advisory Board of Economists, which met with McAuliffe on Wednesday, and the Governor’s Advisory Council on Revenue Estimates. Those reductions come on top of $1.55 billion in spending cuts and use of reserves in the budget adopted in June.

McAuliffe called the reductions “a short-term response intended to insulate Virginia from the possibility of further cuts.”

“In the long term, as I have said before, we must work together to grow and diversify our economy so that we are no longer subject to Washington uncertainty,” he said.

On that point, McAuliffe found agreement with his chief political adversary in the General Assembly, House Speaker William J. Howell, R-Stafford, who has blocked the governor’s efforts to take advantage of billions of additional taxes paid by Virginians through the Affordable Care Act to expand health coverage to uninsured Virginians.

“The process of closing Virginia’s $2.4 billion shortfall has been arduous and difficult,” Howell said in a statement on Wednesday. “It is unwelcome news that so many of Virginia’s hardworking state employees will be affected.

“The painful lesson of this experience is that we cannot continue to increase Virginia’s dependence on the federal government, as Governor McAuliffe has said repeatedly,” Howell said. “Going forward, all of our budget and policy decisions must be made with this mind.”

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