By Amanda Iacone | Virginia Statehouse News

RICHMOND — City and county officials statewide are disappointed that none of Virginia’s year-end cash balance will help pay for local services.

Gov. Bob McDonnell laid out his plan Thursday for using the $544.8 million in unused revenue in the state’s bank account at the end of June, which was also the end of the fiscal year. Much of the money is required to make payments into the rainy day fund and the state’s transportation trust fund.

But of the cash left for discretionary spending, McDonnell did not provide for localities.

The state budget reduced aid to localities by $60 million this year. This money would have helped pay for mental health services, libraries, elections administration and wages for constitutional officers.

And the state budget reduced aid to localities by $50 million each of the past two years, said James Campbell, executive director of the Virginia Association of Counties, a professional organization for county officials that also advocates for county matters before the legislature.

And many cities and counties, like Williamsburg, have asked McDonnell to seek a budget amendment that would restore those cuts.

Each year, the state has given cities and counties a menu of options, so local officials can decide which areas of their budget are to be cut.

Pittsylvania County opted to spread out the $542,000 worth of cuts across its services and make up for the losses with local tax revenue. That loss represents 1 percent of its general fund budget, said Finance Director Kim Van Der Hyde.

The county library has been most affected by the loss of state revenue and has reduced the amount of new materials it purchases. Although a hiring freeze is in effect, no county workers have been laid off, and the county has deferred replacing equipment, said Van Der Hyde.

“We’re to the point where you just hold your breath to make sure that something’s not going to break,” Van Der Hyde said.

Pittsylvania County resident and library patron Mary Wertz helped raise money to build the Gretna library branch a decade ago. She said she wants to see the building expanded and more computers added, but the county doesn’t have the money, and the community wouldn’t support raising taxes for construction or new books.

Williamsburg was among the cities that passed a resolution, asking for the reductions to be restored. The $35,000 or so the city lost this year is just a drop in the bucket compared with its $32 million budget, said City Manager Jack Tuttle.

But the city, home to a major tourist destination, has lost meal, room, property and sales tax revenue during the recession. On top of those losses, the state’s reductions amount to “death by a thousand cuts,” Tuttle said.

“The point is that the localities don’t have anyone else to turn to to help pick up the bill, unless they want to raise taxes,” said Tuttle.

Of the state he said, “they are taking the easy way out.”

He said the state has numerous options to balance its budget, like eliminating programs or raising revenue. Instead, localities have been asked to pick up greater portions of program funding, and Tuttle said he was hoping the governor would use some of the year-end cash balance to reverse that trend.

But based on the governor’s speech Thursday, localities don’t see the governor responding to the growing pressure from local governments, said Neal Menkes, director of fiscal policy for the Virginia Municipal League, which works with and advocates for city governments.

“It sets the tone for what we might expect from the governor in his major budget delivery in December,” Menkes said. “It doesn’t inspire a whole lot of confidence that next year is going to be a good year.”

McDonnell said this week that aid to localities is one of several areas that probably warrants more funding, and he would consider ways to provide that financial support as he begins crafting his proposed two-year budget.

Although legislators can craft their own version of the budget, early indications from lawmakers is that not much will change for local governmental aid.

With the state expecting large reductions in federal funding, it’s unlikely that funding support for localities will change, because state revenue is too limited, said Delegate Joe May, R-Loudoun, and a member of the House Appropriations Committee.

“The amount of funds, the way we collect them and the sources we collect them from are changing. It shouldn’t be a surprise that how they get distributed has changed somewhat,” he said. “Are we making some effort to restore it? Absolutely. I just don’t expect it to go back the way it was.”

But state Sen. Roscoe Reynolds, D-Martinsville, said the reductions have had major impacts on the localities in the South Side and Southwest Virginia, which struggle with high unemployment rates.

“Localities in South Side and Southwest Virginia do not have the ability to offset the loss of state support,” he said.

State aid to localities, which does not include support for public schools, represents about 30 percent of the state budget, Menkes said.

Localities are particularly frustrated, because the state has not eased requirements despite the lack of funding. Many programs state aid has traditionally paid for are state-mandated, Menkes said.

The amount of funding cut and the programs targeted have varied from year to year.

And the No. 1 concern for local budget writers for next year is the unreliable source of funding that the state has become, he said.

News that the state has, what the governor touts as a “surplus,” doesn’t sit well with officials, Campbell said.

“I question whether it’s a surplus, if the state hasn’t paid all their bills yet. They haven’t fully funded education or transportation or the retirement system. And don’t forget the state required localities to pony up $60 million (by) shorting us on state contributions to numerous programs. In essence, they haven’t paid all of their bills,” he said.