"Dear State Employee:

By now, you may have heard a great deal of speculation about the possible effects of recent budget actions associated with the failure of the General Assembly to pass budget amendments and my issuance of Executive Order Number Seventy-Four (01). I write to clarify this situation so that you may fully understand the issues involved and their implications for you.

To begin with, a budget for the 2000-02 biennium was passed in the 2000 session of the General Assembly and it remains in place. This session of the General Assembly dealt with amendments to the current Appropriation Act. The budget amendments in part addressed the fact that state revenues, while still growing, are growing slower than originally anticipated. Without the proposed amendments to bring state spending in line with the slower revenue growth, I, as Governor, am now legally required to take all actions necessary to ensure that we have a balanced budget at the end of each fiscal year of the biennium. This is the purpose of my Executive Order.

Prior to this action, last December I proposed amendments to the current Appropriation Act, which continued to fully fund the phaseout of the car tax at 70 percent and 100 percent as well as maintaining critical government services. In addition, I proposed funding to support an average 3.5 percent performance-based increase in the salaries of full- time state employees effective November 25, 2001. My budget amendments also included funds to support new pay practices for classified employees established by the findings of the Commission on Reform of the Classified Compensation Plan. In other words, my budget amendments kept my promise to both state employees and to taxpayers.

The House of Delegates proposed budget amendments which also continued the phaseout of the car tax while at the same time funding critical spending items. While the House did not amend the budget the same way I did, their proposals clearly demonstrated that it is possible to continue car tax relief for the citizens of the Commonwealth and at the same time avoid harming critical government services. In fact, during the negotiations between the House and the Senate on the budget, the House put forward four separate budget proposals toward this end.

Unfortunately, the Senate did not negotiate seriously with the House on any of these proposals. An impasse resulted and no budget amendments were enacted during the 2001 session of the General Assembly. Therefore it is now my duty to take specific actions to ensure that the budget is balanced. Accordingly, I am immediately freezing all general fund capital outlay expenditures in the state which are not under contract. I am also withholding a small percentage (on average 1.5 percent this fiscal year and 1.7 percent next fiscal year) of state agency budgets. To avoid undesirable effects on public services, I am exempting all direct aid to K-12 public education and critical health and human services from the budget reductions. Specifically, no agencies in the Health and Human Services Secretariat will be subject to the withholding actions.

On Monday, I directed agencies to submit preliminary spending reduction proposals by this Friday. In addition, consistent with my Constitutional authority and current law, I announced a temporary freeze on hiring and discretionary spending. Hiring exemptions will be made by Cabinet Secretaries to fill vacancies needed to provide essential services. This will not affect those who have already been given offers for employment.

Although I am forced to take these actions, I believe that there are better alternatives if the General Assembly will act on them. Unfortunately, my powers to balance the budget only allow me to make reductions in budgets. I cannot create new revenue or new spending authority to provide pay increases.

Therefore, I intend to call the General Assembly back into session next month for the sole purpose of resolving the outstanding budget issues. I want to assure you that one of my objectives during that special session will be to work diligently with the General Assembly to ensure that you receive a
well deserved pay increase in the next fiscal year as I originally proposed.

In the meantime, as we begin to implement the actions necessary to balance the budget, I will work with agency heads to minimize disruptions to both the lives of hard working state employees, like yourself, and other citizens of Virginia. Most importantly, I want to avoid any furloughs or layoffs to the greatest extent possible and let you know that layoffs will only be considered as a last resort.

When the General Assembly returns, I am confident that all parties can successfully address the issues at hand. I will urge both the Senate and
House to join me in keeping our promise to the people on car tax relief and our promise to you, the state employees of the Commonwealth, on well-deserved compensation reform and compensation increases. Please feel free to share this information with your family, friends, and neighbors.

I will try to keep you informed of developments as they happen.

Very truly yours,

James S. Gilmore, III
Governor of Virginia"