WASHINGTON (Map, News) - Virginia Gov. Tim Kaine warned he might need to lop spending items off his proposed $78 billion budget should economic forecasts worsen this month.

Kaine, whose two-year budget was designed with a dismal revenue picture in mind, delivered a pessimistic letter Monday to the chairmen of the General Assembly’s finance and appropriations committees. Kaine said cuts could be forthcoming if January revenues don’t show improvement in key areas.

“If January revenues continue to lag behind the forecast and the new economic data indicates further decline, we will need to consider budget adjustments,” Kaine wrote.

The grim forecast could have deep implications on the countless measures and expansions proposed by Virginia lawmakers in both parties and by Kaine, a Democrat. It also could stymie one of Kaine’s most prized initiatives — the $70 million expansion of pre-kindergarten to thousands more poor children.

In the letter, Kaine referred to three sectors of the state revenue pie: Nonwitholding individual income, corporate taxes and the recordation tax. The first, paid largely by investments and the self-employed, dropped 21.4 percent in December over the same month in 2006. Corporate taxes fell 21.1 percent last month, and the tax on recording deeds, wills, contracts and lawsuits dropped 27 percent.

Although Kaine has said he advocates some new taxes, he has not proposed any.

Lt. Gov. Bill Bolling agreed Tuesday that spending should be reduced if economic growth continues to “be sluggish or decline,” though he accused Kaine of sending a mixed message to the General Assembly.

“The governor’s position on this issue has been very inconsistent,” said Bolling, a Republican. “One day he wants to raise taxes and increase spending. The next day he wants to reduce spending. He needs to decide what he wants to do and stick with it.”

Del. Ken Plum, D-Reston, said he sees no clear areas to cut in the budget, however.

“Virginia is a pretty frugal state. ... It’s not obvious or clear to me right now what can go,” he said.

Grim picture

Virginia revenue forecasts show drops in three key areas:

» Nonwithholding individual income 21.4%

» Corporate tax 21.1%

» Recordation tax 27%

Note: Drops compare December 2007 with December 2006

The Associated Press contributed to this report.

wflook@dcexaminer.com