Budget cuts and possible layoffs are in store for Virginia's government.

Gov. Timothy M. Kaine's administration warned yesterday that a sputtering economy is expected to generate less revenue than the state needs to fund its $77 billion two-year budget.

Kaine took steps yesterday to address the continuing economic downturn. He ordered the heads of state agencies to freeze hiring of employees and consultants, and he suspended nonessential travel, training and equipment purchases.

The edicts came in a memo dated Wednesday and sent to the heads of state agencies by Kaine's chief of staff, Wayne M. Turnage.

Turnage's memo states that while the magnitude of the revenue shortfall is uncertain, "it may be significant based upon our preliminary analyses."

It also warns of possible layoffs.

"I also ask you to critically assess the need for current wage employees to ensure that their continued employment is mission critical," it states.

The state has about 95,000 employees.

"As he has in the past, the governor is directing each of you to immediately take steps to reduce discretionary spending," states Turnage's memo, a copy of which was obtained by the Richmond Times-Dispatch.

"This will undoubtedly result in some short-term difficulties for your agency, but given the nature of our fiscal situation, it is critically important that we implement strategies that hold the promise of long-term savings."

The jobs freeze applies to all state agencies but does not affect essential positions pertaining to public safety, health, natural resources and higher education.

Kaine imposed a similar hiring freeze in early 2007, at the first hint of a slowing economy and reduced state revenue. Both freezes restrict the hiring of employees without approval of the supervising Cabinet secretary.

This year, Kaine implemented a series of cuts based on forecasts of reduced revenue. As a result of those cuts, the state finished fiscal 2008 on June 30 barely in the black -- $5.4 million in a general-fund budget of $17.2 billion.

A preliminary report on state revenue prepared by Secretary of Finance Jody M. Wagner said the state experienced "a meaningful slowdown" in the past six months -- measured by reductions in payroll taxes and retail sales taxes sent to state coffers.

"Declining employment levels, slower income growth, lower consumer confidence and the continued downward trends in the housing market" are driving the decrease in revenue, Wagner said.

The slowdown suggests the state should make "significant downward adjustments" in its original forecast of the revenue it expects to fund the new budget, Wagner said. She said state agencies should expect to make further budget adjustments to compensate for the expected reduction in general-fund revenue.

On Aug. 18, Kaine will address a joint meeting of the House Appropriations Committee, the House Finance Committee and the Senate Finance Committee. He will review the final results of fiscal 2008 revenue and address anticipated shortfalls in the 2009-10 two-year budget. The state's fiscal year runs July 1 to June 30.

Kaine was in Ireland yesterday, wrapping up a weeklong marketing mission to Europe with officials from the Virginia Economic Development Partnership. He returns to Richmond tomorrow night.

Contact Jim Nolan at (804) 649-6061 or jnolan@timesdispatch.com.

Coping with shrinking revenues

Kaine's order issued to state departments yesterday: