On December 16, Governor McAuliffe presented his amendments to the 2016-2018 biennium budget to members of the General Assembly’s Senate Finance, House Appropriations, and House Finance Committees. Overall, localities fared better than many had expected in August, when the Governor last addressed the “money committees” to announce the state’s revenue shortfall. The Governor’s proposal protects aid to localities and K-12 funding, in keeping with his stated priority to avoid cuts to core services.
When the Governor announced the state’s revenue shortfall in August, the projected deficit was $1.5 billion over the biennium, including the shortfall in FY 2016. An initial package of savings actions was announced in October, including rescinding state funding for salary increases for state employees, state-supported local employees and Constitutional officers, and teachers and support staff in school divisions. Subsequently, state revenue growth has shown signs of recovery, and as part of the revenue reforecasting process, revenue projections have been amended to include an additional $239 million over the biennium, reducing the shortfall to $1.26 billion.
The Governor’s budget proposal partially addresses the revenue shortfall by generating $806.5 million in savings over the biennium, a figure which includes the package of savings previously announced in October, additional savings proposed by state agencies for FY 2018 ($26.5 million), funds generated by a five percent across-the-board cut to institutions of higher education ($76.1 million), and additional targeted reductions ($103.4 million). In addition, the Governor proposes to withdraw $567.2 million from the state’s Revenue Stabilization Fund over the biennium, and includes several policy changes to generate $138 million in additional revenue, including a tax amnesty program, limitations on the Historic Rehabilitation and Land Preservation tax credits, and a requirement that out-of-state merchants using warehouses in Virginia collect sales taxes on sales in Virginia. Further details on the state’s revenue forecast are available in Secretary of Finance Ric Brown’s presentation.
Of critical importance to localities, the Governor avoided making further program reductions to K-12. Local school divisions will experience a formula-driven net reduction of $40.1 million over the biennium in sales tax distribution statewide due to declines in sales tax revenues which are only partially offset by corresponding increases in Basic Aid. In addition, Direct Aid payments will be reduced by $35.3 million statewide over the biennium due to declines in enrollment.
Several areas of new spending reflect mandatory increases, such as $255 million for Medicaid costs and $85.7 million for projected growth in Children’s Services Act spending. Key discretionary spending items include $111.5 million in FY 2018 for a one-time bonus payment of 1.5 percent for state employees and the state’s share of the same bonus payment for state-supported local employees and school division employees whose positions are included in the Standards of Quality. This bonus payment will be distributed December 1, 2017. The budget also restores funding in FY 2018 to address salary compression for state police, sheriff’s office employees and employees in regional jails.
The Governor also provides $31.7 million for mental health and substance abuse needs, including $8.2 million for same-day access screening at 25 of the 40 CSBs, $5.3 million for opioid addiction treatment and overdose prevention, $4.2 million for mental health screening in local and regional jails, and $4.5 million for a statewide assessment and proposed redesign of the overall behavioral health system.
An overview of key spending and savings items is available in a presentation made December 16 by Department of Planning and Budget Director Daniel Timberlake. The General Assembly convenes January 11 to consider the Governor’s budget proposals, among other matters, and member budget amendments must be submitted by January 13. VACo staff will be providing regular updates on the progress of budget discussions. For more details, please see the December 19 Capitol Contact.
VACo Contact: Katie Boyle