State revenue projections expected to cover major expenses with little to spare for other high priorities

November 21, 2017

Last week the House Appropriations and Senate Finance Committees held their annual retreats in preparation for the 2018 legislative session. Amid cautions about Federal spending and uncertainty on how long the current economic recovery will continue, both bodies received positive news about available revenues for the current fiscal year (FY 2018) and the upcoming biennial budget of FY 2019-2020 that will need to be approved come March. Starting with a base budget of the current year, there will be more than $1.6 billion in additional revenues over the next biennium. However, most of these additional resources will be needed to cover mandatory increases in Medicaid and K-12 Education Funding due to rebenchmarking. Additionally, both committees indicated they will seek to bolster cash reserves, primarily through deposits to the state’s rainy-day fund, which will be at $282 million by the end of the current fiscal year.

In opening remarks House Appropriation Chair Delegate Chris Jones noted that “When you add all of this together, it would appear that revenues may fall short of meeting our mandatory and high priority spending requirements. So, difficult decisions will continue to be the norm.” In his remarks, Senate Finance Co-Chair Senator Tommy Norment observed that due to these constraints “As always, priority will be the order of the day.”

Questions remain as to whether the legislature may act to raise additional revenues to meet needs. This could include some form of expansion of Medicaid to secure additional federal funding. Additionally, anemic sales tax collections continue to generate discussion on potential reforms to reflect shifts from brick and mortar to online sales, as well as a shift from manufacturing to service-oriented businesses.

The next step in the process will be the introduction of the new two-year budget by Gov. McAuliffe on December 18 to the money committees. At that time, we can expect updated revenue projections.

VACo Contact: Joe Lerch, AICP

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