Members of the “money committees” heard similar messages in their respective annual pre-session retreats last week: sluggish economic growth is expected in the next several years; growth in mandatory spending pressures is projected to outstrip revenue growth in the upcoming biennium; carryover balances will be available to support spending needs in the short-term, but should not be relied upon as a long-term solution; and appropriators will need to continue to prioritize ongoing spending commitments with a focus on structural balance. Staff to both Committees recommended a baseline forecast of a “low hire, low fire” labor market, which was the consensus of the Joint Advisory Board of Economists, anticipating tepid job growth and modest levels of unemployment. Committee staff noted at both retreats that Virginia’s job gains have been concentrated in low- and mid-wage jobs over the past year, with losses in the traditionally higher-paying federal government and professional and business services categories. Staff in both chambers cited several downside risks, or factors that could threaten Virginia’s economic performance, including another federal shutdown, tariffs’ effects on consumer behavior, and stock market volatility associated with artificial intelligence. Governor-Elect Abigail Spanberger attended both retreats and made remarks at both meetings expressing her desire to work in collaboration with the legislature to meet the budgetary challenges ahead.
The House Appropriations Committee and the House Finance Committee met in Manassas on November 18, receiving briefings from Brian Leung, a representative of Kohlberg Kravis Roberts, regarding the national economic picture and from Clark Mercer, Executive Director of the Metropolitan Washington Council of Governments, on the economic pressures facing the region and regional initiatives to retain federal workers, as well as the opportunities and challenges posed by the data center industry. Deputy State Treasurer David Swynford reported to members on the state’s debt capacity, and Lauren Axselle, Chief Legislative Analyst at JLARC, updated members on steps taken by the Virginia Employment Commission to improve its performance following a JLARC study of the agency.
House Appropriations Committee Staff Director Anne Oman presented the staff’s revenue forecast and budget outlook, which projects General Fund revenue growth of 3.4 percent in FY 2026 (an upward adjustment from the current biennium budget’s forecast of 0.4 percent growth), 2.6 percent in FY 2027, and 3.4 percent in FY 2028. Factoring in amounts carried forward in addition to projected revenue growth, staff anticipate $5.8 billion in General Fund resources above the base budget being available over the biennium, with $4.5 billion in identified mandatory spending (including the Medicaid forecast, rebenchmarking of the Standards of Quality, growth in the Children’s Services Act, items required under the federal reconciliation legislation (HR 1), and other mandatory spending), leaving $1.3 billion over the biennium to meet other priorities. Fully conforming Virginia’s tax code to the federal tax policy changes in HR 1 that affect the calculation of adjusted gross income would reduce revenues by $1.1 billion between FY 2026 and FY 2028, and staff identified approximately $2.3 billion in other high-priority spending items.
The Senate Finance and Appropriations Committee met on November 20 and 21 at Radford University. Staff Director April Kees and Senior Legislative Fiscal Analyst Tyler Williams briefed members on staff’s revenue projections and identified budget pressures; staff anticipate General Fund revenue growth of 3.2 percent in FY 2026, 3.1 percent in FY 2027, and 3.6 percent in FY 2028. Factoring in amounts carried forward in addition to projected revenue growth, staff expect $5.9 billion in General Fund resources available above the base budget over the biennium, and identified $4.7 billion in mandatory spending pressures or commitments. Staff explained that carry-forward balances are expected to be necessary to cover mandatory spending pressures until FY 2030.
Members also received presentations on the national and state economic climates from Thomas Zemetis, a representative of Standard and Poor’s, and Anna Kovner, Executive Vice President and Director of Research at the Federal Reserve Bank of Richmond. Committee staff briefed members on expected impacts of the federal reconciliation legislation, trends in public safety, and key initiatives in higher education.
Medicaid: Both retreats featured detailed presentations by Committee staff experts on Medicaid, a topic of particular interest given the recently-released forecast for growth in the program, which anticipates $3.2 billion in additional General Fund spending required between FY 2026 and FY 2028 to maintain the current program, irrespective of any additional investments that may be required to implement program changes included in HR 1. Susan Massart of the House Appropriations Committee staff and Mike Tweedy of the Senate Finance and Appropriations Committee staff explained that enrollment in the program is declining among people who are less costly to cover (such as children) and rising among those whose coverage is more expensive (such as older individuals or individuals with disabilities). A large component of the increase in costs over the biennium is growth in capitated rates paid to managed care organizations, which cover care for the majority of Medicaid enrollees in Virginia; rate growth is driven by higher utilization of some services and higher costs for care. Rates are required to be actuarially sound and are updated annually. Certain behavioral health services have experienced significant growth in use and staff suggested that additional oversight may be needed for current and newly-redesigned services to ensure appropriate utilization.
K-12: Both retreats also included presentations on the biennial rebenchmarking of the Standards of Quality, another key budget driver. Rebenchmarking updates the costs required to fund public education under the current policy landscape and includes technical updates to data points such as enrollment and salaries; it does not incorporate any policy changes. In brief, House Appropriations Committee staff presented an estimated cost of $844 million over the biennium, pending key data points, including September 30 enrollment figures, English learner enrollment, and sales tax estimates. Senate Finance and Appropriations staff provided an estimate of $965.2 million over the biennium, pending enrollment and sales tax updates.
VACo Contact: Katie Boyle