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Governor proposes plan for addressing budget shortfall in current fiscal year

In the face of flagging state revenue collections announced in August, Virginia will need to make adjustments to its current two-year budget when the General Assembly convenes in January. Last week, Governor Terry McAuliffe laid out his plans to keep the current year (FY 2017) budget in balance in light of the revenue shortfall. The combined shortfall for FY 2016 and FY 2017 is $861.4 million, with an additional $654.3 million in FY 2018 to be addressed as part of the Governor’s biennial budget amendments that will be released in December. As expected, the state funding for salary increases in FY 2017 for Standards of Quality (SOQ)-recognized teaching positions, state employees, Constitutional officers and state-supported local employees has been rescinded in accordance with language in the biennium budget making that funding contingent on the state meeting its revenue projections. The second major budget action is a proposal to withdraw the maximum allowable amount ($392.3 million) from the Revenue Stabilization Fund; the General Assembly must approve this withdrawal during the 2017 General Assembly.

Of importance to local governments, aid to localities was protected from reductions, other than the loss of the state funding for salary increases. Likewise, the Governor’s proposal does not include further program cuts to K-12 education, although localities will likely see a reduction in sales tax distribution for public education due to weaker than expected sales tax revenues. The Governor proposes replacing general funds for education with lottery revenues, and proposes the use of additional Literary Fund dollars for teacher retirement costs. The proposal also sweeps agency balances from FY 2016 and projected balances in FY 2017, and applies $73 million in savings generated by agencies in response to the Governor’s directive to reduce operating budgets by five percent after exempting funding for certain programs and services.

The Governor’s savings plan may be found in its entirety on the Department of Planning and Budget website. In addition, DPB director Dan Timberlake made a presentation on the reduction plan to the House Appropriations Committee yesterday. VACo staff are continuing to work with the Governor’s office as the Governor’s budget amendments are assembled in preparation for his presentation to the money committees in December.

VACo Contacts: Katie Boyle and Joe Lerch


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