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Senate Finance and Appropriations Committee Receives Report on April Revenue Collections

Secretary of Finance Stephen Cummings provided a briefing on the state’s finances to the Senate Finance and Appropriations Committee on May 17.  Secretary Cummings told Committee members that the economy appears to be strong, but there is considerable “noise” in the economic indicators.  A robust labor market and strong consumer demand are signs of health, but supply chain disruptions associated with the pandemic and continued high inflation create economic headwinds.  Secretary Cummings noted that inflation is concentrated in certain sectors, including food, energy, and motor vehicles; although he expects inflation in vehicle values to recede in time with the resolution of supply chain problems, energy prices are not projected to decrease in the near term.  Recent action by the Federal Reserve to increase interest rates, with an expectation of further increases in the future, reflects an effort to tame inflation without tipping the economy into a recession.  Secretary Cummings stated that in his view, a recession is not imminent, given the large numbers of unfilled job openings; should a downturn be on the horizon, he suggested that job openings would be an early indicator.

A key theme of Secretary Cummings’s remarks was that Virginia’s recovery of jobs lost during the pandemic has lagged other states, although it is improving.  Virginia ranks 14th nationally in employment growth between January and March 2022 (representing 42,010 jobs added over the period), and the state’s labor force participation rate began to climb in 2022 after dropping in spring 2020 (Virginia’s labor force participation was an average 66.3 percent before the pandemic, ranking 16th nationally, and 63.3 percent in March 2022, ranking 20th nationally).  However, he pointed out that Virginia still lagged most states in the percentage of jobs recovered relative to pre-pandemic levels (as of March 2022, the state had recovered 60 percent of jobs lost, ranking 47th among states).

General Fund revenues year-to-date are up 12.1 percent when adjusted for changes in filing dates, ahead of the forecast of 9.2 percent growth.  Individual income tax withholding collections have increased by 9.5 percent on a year-to-date basis, slightly ahead of the forecast of 9 percent growth.  Nonwithholding collections are up significantly relative to April of last year (an increase of 139.6 percent), but changes in filing deadlines mean that April and May collections need to be considered in tandem in order to present a true picture of this revenue source.  Sales tax collections are up 14.4 percent on a year-to-date basis, relative to the forecast of 11.4 percent growth.

The Committee also received a presentation by Sarah Hatton, Deputy Director of Administration at the Department of Medical Assistance Services, who provided an update on planning for the end of the federal public health emergency, which will require redetermination of Medicaid eligibility for more than 2 million recipients.  The Families First Coronavirus Response Act, passed in March 2020, provided an enhanced federal match rate for Medicaid in order to assist states in addressing the pandemic, subject to a requirement that individuals’ Medicaid enrollment must be maintained during the public health emergency.  Once the public health emergency ends, eligibility redeterminations will begin; this process will be spread over 12 months.  It is anticipated that between 14 and 20 percent of individuals will no longer qualify for Medicaid coverage during this “unwinding” period.  DMAS is working on outreach to Medicaid recipients to prepare them for the redetermination process, and is also working with the Department of Social Services to address workloads for local department staff, who will be processing many of these redeterminations, including contracting for additional staffing and seeking funds for overtime for local staff.  The current public health emergency is set to expire July 15; however, federal officials have pledged to provide states a 60-day notice prior to the end of the public health emergency, and since that notice was not received this week (which would be 60 days before July 15), DMAS expects an additional extension to the public health emergency.

The final presentation of the day was a briefing by Jermiah Fitz, Corrections Operations Administrator and Legislative Liaison for the Department of Corrections, on the implementation of legislation from the 2020 special session providing for additional earned sentence credits for certain offenses.  Due to the retroactive nature of the legislation, DOC staff expect to release 3,212 additional inmates between July and August 2022 (the legislation takes effect July 1), over and above the 1,396 inmates already planned for release during this time frame, and are working on release plans for these inmates, such as enrollment in Medicaid.  As a result of space being freed up in DOC facilities, the Department expects to be able to accept more state-responsible inmates who are currently housed in local and regional jails.  Mr. Fitz’s presentation is available at this link.

VACo Contact:  Katie Boyle

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