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State Budget Discussions Continue

Senators returned to Richmond this week to continue discussions on the state budget. After a floor session that was largely procedural, the Senate Finance Committee met on May 14 and again the following day to receive a report on state revenues and discuss budget amendments offered by Senators, several of which addressed Medicaid expansion, the central sticking point between the House and Senate budgets, in advance of anticipated action on the budget next week. Committee Co-Chairman Thomas K. Norment opened Monday’s meeting by addressing concerns about the delay in finalizing the state budget, offering emphatic assurances that the General Assembly will pass a biennial budget before June 30 and describing the alternative as “unacceptable” and “untenable.”

Secretary of Finance Aubrey Layne provided an update on April state revenues, which turned in a strong performance, largely driven by growth in individual income tax non-withholding. Overall General Fund revenue collections grew 17.8 percent relative to last April, and increased by 6.7 percent on a fiscal year-to-date basis, comfortably ahead of the forecast of 3.4 percent growth. Individual income tax withholding has grown 4.4 percent on a fiscal year-to-date basis, and sales tax revenues rebounded in April after a disappointing March, growing 5.3 percent in April and now slightly outpacing the forecast of 3 percent growth on a fiscal year-to-date basis. Individual income tax nonwithholding collections were up 39.6 percent relative to last April; however, Secretary Layne cautioned that this level of collections may not be sustainable, as this revenue source has historically been volatile, and significant refunds may be owed to high-income taxpayers who have made estimated payments but not yet filed tax returns.

Secretary Layne also discussed the importance of Virginia shoring up its cash reserves, which are low relative to other states with AAA bond ratings; a new Revenue Reserve Fund was established through legislation during the 2018 regular session and the Governor has proposed depositing any FY 2018 surplus into that reserve (after any required deposits, such as to the Water Quality Improvement Fund), an action the House incorporated into the budget it passed in April. Secretary Layne also reported on efforts to model the effect of the federal Tax Cuts and Jobs Act on state revenues. Secretary Layne’s presentation is available on the Senate Finance Committee website.

Senate Finance staff provided a briefing on differences between the “caboose” and biennium budgets passed by the House in April and the budgets passed by the Senate during the regular session. The Committee also received a staff presentation on the Medicaid program and the individual health insurance market. The meeting concluded with brief presentations by Senators of newly-proposed budget amendments that were not included in the Senate’s budget during the regular session, including a proposal to require a performance and reclamation bond for solar installations in order to qualify for certain tax exemptions and a proposal to redirect some bond proceeds from the Stormwater Local Assistance Fund to the Combined Sewer Overflow Matching Fund to assist with a major project in the City of Alexandria.

On May 15, the Health and Human Resources Subcommittee held an informal discussion of member budget amendments that addressed topics within the Subcommittee’s scope, agreeing in concept to several proposals (such as the creation of a workgroup looking at ways to stabilize the individual insurance market and language directing state agencies to emphasize the use of evidence-based, trauma-informed community services through the Children’s Services Act) and planning to work through other items in conference. The full Senate is scheduled to return to Richmond again on May 22, and it is expected that the Senate Finance Committee will meet that day as well in order to report a budget bill that would subsequently be taken up by the full Senate. VACo will continue to provide updates to members as the budget process moves forward.

VACo Contact: Katie Boyle

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