Governor Northam Releases Budget Proposal for 2021 General Assembly

December 18, 2020

Governor Northam presented his proposed revisions to the 2020-2022 biennium budget to the House Appropriations, House Finance, and Senate Finance and Appropriations Committees on Wednesday, December 16. These proposals revisit the changes made to the biennium budget during the recently-concluded special session, which reflected a revenue reforecast developed in August. The Governor’s December budget incorporates an updated revenue forecast, which is more optimistic than this summer’s predictions; however, the Governor cautioned that Virginia must continue to guard against uncertainty by preserving its flexibility to respond to unexpected downturns.

In his remarks to committee members, the Governor pointed out that Virginia’s finances have fared better than those of many other states, and that revenues have performed better than expected in the August forecast, but noted that the pandemic has underscored the importance of planning for the unexpected. The Governor proposes to deposit $650 million in one-time revenues to the state’s reserves in order to preserve liquidity, and to use another $100 million in one-time funding to reduce unfunded liabilities in the Virginia Retirement System’s teacher retirement plan and state retiree health insurance program, an action which is expected to result in reductions in employer contribution rates in the future.

Several of the major spending items in the Governor’s proposal address needs resulting from the pandemic, including investments in broadband access, a deposit to the Housing Trust Fund, and funding for mass vaccinations. Of critical importance to local governments, the Governor’s budget provides approximately $513 million over the biennium to protect local school divisions’ financial stability during the current period of fluctuating enrollment. The introduced budget also revisits several of the Governor’s signature proposals from the 2020 regular session – the “G3” community college tuition assistance program and investments in early childhood education – which fell victim to the spending freezes in April, when much of the new discretionary spending approved by the legislature was paused pending a reforecast.

Secretary of Finance Aubrey L. Layne, Jr., presented additional details on the state’s revenue reforecast. Based on the Administration’s discussions with economists and business leaders as part of the reforecasting process, the December forecast expects an additional $685 million in FY 2021 and $573 million in FY 2022 relative to the August forecast. On a year-to-date basis, revenues have grown by 6.1 percent, well ahead of the forecast of a 1.8 percent decline; this growth is attributable to strength in sales tax, corporate income tax, and recordation tax collections, as well as individual income tax nonwithholding, although the latter category is traditionally volatile, and the bulk of payments are not made until the last quarter of the fiscal year. The December forecast calls for total revenue growth of 1.2 percent in FY 2021 and 3.3 percent in FY 2022 (the August forecast expected a 1.8 percent decline in FY 2021 and growth of 3.9 percent in FY 2022). Importantly, this forecast assumes that Virginia’s income tax laws will conform to the provisions of the federal CARES Act that address individual income tax payments, but not the CARES Act provisions governing business taxpayers. Secretary Layne noted that additional information from December holiday sales and other data points will be available in January; the Governor has indicated that his priority for additional revenues would be the conversion of the bonus payment proposed in his budget for teachers to a salary increase.

An overview of major spending items of interest to local governments, based on VACo staff’s initial review of the Governor’s budget, may be found below.

K-12 Education

  • Protects school divisions from revenue losses associated with enrollment fluctuations during the pandemic by providing $299.4 million General Funds (GF) in FY 2021 and $214.2 million GF in FY 2022 in “no loss” funding. VACo strongly supports this action.
  • Reduces unfunded liabilities in the VRS teacher retirement plan by directing a deposit of an estimated $61.3 million GF in FY 2021 to expedite repayment of contributions that were deferred during the 2010-2012 biennium (an estimated $38.7 million is directed to be deposited to the retiree health insurance credit plan for state employees to reduce unfunded liabilities in that plan as well). VACo has historically supported efforts to reduce the unfunded liability in the teacher retirement plan.
  • Requires that local school boards employ one school counselor per 325 students in grades K-12, beginning with the 2021-2022 school year, and provides $26.6 million GF in FY 2022 for the state share of these costs.
  • Directs the Virginia Department of Education and the Department of the Treasury to develop recommendations to encourage use of the Literary Fund for funding school construction projects.
  • Provides $2.7 million GF in FY 2022 to expand eligibility for the Cost of Competing Adjustment to Accomack County and Northampton County.

Compensation

  • Contingent on FY 2021 revenues meeting projections, provides $80.1 million GF in FY 2022 for the state share of a 2 percent bonus for SOQ-recognized instructional and support positions, effective September 1, 2021.
  • Also contingent on FY 2021 revenue performance, provides $97.8 million for a bonus of $1500 for state employees and 1.5 percent for Constitutional officers and state-supported local employees, effective September 1, 2021.

Judiciary/Public Safety

  • Authorizes a treasury loan to the Virginia Alcohol and Beverage Control Authority (ABC) to help pay for the establishment of governance, oversight, and regulations for a legalized marijuana industry in the Commonwealth.
  • Provides $5 million in FY 2021 and $20 million in FY 2022 to pay for the cost of expungement reforms, including automatic expungement of misdemeanor marijuana convictions.
  • Provides $235,419 GF in FY 2021 and $4.9 million GF in FY 2022 to fund additional judges and support staff for the Court of Appeals expected to result from the expansion of the Court of Appeals from 11 judges to 15 judges pursuant to legislation in the 2021 Session.
  • Provides $1.6 million GF in FY 2022 for renovation projects approved by the State Board of Local and Regional Jails in 2020. These include projects at the Virginia Peninsula Regional Jail, the Virginia Beach Correctional Center, and the Montgomery County Jail.
  • Provides $500,000 GF in both FY 2021 and FY 2022 to address the funding shortfall in the Drug Offender Assessment and Treatment Fund, which is used by the Department of Corrections to fund probation and parole positions.
  • Funds increases in inmate medical costs at the Department of Corrections ($394,103 GF in FY 2021 and $13.9 million GF in FY 2022).
  • Provides $1.5 million GF in FY 2022 to the Department of Criminal Justice Services (DCJS) for competitive grants to localities to combat hate crimes.
  • Provides $700,000 GF in FY 2022 to the Virginia Parole Board to improve victim services assistance and notification and to hire additional investigators, examiners, and a release planning coordinator.
  • Funds ongoing COVID-19 disaster response efforts at the Virginia Department of Emergency Management ($42 million GF in FY 2021 and $36.9 million in FY 2022).
  • Extends the work of the Body Worn Camera Workgroup until November 2021. The work group is directed to examine the workload impact, as well as other fiscal and policy impacts, of the use of body-worn cameras on the Commonwealth’s public safety and judicial agencies as a whole. The Executive Secretary of the Supreme Court shall submit the recommendations of the working group to the Chairs of the House Appropriations and Senate Finance and Appropriations Committees by November 15, 2021.

Agriculture and Forestry

  • Includes $276,636 in FY 2022 for additional food safety inspectors to enhance food safety and economic growth programs.
  • Provides $600,000 in FY 2022 to establish the Virginia Agriculture Food Assistance Program, which would provide grants to assist farmers and food producers with costs associated with providing agricultural products to charitable organizations, pursuant to legislation to be considered in 2021.
  • Provides $521,842 in FY 2022 to develop a hardwood forest habitat program.
  • Provides $478,815 in FY 2022 to develop a watershed improvement program within the Department of Forestry.

Constitutional Officers

  • Provides $2.6 million GF in FY 2022 to adjust entry-level salaries for regional jail officers, similar to the increase provided in 2019 for entry-level deputy sheriffs, effective July 1, 2021.
  • Provides $979,399 GF in FY 2022 to fund 25 percent of the staffing needs for sworn court services positions (based on the Compensation Board’s staffing standards).
  • Provides $1.4 million GF in FY 2022 to fund 25 percent of the staffing needs in Commonwealth’s Attorneys’ offices (based on the Compensation Board’s staffing standards).
  • Provides $1.8 million GF in FY 2022 to align deputy Circuit Court Clerks’ salaries with those of district court clerks.
  • Establishes a minimum of three staff positions in each Circuit Court Clerk’s office by providing $358,571 GF in FY 2022.
  • Provides $1 million GF in FY 2022 for Circuit Court Clerks’ operating budgets in order to reduce the amount of technology trust fund monies that are currently used to support operating budgets as a result of previous budget reductions.
  • Provides $752,608 GF in FY 2022 for unfunded and underfunded positions in Treasurers’ offices.
  • Provides $950,656 GF in FY 2022 for unfunded and underfunded positions in offices of the Commissioners of the Revenue.
  • Provides $85,657 GF in FY 2021 and $246,767 GF in FY 2022 to fund the impact of the statewide minimum wage increase on salaries in Constitutional offices.
  • Provides $359,715 GF in FY 2022 to adjust Constitutional officer salaries based on changes in locality populations.

Elections

  • Provides $16.7 million GF in FY 2021 for the replacement of the Virginia Election and Registration Information System (VERIS) after the exhaustion of available federal Help America Vote Act funding.

Economic Development/Workforce

  • Provides $500,000 GF in FY 2022 to create the Office of Education and Labor Market Alignment, which would be established by legislation to be considered by the 2021 General Assembly.
  • Restores $2 million GF in FY 2022 for the Virginia Jobs Investment Program. VACo supports this program, which assists businesses with workforce training costs.
  • Provides an additional $5 million GF in FY 2022 for the Virginia Business Ready Sites program.
  • Provides $7.5 million GF in FY 2022 for estimated interest payments on federal cash advances for unemployment insurance benefits during the pandemic.
  • Provides $10 million GF in one-time funding in FY 2022 to increase staffing for processing of unemployment insurance claims.
  • Provides $5 million GF in one-time funding in FY 2022 to integrate federal CARES Act programs into the state’s modernized unemployment insurance system.
  • Restores $36 million GF in FY 2022 for the “G3” (Get Skilled, Get a Job, Give Back) program, which assists with community college tuition and other costs for students meeting certain eligibility criteria who are enrolled in programs preparing them for careers in certain high-demand fields.

Broadband

  • Provides an additional $15.25 million GF in FY 2022 for the Virginia Telecommunication Initiative, for a total of $49.7 million in the VATI program and $250,000 in administrative support. VACo supports this additional financial assistance to counties to build the necessary telecommunications infrastructure for unserved areas.

Housing

  • Deposits $15.7 million GF in FY 2021 and $25 million GF in FY 2022 in the Housing Trust Fund; directs the FY 2021 deposit to be dedicated to continuing the Virginia Rent and Mortgage Relief Program after the expiration of federal Coronavirus Relief Funds that are currently supporting the program.
  • Restores $3.3 million GF in FY 2022 to continue the Eviction Prevention and Diversion Pilot Program, which supports local or regional programs that link clients to local departments of social services and legal aid.

Child Care/Early Childhood

  • Increases the Virginia Preschool Initiative (VPI) per-pupil amount from $6,326 to $7,655 by providing $11.1 million GF in FY 2022.
  • Provides $5 million GF in FY 2022 for incentive payments to retain early childhood educators.
  • Includes language establishing a target of 10 percent of all children participating in VPI being children with disabilities who have Individualized Education Plans (IEPs), who would be served in inclusive classrooms alongside children without IEPs.
  • Authorizes the use of unspent VPI funds to supplement certain other early childhood initiatives.
  • Expands eligibility for grants that provide incentives to provisionally-licensed teachers who are working towards licensure to all publicly-funded preschool programs operated by local school divisions (currently, the program applies to VPI teachers).
  • Provides $164,174 GF in FY 2022 to support a Deputy Superintendent of Early Childhood position in the Department of Education.

Children’s Services Act

  • Includes an additional $2.7 million GF and $5 million NGF in FY 2022 to reflect the shifting of costs from Title IV-E to Medicaid for children in psychiatric residential treatment facilities. The Department of Medical Assistance Services has indicated that these costs are no longer to be covered by Title IV-E, which is a state-federal cost-share, and will instead be covered by Medicaid, which includes a local match. VACo is working to obtain further information on this proposed change.
  • Provides $921,296 GF in FY 2022 to reflect the state share of certain costs for children in foster care shifting from Title IV-E to CSA due to the implementation of the federal Family First Prevention Services Act, which limits federal Title IV-E funding for certain congregate care placements (but expands the eligible uses of Title IV-E funding for prevention services).
  • Delays the deadline for submission of a report on rate-setting for private special education day placement services from September 1, 2020, to September 1, 2021; provides $100,000 GF in FY 2022 for the Office of Children’s Services to contract for assistance in implementing rate setting. Directs the implementation of statewide rate-setting effective July 1, 2022. Extends the moratorium on rate increases above 2 percent through the end of the biennium.

Health

  • Provides $30 million GF in FY 2021 and $59 million GF in FY 2022 to support a mass COVID-19 vaccination campaign, to include purchase of equipment, support for local health departments, and warehousing and shipping costs.
  • Provides $10.2 million GF in FY 2022 for costs associated with updating the current funding formula for local health departments. A portion of the funding is to be used to hold harmless localities that would otherwise experience a decline in state support. Language directs the Virginia Department of Health to conduct an analysis of local match rates and report to the Governor every two years, and warns that similar hold-harmless funding is not guaranteed in future years.
  • Directs the Department of Medical Assistance Services to seek federal approval to authorize coverage for certain telehealth services (temporary coverage has been authorized during the pandemic).

Behavioral Health

  • Provides $3.5 million GF in FY 2022 to support the diversion and discharge of individuals with dementia from state hospitals, to include contracts to support serving individuals in private settings and funding for a pilot mobile crisis program targeted toward individuals with a diagnosis of dementia. Directs the Secretary of Health and Human Resources to convene a workgroup to make recommendations for the use of evidence-based services for individuals with dementia to improve quality of care and reduce hospitalizations.
  • Provides $2.5 million GF in FY 2022 for discharge assistance planning for individuals returning to the community from state hospitals.
  • Provides $80,000 GF in FY 2021 and $691,612 GF in FY 2022 for administrative costs for implementation of the “Marcus Alert” legislation enacted in the special session.
  • Amends language authorizing use of state funding to provide alternatives to admitting children to the Commonwealth Center for Children and Adolescents to allow step-down services or community-based services to be funded as alternatives to inpatient care.
  • Expands allowable uses for previously-appropriated funds for Crisis Intervention Team training to support CIT initiatives.
  • Authorizes the State Board of Behavioral Health and Developmental Services to promulgate emergency regulations for licensing of children’s residential facilities to align with federal requirements in the Family First Prevention Services Act.

Social Services

  • Provides $9.2 million GF and $5 million in federal funds in FY 2022 for prevention services for children at imminent risk of entering foster care, in keeping with the Family First Prevention Services Act.
  • Provides $2 million GF and $2.9 million NGF to expand the Supplemental Nutrition Assistance Program Employment and Training program to 95 additional local departments of social services.
  • Directs $3 million from the Temporary Assistance to Needy Families block grant to contract with the Virginia Federation of Food Banks for child nutrition programs.
  • Provides $75,000 GF in FY 2022 for an emergency approval process for kinship caregivers in order to help place children with eligible relatives.

Natural Resources

  • Provides $400,395 in FY 2022 to fund dam safety management and engineering positions.
  • Includes $13.5 million in FY 2022 for supplemental funding for the Virginia Natural Resources Commitment Fund for agricultural best management practices and technical assistance to soil and water conservation districts.
  • Includes $1 million in FY 2022 for natural heritage public safety and access needs.
  • Provides nearly $12 million in FY 2022 to the Department of Environmental Quality (DEQ) for air, land, and water protection efforts (namely through staffing increases).
  • Includes $78,150 GF in FY 2022 for a coastal resiliency manager position through the Marine Resources Commission.
  • Provides $1.3 million NGF over the biennium for the acquisition of state parks.

Transportation

  • Expands use of the Governor’s New Airline Service Incentive Fund to provide or assist in the provision of marketing, advertising, or promotional activities in order to incentivize airlines that provide existing air passenger service in Virginia to continue such service.
  • Authorizes the Virginia Aviation Board to increase entitlement funds to commercial airports based on demonstrated need.
  • Delays strategic plan requirements for urban transit agencies and the Washington Metropolitan Area Transit Authority (WMATA).
  • Provides $50 million GF in FY 2022 to extend intercity passenger rail service from Roanoke to Blacksburg-Christiansburg.
  • Provides $5 million GF in FY 2022 to support the development and construction of multi-use trails, with priority given to trails with a total length in excess of 35 miles and geographic diversity.

Reserves

  • Deposits $650 million GF to the Revenue Reserve in FY 2022.

VACo Contacts: Katie Boyle; Jeremy Bennett; Chris McDonald, Esq., Joe Lerch, AICP; Phyllis Errico, Esq., CAE

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