Virginia will begin working on new revenue estimates for the next state budget before Gov. Ralph Northam can sign the two-year spending plan that the General Assembly adopted last week in a 60-day special session.
The Joint Advisory Board of Economists will meet on Nov. 4 to begin the formal process of revising the state’s expectations for revenues to pay for spending in the two-year budget that Northam will present to the assembly’s money committees on Dec. 16.
The Governor’s Advisory Council on Revenue Estimates will review the proposed new forecast on Nov. 23 to judge whether it’s too optimistic, too pessimistic, or just right.
But the governor also won’t sign the newly adopted budget until after that process begins because of a political cease-fire that leaves the assembly still in session until voters decide on Nov. 3 whether to approve a constitutional amendment on creating an independent commission for political redistricting. That issue deeply divides the Democrats who control both chambers of the legislature.
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The close timing raises some concerns for administration budget officials, who worry whether the state will have the money to pay for the $240.3 million in spending that the assembly approved, despite uncertainty over the COVID-19 pandemic and its effects on Virginia’s economy.
“The revenue has held up, but is that going to continue?” asked Secretary of Finance Aubrey Layne, who will appear before the Senate Finance and Appropriations Committee on Tuesday.
Assembly budget negotiators are less concerned because Northam will have another chance to adjust spending to revenue in the budget he will present in eight weeks for them to consider in a 46-day legislative session that begins in January.
“One way or another, it’s going to be contingent on whether we have the money to do it,” said Sen. Emmett Hanger, R-Augusta, a member of the budget conference committee who pushed hard to restore spending on behavioral health that the governor had proposed to cut because of a projected $2.8 billion shortfall in the two-year spending plan.
Northam has been quiet since the assembly adopted its budget and recessed the special session on Friday, but chief of staff Clark Mercer said Monday that the governor and legislators are generally on the same page.
“He feels like the budget’s in a pretty good place,” Mercer said.
That’s the same message that House Appropriations Chairman Luke Torian, D-Prince William, said he heard from the governor in a conversation on Saturday.
“He indicated he is pleased with the budget,” Torian said Monday.
Northam had challenged assembly leaders early this month over concerns that the House and Senate budgets wanted to commit too much of the $490.5 million unappropriated balance he had proposed to leave to hedge against uncertainty over the pandemic and economy.
He also asked them not to restrict his executive authority to a public emergency or in allocating more than $1 billion in unspent federal COVID-19 relief funds under the CARES Act.
The budget compromise eliminated almost all contingency funding, or spending that would depend on revenues in the next budget, except for nearly $98 million to give bonuses to state employees, adjunct college and university faculty, and state-supported local employees next year if the state has the money at the end of this fiscal year to pay for it.
The assembly specified how to spend the rest of the CARES Act funding, which has to be allocated by Dec. 30 or returned to the federal government. However, Northam and legislative leaders generally agree on the spending priorities for federal aid, if not the exact amount each one would receive.
“Those are our shared goals,” Mercer said.
Northam is working on one potential addition to those priorities — money for an emergency workforce training program that would rely on Virginia’s community colleges, similar to the G3 program that the governor had championed in the budget that the assembly adopted in March.
The proposal was among more than $2 billion in new spending the governor proposed to cut to fill the expected revenue shortfall.
Similarly, Mercer said the governor supports some of the spending priorities the assembly restored — such as creating a Medicaid dental benefit for adults, eliminating a 10-year work requirement before immigrants become eligible for Medicaid, and expanding early childhood education, another personal priority that Northam had proposed to cut.
Layne said his primary concern is the lack of “structural balance” in the second year of the budget — running from July 1, 2021, through June 30, 2022 — because of uncertainty over whether the revenues will be available to pay for the new spending.
State revenues were up 7.6% in September compared with September 2019 and almost 10% in the fiscal year that began July 1, but much of the excess revenues came from estimated income tax payments that are the most volatile source of funding for the state general fund budget.
The $46 billion general fund pays for core public services, such as education, public safety and the state’s share of health care.
“We had a pretty good recovery [in the previous three months],” Layne said of the national economy, “but it’s starting to wane now because the stimulus [aid] is going away.”
The administration has not released the results of an interim forecast completed last week on the costs of Virginia’s $13.7 billion Medicaid program, which traditionally has been a major factor in determining mandatory spending that the governor must address in his proposed budget. Administration officials are waiting for the final Medicaid cost estimates on Nov. 1.
“I don’t think it’s going to be as bad as previous years,” Layne said.
But before Northam can fully turn his attention to the next budget, he will have to propose any final changes to this one. Most notably, if voters approve the redistricting amendment, he has promised to submit an amendment with language that House and Senate budget leaders already have negotiated to direct the creation of the commission and its work on political redistricting next year based on the new national census.
The governor will have seven days to propose amendments to the budget because the assembly did not adjourn the special session last week.
And, soon after it’s finally done, the legislative budget process will begin again, with an election year looming in 2021 for a new governor and the House of Delegates.
“It’s going to be an interesting winter,” Hanger said.