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Virginia faces $2.7 billion revenue shortfall, but plans no layoffs or cuts in current programs

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Despite the budget shortfall, Gov. Ralph Northam says he expects to avoid layoffs or cuts in essential services.

Gov. Ralph Northam expects Virginia to receive up to $2.7 billion less in revenues than previously projected for the two-year state budget because of the recession caused by the coronavirus pandemic, but he expects to avoid laying off state employees or cutting essential public services.

Northam is preparing to lay out the new revenue forecast for the General Assembly when it convenes in special session on Tuesday. Lawmakers will revise the budget they approved in March on the same day the governor declared a public health emergency that froze more than $2.2 billion in new spending.

The governor proposes to eliminate most of that spending from the two-year, $135 billion budget, but he and his advisers say the state has benefited by waiting for better information instead of making cuts at the beginning of the crisis as some legislators advocated.

“This starts with sound fiscal management and smart investments in our future,” Northam said Friday. “Careful planning has kept us from having to gut critical services or lay off state workers, like other states have done.”

The governor’s revised revenue forecast includes bad news for Virginia’s transportation program, which fell short in revenues by $121 million in the last fiscal year and expects a shortfall of $750 million in the next two years because of big drops in fuel and sales tax collections.

The new spending that the governor will cut includes personal priorities such as expanding early childhood education and a new tuition-free plan for community college students who provide service to the state. His advisers say his goal is to avoid cutting base budget spending for existing programs and the state employee workforce.

“His top priority is not to get into the base,” Matt Mansell, director of the Office of Policy and Legislative Affairs, said in a briefing, adding that abandoning the early childhood and community college initiatives “was a very difficult decision to make.”

However, Northam also will rely on an unexpected windfall in July tax collections and other one-time revenues to pay for $175 million in new spending, primarily to boost Virginia’s trust fund for affordable housing and expand broadband telecommunications networks that have become crucial to business and education during the coronavirus crisis.

He proposes $71 million in new spending on housing and $47 million in new spending on broadband, on top of money already part of the base budget.

“Virginians are hurting, and the commonwealth is stepping up,” Northam said Friday. “Our country is battling both a health crisis and an economic crisis at once, so Virginia is advancing new programs to help people stay in their homes, care for the ones they love, and feel safe in the community.

“I look forward to working with my colleagues in the General Assembly to advance long overdue police reform and pass record investments in affordable housing and broadband, so we can continue to support Virginians during this unprecedented time,” he said.

House Speaker Eileen Filler-Corn, D-Fairfax, responded Friday, “I commend the Governor’s commitment to provide broadband access for Virginia students who need it most, investing in public housing, halting evictions and utility cutoffs, passing sweeping criminal justice reform and much more.

“Virginians expect their elected officials to step up for them in this unprecedented moment,” Filler-Corn said. “We will deliver.”

Northam also will propose more than $15 million in new spending for historically Black colleges and universities, including $6.5 million for Virginia State University in Ettrick, and almost $10 million for cultural initiatives such as education in African American history and the American Civil War Museum in Richmond.

Police reforms, Lee statue

He also proposes to spend $3.6 million as a down payment for new criminal justice and police reforms expected in response to Black Lives Matter protests that began with the death of George Floyd in police custody in Minneapolis. The final cost of the reforms hasn’t been determined.

His plan includes $1.1 million to take down the statue of Confederate Gen. Robert E. Lee from its 130-year perch on Monument Avenue, pending the resolution of a lawsuit by Richmond residents that prompted a Richmond judge to impose a 90-day injunction that prevents the state from removing the monument.

Northam also proposes to restore planned new spending for land conservation, rehabilitating deteriorated dams, improving water quality and creating an office to promote offshore wind energy development.

He has included about $4.7 million in direct aid to education, primarily to recruit and retain early childhood educators, and $2 million for the Virginia Economic Development Partnership to encourage employers to bring new jobs to the state.

Wilder’s records

As promised, he also restored $400,000 to the Library of Virginia so it can process gubernatorial records and make them public, beginning with those from the administration of Gov. L. Douglas Wilder, who recently accused the library of racism for failing to make records available from his term 30 years ago as the country’s first elected African American governor.

On the policy side, Northam plans to support a slew of legislation for criminal justice and police reforms, change the state law to allow greater transparency on disease outbreaks in long-term care facilities and other congregate settings, and provide postage-free mailing of ballots for absentee voting.

Northam has one-time funds available to pay for these initiatives partly because of a $329 million increase in state tax collections in July, or a 24.1% increase over the same month last year. The increase is due partly to the extension of the tax filing deadline from May 1 to June 1 because of the coronavirus, but the state also saw a big increase in quarterly income tax payments by self-employed people and investors.

‘Cash is king’

Secretary of Finance Aubrey Layne said the state also was helped by steady payroll income tax payments and higher sales tax collections because fewer retailers were required to make accelerated payments in June, the last month of the previous fiscal year, and deposited tax receipts in July instead.

The state also will have additional cash on hand because of $307 million that wasn’t spent last year after Northam stopped all discretionary spending and froze hiring because of the public health emergency. Virginia also will receive an additional $331 million in federal Medicaid money under the Families First Act approved by Congress in March, but the state will have to pay an additional $91 million as its share of the costs of the health care program for poor, elderly and disabled Virginians.

“Cash is king,” said Grant Neely, the governor’s chief communications officer.

However, the governor does not want to spend all of the cash the state has available because of uncertainty about the pandemic and accompanying recession. His budget proposal would leave a balance of about $500 million in mid-2022.

“It’s not there to support ongoing programs,” Layne said.

Northam is basing his revised budget on a standard recession forecast that would reduce revenues by $1.3 billion the first year and $1.4 billion in the second year. The forecast does not reflect the additional $329 million collected in July. The forecast was produced with recommendations by the Joint Board of Economists and Governor’s Advisory Council on Revenue Estimates.

In comparison, a pessimistic, worst-case forecast would have cut revenues by $5 billion, Layne said. “That would have been just a total collapse of the economy.”

“Nobody is anticipating that,” he said.


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