Virginia’s 2014 – 2016 Proposed Biennial Budget

This morning in Richmond before a joint meeting of the General Assembly’s budget and finance committees, Governor Robert F. McDonnell presented his final biennial budget (2014-2016) and a few amendments to the current year’s budget. In addition to introducing a new budget, governors also are required to present an updated revenue forecast during this annual December meeting.

Kemper Consulting’s summary is intended to provide a brief overview of the Governor’s key initiatives including those pertaining to economic indicators and policy initiatives. We will continue to keep you apprised of significant Virginia developments.

Governor-elect Terry R. McAuliffe will take office on Saturday January 11, three days after the legislature convenes.  Although Governor McDonnell will no longer be in office, his outgoing budget initiates the new process. The House and Senate will adopt budget amendments before proceeding to a committee of conference to reach a budget agreement. The final adopted budget will proceed to Governor McAuliffe’s desk for his consideration.  The 2014 legislative session is scheduled to adjourn in mid-March.

Earlier this fall both the Commonwealth’s Joint Advisory Board of Economists (JABE) and the Governor’s Advisory Council on Revenue Estimates (GACRE) met to discuss the new economic forecast. The consensus opinion was one of caution, especially due to the uncertainty in federal spending and its impact on Virginia. McDonnell’s proposed budget adopts a standard minus forecast which includes modest projected revenue growth of 4.2 percent in FY 2015 and 3.9 percent in FY 2016.

In his remarks, the Governor highlighted several key initiatives.

K-12 Education
Including additional lottery revenues of $38 million each year, the proposed budget increases K-12 spending by $582.6 million.  The majority of the new money supports statutorily required “re-benchmarking” of the Standards of Quality –the minimum requirements. The budget includes increases for school construction loans, additional math and reading specialists in underperforming schools, innovative education grants, and new school safety personnel. The Governor also added $600,000 in each year of the biennium to support the controversial new Opportunity Education Institute.

Higher Education
$183.1 million has been added to the current base supporting colleges and universities.  Financial aid programs for low- and middle-income students, and a performance incentive fund see increases.

Medicaid
The Medicaid forecast calls for an additional $674 million in biennial general fund spending. Enrollment is slowing; expenditures are expected to increase by 6.6 percent in FY 2015 and 7.3 percent in FY 2016 -down for example from 8.5 percent in FY 2013. McDonnell said:  “Virginia must achieve structural reforms that bend the cost curve before we decide to expand Medicaid. Therefore, my budget continues the operation of the Medicaid Innovation and Reform Commission (MIRC) and also includes language that sunsets any potential Medicaid expansion on June 30, 2016, in order to allow a full evaluation of Medicaid reform efforts and whether Virginia can afford expansion.” The MIRC was created by the General Assembly in the FY 2014 Appropriations Act and tasked with evaluating whether Virginia should proceed with expansion.

Mental Health
An additional $98.5 million is proposed as part of the national Department of Justice, Developmental/Intellectual Disability Settlement. $78.8 million will fund additional waiver slots and $19.3 million will expand crisis stabilization services.

As he announced last week, McDonnell included an increase of $38.3 million to the behavioral health service delivery system.  The spending supports additional community and crisis mental health resources and comes after the unfortunate tragedy experienced by Senator Creigh R. Deeds and his family.

Public Safety
New Public Safety expenditures support increased staffing levels for sheriff and regional jail deputies (related to overcrowding). The proposed budget also budgets funding to fill 25 statewide judicial vacancies.

Port of Virginia
After the new 2013 investment in Virginia’s transportation network, this year’s spending increase focuses in part on the Port. $6.5 million has been included to address the study requirements to allow dredging in the Norfolk harbor and the Elizabeth River – dredging it to 55 feet. Currently, the Port of Virginia is the only Port on the East Coast with authorization for this depth.

General Government
McDonnell’s budget makes an additional payment to the Rainy Day Fund (Revenue Stabilization Fund), resulting in a balance of over $1 billion by the end of FY 2016. These payments would create the fourth highest balance in history and are intended to help the Commonwealth prepare for future federal budget cuts.

Although agency savings and a slight revenue increase have provided millions in proposed new spending, McDonnell’s last budget continues his history of conservative spending with zero increases in taxes or fees. Much of the new spending supports programs he has prioritized.  Additionally, the budget contains an unappropriated balance of $50.9 million or the largest proposed carry-forward since 1991.

As a reminder, when the General Assembly convenes on January 8, 15 new members will join the House of Delegates. The 100 House seats were on the November ballot along with three statewide offices – Governor, Lt. Governor and Attorney General. (The 40 Senators did not stand for election; they will run in two years when the House stands again.)  Two special elections are scheduled for Tuesday, January 7 – one House seat resulting from a retirement, and one Senate seat resulting from the election of Senator Ralph S. Northam (D-Norfolk) to the Office of Lt. Governor.  A second Senate special election will be held after the statewide recount for Attorney General is completed.  The contestants are both Senators: Mark R. Herring (D-Loudoun) and Mark D. Obenshain (R-Harrisonburg).

For the full budget breakdown, visit the State Budget page on the Legislative Information System by clicking here.