June 10 Virginia Budget Update

Recent Richmond events have quickened to the point that Kemper Consulting expects the House and Senate to adopt a new biennial budget for fiscal years 2014 to 2016 within several days.

The Senate and House have announced intentions to reconvene on Thursday, June 12.  Before the week is out, Kemper Consulting foresees the Senate acting on the House’s budget bill that has been before the Senate Finance Committee since late March (HB 5002).   A budget agreement between the two chambers may quickly develop once HB 5002 is communicated from the Senate back to the House.

Recent events have helped to clear the way for a near term budget agreement:

News reports indicate that Senate Democratic leadership agreed to separate the Medicaid debate from the budget debate.  (You will recall that the Democrats, including the Governor and three Senate Republicans have insisted that the Commonwealth “expand” Medicaid coverage for up to 400,000 uninsured Virginians as part of the new biennial budget.  The House Republicans, along with 17 Senate Republicans, have consistently opposed doing so – through the budget or presently, through any other mechanism.)

On Sunday, and as indicated in our same day Kemper Consulting release, Senator Phillip Puckett (D-Tazewell) resigned thereby shifting the Senate’s balance of power to the Republicans (20-19).  (The Governor must call a special election to fill the seat, but one will not be held before the adoption of a new state budget.)

Yesterday, the 20 Senate Republicans and one Senate Democrat agreed to reconvene on Thursday and apparently to separate the Medicaid debate from the budget debate.

The Governor’s Secretary of Finance has advised state leaders that the adoption of a new budget is time sensitive in light of recent declining state revenue estimates and his forthcoming meeting with national bond rating agencies late next week.  The Commonwealth’s new fiscal year begins on July 1.  Virginia is facing an estimated $1.4 billion biennial shortfall.  Tapping into the “Rainy Day Fund” (reserve balances) to help balance the budget is allowable only as part of enacting a new budget, i.e. the fund is inaccessible without an adopted budget.  Up to $700 million may be used to help resolve the shortfall problem leaving $700 million in new budget cuts.