RICHMOND – Gov. Ralph Northam is dealing with his last two-year budget, with proposals to give the state and other public employees a 10% increase, pay $ 1 billion in unfunded pension liabilities, and contribute $ 500 million for renovating or replacing old public school buildings.
Northam, in his final budget statement to the General Assembly’s finance committees before leaving office next month, said Thursday he would leave the state in good financial condition, with $ 13.4 billion in additional revenues. which is expected to flow into the state within three years.
“Virginia has never been in such a strong financial position,” Alena Yarmosky, the governor’s press secretary, said at an embargo budget briefing Wednesday.
As a result, the governor is proposing $ 1.1 billion in new spending this fiscal year that ends June 30 and $ 10.5 billion over the next two fiscal years. After deducting savings, primarily from Virginia’s Medicaid program, the state’s net operating costs will drop by nearly $ 76 million in the first year and increase by $ 9.7 billion over the next two years.
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Northam has already announced most of the new initiatives it proposes in the $ 158 billion two-year budget, led by a $ 2.4 billion increase in direct assistance for K-12 public education, including a 10% increase for teachers within two years.
On Thursday, Northam announced a proposal to provide both increases to local state and state-supported employees, as well as sheriff’s representatives and workers at local and regional behavioral health organizations. The proposed increase would cost $ 750 million for teachers and $ 807 million for other public employees over two years.
Gov.-elect Glenn Youngkin and Lt. Gov.-elect Winsome Sears, who took office Jan. 15, attended the speech at Northam’s invitation. Youngkin and the legislature, along with the House newly under GOP control, will make final budget decisions at the legislative session that begins next month.
Northam is also targeting large spending increases for behavioral health care, including salary increases for direct care providers in state mental hospitals and other mental health facilities. behavior, which is dense and understaffed. He will also pay for increases with $ 68 million in unspent federal emergency assistance.
Those increases are part of a proposed $ 560 million behavioral health package that will fully fund the STEP-VA program for delivering community services, such as crisis care and permanent supportive housing, to avert the people in the institutions.
It will expand community services to treat people for addiction, raise behavioral health standards and increase mental health counseling in prisons and jails.
Separately, Northam proposes to spend $ 675 million to expand access to Medicaid waiver slots for community services to people with developmental and intellectual disabilities, while increasing reimbursement rates to organizations that provide those services. for the first time in over five years.
“We want to make sure we have high-quality caregivers in the communities to deliver services to these vulnerable populations,” Finance Secretary Joe Flores said Wednesday.
The proposed budget also includes up to $ 1 million for the Department of Behavioral Health and Developmental Services to hire a consultant to conduct a comprehensive study of the behavioral health system next year to identify other gaps that need to be fixed.
Development of state reserves
Northam proposes a number of large one -time investments with an eye towards the future. For example, he wants to make a $ 564 million deposit in the cash reserve fund in the first year and a $ 1.1 billion deposit in the constitutional “rainy season” fund in the second that will increase the state’s total reserve to more than $ 3.8 billion by mid-2024. , or about 17% of general fund revenues.
The proposal includes language to override a constitutional provision that limits total fund reserves to 15% of general fund revenues, or approximately $ 300 million less than Northam wants to set aside.
He also wants to lower long -term liabilities for state teacher and employee retirement funds by making a one -time deposit of $ 924 million and maintaining current state contribution rates to pension funds, which will reduce in future liabilities of more than $ 271 million.
Northam proposed to pay for updated Medicaid costs of $ 821 million over the next two years and K-12 education of nearly $ 332 million, while spending an additional $ 354.5 million to “not harm” local school division from the effects of the pandemic, including low student enrollment.
The governor is also proposing a $ 500 million contribution to help local school divisions repair or replace school buildings, a multi-billion dollar problem in a state where more than half of public school buildings is over 50 years old.
A legislative commission is also expected to recommend the establishment of a separate fund for school modernization, as well as measures to make it easier to obtain grants and low -cost loans to school divisions to pay for capital projects.
Northam proposed making $ 2.8 billion in one-time cash payments for capital projects to replace bonded debt and save the state money on interest payments. The proposed expenditure would also cover more than $ 300 million in higher costs for current projects, including the construction of the new Central State Hospital near Petersburg, due to inflation and higher wages.
The governor also has more than $ 1 billion in federal aid left over from the $ 4.3 billion Virginia received under the American Rescue Plan Act, signed by President Joe Biden in March. He proposed spending approximately $ 690 million of the remaining funds and hoarding approximately $ 424 million as an additional hedge against the resurgence of COVID-19.
He wants to spend $ 165 million to help Lynchburg, Richmond and Alexandria end the pollution of rivers with raw sewage from old aggregate sewer systems that overflow during heavy rains.
Finally, Northam is proposing $ 2.1 billion in tax cuts and other savings. He has already launched a package with some similarities to the proposals Youngkin put in the middle of his gubernatorial campaign. Northam offers a one-time refund of $ 250 for individuals and $ 500 for couples; eliminating the state share of the sales tax on markets; and ending the accelerated collection of sales taxes for large retailers.
The governor also targeted low -income earners by proposing to create up to 15% of the federal earned income tax credit refundable for income -eligible families.
“For the governor, it’s very important to target those who work,” Flores said.
Northam also proposed substantial assistance to small businesses on Thursday with an estimated $ 195 million in tax savings for those who received a forgivable federal or state emergency loan during the pandemic.
Loans are tax exempt after they are converted into grants, but businesses can deduct no more than $ 100.00 of their costs from state income taxes this year. Northam proposes to remove the limit to fully comply with the federal provisions of federal emergency assistance packages.
“That was a change in policy,” Flores said.
How did Virginia end up in such an equal financial position after the 21 -month pandemic?
Part of it is a revitalized economy, with an emerging housing market, high consumer demand for goods and services, and higher wages, aided by the move of white-collar employees away, online work environments.
Unlike the Great Recession more than a decade ago, Virginia has received tens of billions of federal aid in two emergency stimulus packages since the last time Northam put a budget.
The federal government also provided vaccines against COVID-19 and money to distribute them, which Virginia used to be one of the top 10 states for vaccination rates. More than 87% of adults and nearly 76% of all residents had at least one dose of vaccine against coronavirus disease.
Northam and his team also take credit for their management of the public health emergency, where they delayed spending and added to reserves, while investing in public services and protecting government jobs.
“We took a pretty careful approach and it paid off,” Yarmosky said.