Virginia Legislators Face $1 Billion Budget Shortfall

Virginia Legislators Face $1 Billion Budget Shortfall

Overcoming a more than $1 billion budget shortfall will be a top priority for the Virginia General Assembly its 2017 legislative session convenes on Jan. 11.  While this gap represents around two percent of the state’s more than $50 billion budget, it nevertheless will require a combination of new revenue sources and difficult cuts.

At an presentation to the Joint General Assembly Money Committees on Dec. 16Gov. Terry McAuliffe (D) said total general fund revenues increased by 1.7 percent in the past fiscal year, but fell short of the forecasted growth of 3.2 percent. The shortfall was due to the under performance of tax witholdings and sales tax collections. This was particularly unusual because Virginia had its strongest job growth in 11 years during fiscal year 2016, outpacing the U.S. employment growth rate.

Still, the Commonwealth’s withholding receipts suffered from a loss of high-paying jobs due to sequestration, and retirements from high-income earners changed the mix toward lower paying jobs.

To make up the revenue deficit, McAuliffe has several proposals to increase revenue, including a tax amnesty program and a modification to the rollback of the accelerated sales tax.  Perhaps most notable is legislation requiring out-of-state merchants using warehouses or fulfillment centers located in Virginia to register as dealers for the collection of sales tax on their sales into Virginia.

These changes would generate hundreds of millions of dollars, but would only cut the deficit from its current $1.2 billion to $784.9 million. To make up the rest, the governor is proposing a variety of spending cuts.

Among the most significant is a freeze on raises to state employees. There will also be a mandated 7.5 percent savings plan to most executive branch agencies and a five percent cut to higher education. This excludes K-12 education, Virginia State Police, the Department of Behavioral Health and Developmental Services , which will remain untouched.

McAuliffe is also proposing nearly $32 million in new funding to address mental health and opiate abuse issues. The latter was recently declared a public health emergency in Virginia.

The outcome of these and other initiatives is far from assured.

“There’s nothing easy about it,” said Delegate Tag Greason (R-32). Greason, whose district is in Loudoun County, is on the House’s Appropriations Committee and serves as chair of the General Government and Capital Outlay subcommittee. It will be up to the Appropriations committee and eventually the General Assembly as a whole to navigate the complexity of budget decisions.

Greason said the General Assembly will look specifically at some one-time programs that aren’t sustainable and can be analyzed individually to solve the short-term budget program.

“We don’t want to go in and cut long-term programs that will create 10 years of deficiency, but one-time programs will be something we look at closely,” he said.

That could include something like Go Virginia, the recently-created program championed by Loudoun’s Board of Supervisors that allocates funds for economic development. Greason said Go Virginia offers great investment potential that could increase the government’s coffers and is something he hopes to protect.