Governor Northam presented his final budget proposals to the General Assembly on December 16, reflecting on successes and challenges over his four-year term, and expressing confidence that his successor, Governor-Elect Glenn Youngkin, will inherit a strong economy that is poised for future growth. The Governor’s proposed amendments to the current fiscal year’s budget (the “caboose” bill) and his proposed biennium budget benefitted from unusually strong revenue growth, enabling significant investments in employee compensation, school capital needs, behavioral health, housing, water quality, and the state’s reserve funds.
Secretary of Finance K. Joseph Flores provided details to members of the “money committees” regarding the state’s revenue forecast, which was developed over a series of meetings this fall with economists, business leaders, and legislators. The state concluded FY 2021 with a significant surplus of $2.6 billion, reflecting total General Fund (GF) revenue growth of 14.4 percent, far ahead of the forecast of 2.7 percent growth, a performance Secretary Flores attributed to the rollout of COVID-19 vaccines in the latter part of the fiscal year, as well as the passage of two federal relief bills. According to Secretary Flores, continued growth is expected, although inflation is a concern, as underscored by the release of projections this week by the Federal Reserve’s Open Markets Committee signaling expected interest rate increases in 2022.
Most members of the state’s Joint Advisory Board of Economists recommended a conservative approach to forecasting revenues for the upcoming biennium, noting that Virginia would likely experience slower growth in income and employment than the nation as a whole (having been spared the job and income losses experienced in other states). This view was shared by the majority of the Governor’s Advisory Council on Revenue Estimates (GACRE) at its November meeting. The December forecast predicts total FY 2022 GF revenue growth of 4.2 percent (assuming that Virginia conforms with the federal income tax code). GACRE’s forecast for the biennium predicts revenue growth of 4.8 percent in FY 2023 and 4.2 percent in FY 2024. After factoring in a series of tax policy adjustments being proposed in the biennium budget, a decline of 0.6 percent is forecasted for FY 2023, and 8.9 percent growth is projected for FY 2024. Substantial surplus revenues from the caboose will carry over to the biennium budget; as outlined by Department of Planning and Budget Director Daniel S. Timberlake, approximately $13 billion in additional revenue is available over the three fiscal years. Director Timberlake’s presentation is available at this link.
Following is a preliminary overview of some of the major proposals presented by the Governor; VACo will provide a more detailed analysis in a forthcoming edition of Capitol Contact.
- Appropriates $1.1 billion for a mandatory Revenue Stabilization Fund deposit in FY 2023 and provides a $564 million voluntary deposit to the Revenue Reserve Fund in FY 2022.
- Deposits approximately $924 million to the Virginia Retirement System in FY 2023 to reduce unfunded liabilities (contingent on meeting the revenue forecast for FY 2022). Diverges from VRS Board of Trustees recommendations to lower employer contribution rates by maintaining current rates.
- Provides $806.8 million over the biennium to increase salaries for state employees and state-supported local employees by five percent in each year of the biennium.
- Provides $751 million over the biennium to increase salaries for funded Standards of Quality instructional and support positions by 5 percent in each year of the biennium.
- Provides $74 million over the biennium to increase the entry level salary for sworn sheriffs’ deputies and regional jail officers, and $15.5 million over the biennium to provide a compression adjustment for certain sworn personnel funded through the Compensation Board.
- Provides $500 million in FY 2023 for school construction and modernization in the form of one-time grants to school divisions for nonrecurring costs, including school construction, additions, renovations, and technology costs.
- Appropriates $331.6 million over the biennium for Standards of Quality rebenchmarking. Provides an additional $354.5 million to hold school divisions harmless for rebenchmarking data that was affected by pandemic-related school closures.
- Provides $268.5 million over the biennium as support for educationally at‐risk students by increasing the At‐Risk Add‐On program maximum add‐on percentages from 26 percent to 49.5 percent in FY 2023 and from 26 percent to 36 percent in FY 2024.
- Eliminates the state portion of the sales tax on food for home consumption. Provides $158 million over the biennium to hold school divisions harmless for the lost revenue associated with the portion of the sales tax on groceries that is currently distributed to localities based on school-age population.
- Provides $560 million to support behavioral health needs, including salary increases for direct care staff at state hospitals and implementation of the final three services required by STEP-VA.
- Provides $37.6 million over the biennium to support staffing needs in jails associated with new behavioral health care standards that were directed by the General Assemble in 2019 and are currently before the Board of Local and Regional Jails.
- Appropriates the $313 million mandatory deposit to the Water Quality Improvement Fund in FY 2023.
- Provides $26.5 million as a supplemental deposit to the Virginia Natural Resources Commitment Fund in FY 2024, which will assist the Virginia Agricultural Cost-Share Program.
- Provides $20 million in FY 2023 to support the Dam Safety, Flood Prevention, and Protection Assistance Fund.
- Provides $17.6 million over the biennium to meet the anticipated increase in Virginia Clean Water Revolving Loan Fund match amounts as a result of the Infrastructure Investment and Jobs Act.
- Provides $19.1 million over the biennium for agriculture and forestry initiatives, including funding for land conservation, farmland preservation, increased tree-planting, and the Urban and Community Forestry Program.
- Provides $99.5 million in General Fund dollars over the biennium, in addition to the more than $700 million previously appropriated in American Rescue Plan Act funding in FY 2022, to expand broadband infrastructure through the Virginia Telecommunications Initiative (VATI).
- Provides $190 million over the biennium to support the Housing Trust Fund.
- Appropriates $150 million in FY 2022 to support the Virginia Business‐Ready Sites Program.
VACo Contacts: VACo Legislative Team