A 20% Budget Explosion That May Keep Growing

The new spending over the next two years by major category. This is for the smaller $48 billion general fund. No such pie chart was published by the Department of Planning and Budget for the combined $139 billion full budget.

By Steve Haner

The interesting thing is not how Virginia’s overall budget has grown 20% in just two years (seen that number reported anywhere else?) What’s interesting is how many interest groups are openly pushing to make it even larger. The $23 billion increase is not enough!

Just two years ago, in December 2017, Governor Terry McAuliffe dropped in his proposed budget for the budget cycle we are still in, Fiscal Years 2019 and 2020.  Before the 2019 General Assembly worked its magic, the baseline two-year total for spending he proposed was $116 billion.

Comparing an apple to an apple (which the political class discourages) the equivalent figure for the budget Governor Ralph Northam published last month is $139 billion, growth of $23 billion or 20%. That is the general fund and the non-general fund combined. It becomes more and more obvious that the non-general fund is the cart pulling this horse. At $90 billion over the next two years, it is almost double the proposed $48 billion general fund. Soon it will be more than double. 

The proposed gasoline tax increase of four cents per year for three consecutive years is included in non-general funds. The continued explosion of university tuition charges is in the non-general fund. The undefined, “sum sufficient” hospital assessments behind the massive increase in Medicaid costs are non-general funds, as are the matching federal dollars they leverage. The days of putting the main focus on the smaller general fund with its direct taxes are over.

As noted, advocates for public education (call it K minus two to 12, since pre-K is expanding) want far more money from the state. The $1.2 billion spending increase the Governor has proposed is mainly focused on adjusting the base cost of existing programs for enrollment and inflation, plus a modest teacher raise. They want more for teacher salaries and other programs, the Full Monty from the Board of Education.  Expect additional spending amendments from human service advocates, including a coalition that now wants to expand dental benefits for Medicaid recipients.

The wish will become flesh with many of these later this week, when proposed amendments to the budget must be filed with the money committees. State employee groups, noting that neither year in the proposed budget includes raises for them, will be among the hardest to deny.  The $200 million slush fund the Governor left unspent for the Assembly to play with will not be sufficient.

Some key talking points:

To start with something positive, the Governor held discipline and is significantly increasing the state’s reserves to almost $2 billion. Thank goodness Virginia has that beloved AAA credit rating and no governor or finance secretary wants to be remembered for losing it. We go to AA+ and nothing will hold them back.

By the second year of the budget Virginia achieves so-called “structural balance,” when revenues and expenditures match without relying on reserves or by moving money between years. That will hold until the next economic hiccough or full recession, unless the General Assembly now blows it.

Tax increases have funded this explosive growth, some open and some hidden. The hidden tax increase is the added state revenue created by conforming to all the tight new restrictions on deductions created by the federal Tax Cuts and Jobs Act, while keeping Virginia’s tax rates the same. This budget abandons the legislative requirement to track and hold that extra money aside for future tax relief, something discussed here just a few weeks ago.

The taxpayer relief fund was enshrined in law as well as in the budget, but a budget bill language provision directly repeals the law, too. “17. That the fifth enactment of Chapter 17 of the Acts of Assembly of 2019 and the fifth enactment of Chapter 18 of the Acts of Assembly of 2019 are repealed.”  That’s clear, right?

Over two years the state will reap hundreds of millions from individual and business taxpayers paying more than they would have on the same income two years ago. But President Trump’s tax cuts also stimulated the economy, so incomes are up as well – a double windfall for the state from him, and one impossible to track and calculate. Politicians love tax hikes you cannot see.

The tax hikes you can see are not that clear, either. The two hospital taxes created to fund the Medicaid expansion and the hike in Medicaid provider payments are intentionally hard to track. Nowhere in any of the presentations made December 17, from the Governor, the Secretary of Finance, or the Director of Planning and Budget, will you find the dollar value of those hospital taxes mentioned.

In prior years there has been a table spelling out the specifics on all tax rule changes, positive and negative. That is lacking this year, a disappointing retreat from openness. But there is a $250 million over two years estimate in one of the slide sets on the proposed tobacco and vaping taxes, with another reference to $61 million from the first stage of the gas tax increase. New taxes on certain gambling machines (“games of skill”) may produce another $125 million over two years.

The non-general fund tax hikes are really fueling higher general fund spending. For example, the new tax on those now-unlicensed games in bars will transfer to school spending. The gas tax revenue will displace general funds that were being used for transportation. This is more reason to focus on the full budget and end the distinction between general and non-general funds.

Stand by for updates. There is plenty in this budget yet to be explored in detail, and if the pattern holds both the House and Senate money committees will publish detailed analyses soon. Maybe one of them will put all the tax changes on one table or chart and save me an exercise in Excel.

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26 responses to “A 20% Budget Explosion That May Keep Growing

  1. Great summary, Steve. This is extraordinary. Virginia hasn’t seen budget growth like this since the go-go ’80s and ’90s. Add up all the take hikes and revenue enhancements, and the aggregate revenue grab may be the biggest in Virginia history, although, as you point out, the governor’s office seems to be deliberately fudging that fact in order to deprive budget skeptics of a major talking point.

  2. I’m curious about the Medicaid Expansion which is funded 90% by the Feds (I think) and 10% by the state through the hospital provider tax.

    If you look at the spending budget – it’s a big increase.

    its that part of the “balloon” ?

    Is there a way to show the Fed money for the Medicaid Expansion?

    if you took the money out for the Medicaid expansion – would the budget still show a big increase?

    • Yes it is a big part of the balloon. I can find the total projected federal share, but cannot discriminate between “old” Medicaid and “new.” Yes, without it there would still be a major increase in spending. Maybe those details will emerge.

  3. So we have a bunch of money coming in from the Feds for their 90% share of the MedicAid expansion then we have that 90% plus the 10% going out as Spending.

    I think if we are going to do a fair assessment of State “growth” in spending – we need to subtract out the “pass-through” stuff and then take a look at whatever increase ….

    Otherwise we’re tilting at windmills and just doing generic yammering about the “budget”………..

    how about it – can we drill down to the specific increases in the budget that are specific to Virginia revenues and spending?

    • Horse hockey, I pay federal taxes, too. Your approach is the advice to the frog to ignore what he notices about the water getting warm. Extend that thinking, and the county supervisor will say – don’t hold me accountable for the money we get from the state! Spending is spending and only people provide money. Even the federal dollars are official appropriations of the Commonwealth.

      • Yes, the federal dollars are state appropriations. But, your federal taxes would remain the same even if the state did not get those federal dollars and spend them. So, the G0vernor should not be held accountable for the federal spending and taxing decisions.

      • Oh I AGREE it’s ALL govt spending but if your worried about increases in the STATE budget – it ought to be about things that the State can control in the state budget process.

        Talking about how “terrible” the “increase” in State spending is – when that spending is essentially pass-through money from the Feds is more about general rants about taxation rather than specific focus on spending that we could advocate for/against at the State level.

        As Dick points out – Virginians pay the taxes that fund MedicAid and if we don’t implement it in Virginia – taxes we’ve already paid go elsewhere. We’re just getting taxes we already paid – back.

        This would be akin to us not taking any Federal money to fund State programs.. like Highways, schools, etc.

  4. johnrandolphofroanoke

    The $1.5 billion dollar education spending reminds me of Morrison’s Cafeteria. You can have whatever you want but you have to pay by the serving. This is an endless pot hole that cannot be filled and has a unquenchable thirst. Now think on this: Loudoun County is spending $1.3 billion dollars on the school system. 57 cents of every local dollar in Loudoun goes to the schools. So much of this is waste and unnecessary. I was just at a meeting for young fellow who has an Individualized Education Plan. Kid, parent, teacher (me), and 7 suits/pant suits. The suits are the experts. Each and every one of them earns six figures. After 2 hours nothing was accomplished. 23 years ago that same meeting would have been kid, parent, principal and teacher. No suits. Not even one. Usually we could come up with something that was going to change things for the better. I guess our tax dollars at work?

    • All socialist movements need apparatchiks. Your “suits” are the minders and watchers who must ensure that the parents, kid and principal comply with all woke ideas and virtue signaling demanded by the glorious socialist school board, county government and politburo of Comrade Blackface in Richmond.

      And remember, you can’t spell apparatchik without RAT.

      Comply in public, resist in private. Give the kid’s parents your phone number. Tell them to call you if they have any questions. They will call. When they do, ignore whatever the empty suited “suits” demanded that doesn’t make sense (probably 90+%) and do the right thing.

      I’ve been rereading 1984 lately. The only thing Orwell got wrong was the date.

    • In Montgomery County, that figure was $0.70 of every dollar for education the last time I checked.
      I was the parent in one of those meetings. The pantsuit dismissed my concerns entirely; when she left, the teachers in the meeting told me they would do whatever they could to help our son.

  5. In all fairness Mr. Haner, state employees perform valuable work and are often underpaid. When not even granted COLA raises, they continue to fall behind. While we may be in a low inflation environment, a quick walk through your local supermarket shows that prices have not remained static. I’m not sure what makes teachers so special as compared to the thousands of state employees who are serving their fellow citizens. If the Democratic legislature does one thing right, it would be to mandate COLA raises for state employees that is not dependent on the whims of the legislature, or wanting political points by the Governor. Amazingly enough the legislature always “finds” money for whatever program is the flavor of the day, but it’s always far more difficult for them to take care of the people actually working for them.

    • Mandatory COLA raises for state government employees unless blocked by a 2/3 vote in the House of Delegates. In the midst of a recession I think raises should be frozen.

    • I agree with most of your comment. The one part I disagree with is the assessment of the legislature having difficulty taking care of state employees. Historically, the legislature has been more amenable to providing raises for state employees than the governor. That is the case this year.

  6. As much as I respect Steve, I must disagree with his assessment that the Governor’s introduced budget constitutes a 20% “explosion”. It represents a healthy increase, but not 20 percent.

    Comparing the 2019 Appropriation Act (the appropriate base for comparison) with the introduced bill, there is a 14 percent increase in total biennium revenues ($124.8 billion in 2018-2020 vs. $142.3 billion in 2020-2022). The increase in total biennium appropriations is smaller at 12.5 percent ($123.4 billion in 2018-2020 vs. $138.8 billion in 2020-2022). (If one uses HB 29, the “caboose” bill, which includes updated revenue and appropriation estimates for the current fiscal year, as the base, the percentage increases for the next biennium are smaller.)

    The increases are driven by nongeneral funds. NGF revenue estimates for 2020-2022 are $94.1 billion, an increase of 16.7 percent over 2018-2020 ($80.6 billion), whereas the general fund revenue estimate for 2020-2022 is $48.2 billion, an increase of 9.0 percent over 2018-2020 ($44.2 billion). Actual NGF appropriations would increase 14.4 percent and GF appropriations by 9.0 percent.

    Medicaid accounts for about half of the increase in NGF appropriations. The NGF appropriation for that program for 2020-2022 would increase 33 percent over the total NGF appropriation for the current biennium. There is also a significant increase in NGF transportation appropriation, 17.2 percent higher than the current biennium.

    These increases in revenues and appropriations were easily foreseeable after the September revenue numbers were released, despite Secretary Layne’s cautionary pleas. They are, to a large extent, the result of revenue actions taken, or not taken, by the 2019 Republican-majority General Assembly. The most significant action was the conformity legislation, which did not adjust Virginia tax rates. The second action was the general application of the sales tax to internet sales.

    Rather than fulminate over the overall increase in the budget, it is more productive to focus on specific actions. Of the increases in appropriations, which are laudatory and which are not, and why? If one thinks that there should have been tax cuts instead of using the additional revenue for appropriations, what appropriations should not have been increased or which should have been cut?

    (I apologize for the format of this comment. A chart always shows the comparison between data better than a written explanation, but I have not yet figured out how to include a chart in a comment.)

    • Is the $139 B at the bottom line of the opening summary 20% above the exact same figure in the same document two years ago? Yep. I respect you, too, Dick. But you are playing the apples and oranges game.

      • It is. But that document was the 2018 introduced budget bill. I was using the final 2109 Appropriation Act. The second year of the most recent Appropriation Act is the base upon which a biennium budget bill is built.

        Some of the “explosion” you cite has already happened; it happened during the 2018-2020 biennium. It is fair to say that appropriations will have increased 20 percent by 2022 since the biennial estimate made in 2018, but you seem to imply that the introduced budget bill represents a 20 percent increase over the current biennial budget and that is not the case.

        I do not consider that I am playing the apples and oranges game. It is the standard approach to budget development. I will concede that perhaps we are looking at different apples.

        • There are three main things one could compare, but one should compare same to same: the introduced bill (which I used), the final Act of Assembly (not yet available for the next cycle) and perhaps the best: The end of year spending report by the Comptroller. No question, much of this growth took place DURING the current two year cycle, but that doesn’t change my point. More growth will come during the next cycle.

    • “Rather than fulminate over the overall increase in the budget, it is more productive to focus on specific actions.”

      I totally disagree. The economic difference between a free market economy and socialism is the percentage of wealth and capital controlled by government. If Virginia wants to join the ranks of more socialist states then that goal should be front and center in the proglib platform.

      • I thought socialism was a system in which the government owned the means of production.

        But, rather than debate the definition of socialism, what would you cut from the budget in order to reduce the amount of wealth controlled by the government (taxes)?

        • poppycock! If the govmint takes your money and you don’t get it back – it’s SOCIALISM! 😉

          so·cial·ism

          a political and economic theory of social organization which advocates that the means of production, distribution, and exchange should be owned or regulated by the community as a whole.

          Oh wait – they’re treating government like it’s the “community”!

          LORD!

          Always interesting to me that Conservatives and other associated yahoos definition of “socialism” – applies to every single industrialized nation on the planet..

          The most “free” of the TRUE “free market” countries are 3rd world.

          pick your poison!

          • No, as mentioned before, that’s “transferism,” and when I use the word socialist in serious discussions I mean government ownership of businesses and business activities. Such entanglements are common across the world, even in places like England and France.

  7. The word “socialism” gets tossed around a LOT when we talk about health care and “free markets” …etc…

    but the simple truth is that all industrialized countries are very similar in many of these things – so you either accept that you’re going to call them all “socialist” or not.

    That word just gets overused a lot anytime there are discussions of things that Conservative types oppose.

    The biggest “socialism” by far is public roads, where the govt forcibly takes land from private owners to “give” to the public.

    Next is public education – where we take money from everyone so we can educate all kids…

    I just noticed the right just loves to toss around words like “socialism”, “virtue signaling”, “leftist”, “snowflakes”, “social justice warriors”, on and on Ad infinitum as an excuse to blow up any chance as a rational debate on the merits and to impugn the other side even before they have a chance to respond!

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