Although the General Assembly, as usual, left most of the Governor’s budget bill untouched, it did leave its mark on it. Its top priority clearly was increasing compensation for state employees and teachers. It also toned down some of the Governor’s initiatives.
The revised budget bill for the 2020-2022 biennium reflects an additional $330.6 million in total revenue over the Governor’s introduced bill. This increase is made up of $187.6 million in additional nongeneral fund (NGF) revenue and an additional $142.9 million for the general fund (GF). The bulk of the additional NGF comes from increases in transportation revenue provided for in the Governor’s omnibus transportation bill and from additional federal Medicaid matching funds.
This report will focus on the changes in GF appropriations agreed on by the legislature. The revision in the revenue projections accounts for most of the additional GF, with the remaining resulting from policy actions enacted by the G.A.
This post will deal with the operating budget only, while a separate post will provide a summary and commentary on capital budget changes. Furthermore, in order to simplify this description, all the dollar amounts shown are for the biennium. Reductions in appropriations are shown in parenthesis.
The G.A. had a lot of available GF revenue. In addition to the $142.9 million from revised projections, the legislature had $200 million in “undesignated contingency appropriation” that the Governor was nice enough to provide legislators to use as they saw fit. One major policy change, not going along with the proposed reinsurance program, freed up another $146 million. These three sources provided almost a half billion dollars to use for the legislature’s priorities. In addition, there were numerous other items for which the legislature reduced the Governor’s recommendations, thereby freeing up more GF. As with any budget bill, there are a lot of moving parts.
The legislature did decide to use some of the additional GF revenue for one-time expenditures, such as $76 million for capital projects. In addition, it put an additional $182 million into the special reserve fund in the current biennium’s budget. That action decreased the amount of additional GF revenue available to be carried over into the next biennium.
Every change in the budget bill is important to someone. However, this summary will focus on the major changes, with emphasis on those areas that have been most subject to comment in Bacon’s Rebellion.
Employee Compensation–$270.0 million
Whereas the Governor chose not to provide for raises for state employees, the G.A. made this area its top priority, as follows:
- State employees—one-time bonus of 3% in the first year and 3% salary increase in the second year.
- State-supported local employees—2% one-time bonus in the first year and 3% salary increase in the second year. (These are employees of constitutional officers, local court services units, local social services departments, etc.)
- State Police—In addition to the salary actions for all state employees, the budget includes additional funding to address salary compression in the State Police as well to provide a 2% pay raise in the first year. Note: The budget conferees chose to deal with State Police compensation issues in the budget rather than through a dedicated stream of revenue as the Senate preferred. See the discussion of SB 972 on this blog here.)
- Minimum wage—The additional amount includes $6.0 million to cover the additional costs to be incurred with implementing the increase in the minimum wage for state employees.
Economic Development
The state seems to be reorganizing again its approach to funding economic development. Several years ago, with much fanfare, the G.A. created the Virginia Growth and Opportunity Fund and accompanying governing board (GO Virginia), which was supposed to allow regions to set priorities.
In his budget proposal and accompanying legislation, the Governor proposed the creation of the Virginia Innovation Partnership Authority (VIPA), which is supposed to consolidate innovation and new technological development. (That’s all I know. Steve Moret may want to comment on these changes in a future post.) The Governor proposed level-funding GO Virginia.
The GA took the following budget actions:
- VIPA—( $13.6 million). Substantially rewrote the language directing how the VIPA appropriation is to be allocated.
- GO Virginia—($4.5 million).
- Virginia Business Ready Site Program—$7.5 million. This program was discussed in Bacon’s Rebellion here.
K-12 Education
As regular readers of this blog know, the state Board of Education (BOE) proposed changes to the Standards of Quality that would have cost more than $1 billion annually to implement. That got everybody excited, assuming that those changes would certainly be embraced by a Democratic governor and Democratic legislature. A detailed description of the proposals is here. A discussion of the proposed changes and their purported underfunding is here.
The Governor did include additional funding in his budget for some of the BOE proposals, but not all of them. However, the legislature not only did not adopt the BOE package, but watered down some of the Governor’s proposals. SB 728, the comprehensive bill incorporating the BOE proposals, was left in the House Appropriations Committee.
The GA chose to increase teachers’ salaries rather than expand the SOQ. To help fund the salary increases, it reduced some of the funding proposed by the Governor for SOQ changes. Here are those actions, as well as some other items of interest:
- Salary increases, $145.4 million—The Governor included funding for the state share of a 3.0% salary increase for SOQ-funded positions (teachers and support personnel) in the second year. The legislature expanded this action to a 2.0% increase in each year.
- School counselors, ($53.2 million)—The current SOQ requires a counselor/student ratio ranging from 1/375 in elementary school to 1/300 in high schools. The Governor’s budget proposed funding to lower that ratio to 1/250 systemwide, which was the new ratio proposed by the BOE. The legislature settled on a systemwide ratio of 1/325. That change in the SOQ was set out in HB 1508.
- English learners, ($6.7 million)—Currently, the SOQ requires school systems to have 17 positions for each 1,000 students identified as having limited English proficiency. The Governor proposed an additional $27.6 million to increase the ratio to 20 teachers per 1,000 students, which was less than proposed by the BOE. The legislature trimmed this increase to 18.5 positions in the first year and 20 positions in the second year. This change in the SOQ was set out in SB 910.
- At-risk students, $8.7 million—This amount provided by the legislature was on top of the additional $52.6 million the Governor included in his budget.
- Cost of competing, $19.6 million–The basic aid formula has a component that provides additional funding for localities in Northern Virginia and adjacent localities in recognition of the higher costs in those areas. The legislature increased the weighting factors.
Higher ed
Tuition costs
The increased costs of higher education has been a subject of much debate on this blog, as well as in the General Assembly and in the national political discourse. The House and Senate had different approaches. The House proposed extending the current freeze on tuition through FY2021 and limiting FY2022 tuition increases to two percent.
The Senate, on the other hand, was reluctant to tell individual institutions how to operate. Therefore, it chose to revert to the traditional approach of providing additional funding for basic operations and financial aid and freeing the institutions to set tuition as they saw fit.
According to press reports, it was the impasse on this issue that largely led to the delay on agreement on the budget by the conferees, with the result that the GA had to adjourn on Sunday (a day later than scheduled) and come back on Thursday to formally adopt the budget.
In the end, the House prevailed, although it had to temper its proposal. The final provision calls for an extension of the tuition freeze through FY 2021, with no provision for FY 2022. The appropriation to support institutions that agree to continue the freeze is $79.7 million. The House probably had to give up something to get the Senate to back down. One can only speculate on what that was, but one strong possibility is that a $25 million tunnel was part of the deal. (More on that in the post on capital budget actions.)
Community colleges
The Governor’s major higher ed initiative was $145 million to provide financial assistance to low-and middle-income Virginia students enrolled in a community college program leading to an occupation in a high demand field. Under the program, eligible students would have all their education costs covered and would also be eligible for a “Student Support Incentive Grant” of up to $2,500 per year. (See discussion of this program on this blog here.)
The G.A. reduced the appropriation for this program by over half, slashing it by $76.1 million. However, it kept the basic structure of the program. It did set out a specific list of VCCS programs which would be covered by the program, as opposed to the general term “occupation in a high demand field” used in the introduced bill. It also reduced the student support grant to $2,250 from $2,500.
The conferee amendment sheet does not provide any guidance on the basis for the significant reduction in funding for the program. Perhaps the conferees felt that the Governor’s projection of participation in the program was too optimistic.
Medicaid
The annual “tweaking” of the Medicaid program was extensive. Because I know little about this area, I will just list some of the larger actions and leave the comments to those with more knowledge:
Additions
- Dental care, $34.0 million—Adds comprehensive dental care for adults, but does not include cosmetic, aesthetic, or orthodontic services.
- Personal care attendants, $19.2 million—Allows paying personal care attendants time and a half overtime for up to 16 hours overtime per week.
- Skilled and private duty nursing services, $12.5 million—Increases rates for skilled nursing services by 16.1 percent and 11.6 percent for private duty nursing.
- Personal, respite, and companion care, $64.5 million—Increases rates for these services by 5 percent in the first year and 2 percent in the second year. This action was driven by the change in the minimum wage.
- Nursing facilities, $13.8 million—Increases peer group adjustment factors used in nursing facility reimbursements.
Reductions
- Hospital readmissions, ($11.5 million)—Changes definition of readmission to 30 days. The result will be that readmissions after five days but within 30 days will be paid at 50% of normal rate.
- Emergency room utilization, ($28.6 million)—Allows the reducing of fees for certain avoidable emergency room admissions.
- Managed care rates, ($18.1 million)—Captures savings from lower managed care rates adopted by DMAS.
- Pharmacy benefit managers, ($8.4 million)—Captures savings resulting from legislation prohibiting pharmacy benefit managers from engaging in “spread pricing”.
Public Safety
There was only one major adjustment in the Public Safety area that I want to note. Obviously, the G.A. does not agree with my position that the HB 599 program should be scrapped. While the Governor did choose not to put any more money into the program despite the statutory provision that the appropriation be increased in proportion to the increase in general fund revenue projections, the legislature chose to add $17.2 million to the program.
One last note
Based on concerns about the possible economic of the coronavirus outbreak and any resultant impact on state revenue, Republicans proposed a delay in adoption of the budget. Democrats responded that a delay would create unnecessary uncertainty.
The Governor and the legislature will get one more crack at the budget. He can propose amendments for consideration by the GA at its reconvened session in April. If it has become evident that state revenues may take a hit as a result of the virus, they can deal with it then.
Furthermore, the budget bill itself has some safeguards built in. For example, the employee salary actions are contingent on the projected revenue.