Help for the State Budget

In answer to some calls on this blog for immediate adjustments to the state budget, my response was: Don’t panic.  There is a process already in place to deal with such a situation. Now, there is even less reason to panic. It is reported that the Commonwealth will receive at least $1.5 billion from the federal rescue package that will soon be enacted.

Just as the Obama stimulus package (along with shortchanging the state pension system) helped Bob McDonnell balance the budget in the middle of the financial crisis without a tax increase, this new rescue or stimulus package should help Governor Northam weather the economic storm caused by the coronavirus.

How that money will be disbursed and what sort of conditions, if any, will be attached is not yet clear. Initial reports suggest that the funds will be distributed to states as block grants with flexibility on how to use them. If that is the case, it would go a long way toward relieving the pressure on the state budget in the first year of the biennium.

One important caveat needs to be kept in mind. This is one-time money. It should not be “baked” into the base budget; that is, used for ongoing programs or obligations. The Governor and the legislature will need to ensure that the second year of the budget biennium is “structurally balanced.” This budgeting term means that no one-time revenues or savings, such as federal grants, Rainy Day or other reserve funds, or delayed deposits to the state pension fund are to be used to balance the second year budget. That is important because the second year budget serves as the base upon which the next biennial budget is built. Using one-time strategies in the second year budget would create holes in the succeeding biennial budget that would have to be filled.

In all likelihood, there will be a re-forecast of general fund revenue in August. If the final total FY 2020 general fund revenue is at least one percent lower than the forecast for that year, the state Code requires a re-forecast. The Appropriation Act lays out a process for the Governor to follow to adjust appropriations in light of the new forecast. The infusion of a significant amount of federal money may make budgeting a little trickier, i.e. some items, such as pay raises, may have to be deferred to the second year. But, all in all, that infusion will lessen the pain a lot.

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12 responses to “Help for the State Budget”

  1. Yes, $1.5 billion in federal helicopter funds is a lot of money. But we don’t know if it will be enough. Nobody knows. It’s impossible to know. What will happen to state Medicaid expenditures as tens of thousands of newly unemployed sign up for benefits? How will hospitals fare? Will they start crying for bail-outs? What will the impact be on the state unemployment insurance program? Of the minimum wage increase? And so on…

    Prudence dictates that the General Assembly re-work its budget to give the Northam administration as much flexibility as possible to deal with the fiscal fallout from the epidemic.

    1. Dick Hall-Sizemore Avatar
      Dick Hall-Sizemore

      My point is he has the flexibility he needs. The federal funds will give him a little more flexibility and breathing room.

  2. sherlockj Avatar

    I’d recommend that the GA give him flexibility only under the condition that he postpone for one year any expenditures tied to changes in the budget tied to the new left majority’s spending spree in 2020. That way we will ensure that the spending and any shortfalls are not tied to the favorite causes of some members’ biggest donors but rather to must have budget line items. I think the revolution can wait until the budgetary crisis passes.

    1. Dick Hall-Sizemore Avatar
      Dick Hall-Sizemore

      The General Assembly is not in a position to set any conditions on how the Governor deals with executing the budget and dealing with any revenue shortfalls in the short run. It has adjourned sine die. It is scheduled to return in mid-April, but can only consider Governor-proposed amendments to bills and gubernatorial vetoes. This is why Virginia is considered a “strong Governor” state.

      1. sherlockj Avatar

        I was unaware of that. The budget session then cannot put the new spending on hold?

  3. Steve Haner Avatar
    Steve Haner

    People are still thinking 2009 and this is 1929 (well, unemployment peaked later.) Hope for the best but plan for the worst, which will be two more waves before a vaccine takes hold.

    And you are wrong, Dick. The veto session could send the budget to committee. It could meet for days and days. Probably will. Any bill sent back can go to committee, I think. Once in committee I don’t think they are limited to what the Gov has proposed. The bills are back before them. Something like that came up under Allen, I’m recalling.

    1. Dick Hall-Sizemore Avatar
      Dick Hall-Sizemore

      The Constitution says the reconvened session shall meet for the “purpose of considering bills which may have been returned by the Governor with recommendations for their amendment and bills and items of appropriation bills which may have been returned by the Governor with his objections. No other business shall be considered at a reconvened session.” Cranwell pulled off a procedural maneuver (it may have been done under Allen, I can’t remember and can’t find any reference to in a quick internet browse), in which he got the budget bill sent back to committee because an amendment proposed by the Governor was not “divisible”; that is, it could not be considered on its own because if it were adopted, it would affect other parts of the budget. Therefore, he got a ruling that sent the bill to committee, or as we in DPB called it, “opening up the budget.” I can’t find any reference to that in the current House or Senate rules, so I don’t know if that could by pulled off again. In any event, with the Governor’s party controlling both houses, I doubt very seriously if that would be allowed.

  4. Peter Galuszka Avatar
    Peter Galuszka

    Actually, the Great Depression began after the market crash abd resulted from panic tariff measures (trump?)

    1. Steve Haner Avatar
      Steve Haner

      You do understand he’s deeper in your brain than any virus could be. Quite an accomplishment on his part. Does he haunt your dreams?

      1. Nancy_Naive Avatar

        All you need to know about Trump is this: January Trump and the Senate Intel Committee received an NSC brief on Wuhan epidemic. Trump declares that he has stopped it at the border. Four senators sell their portfolios.

  5. TooManyTaxes Avatar

    Washington, DC., which is a city, is ranting and raving that Congress did not treat it as a state for purposes of COVID-19 money. Give me a break! What’s the difference between Washington and Baltimore, New Orleans, Las Vegas, etc.? Nothing but a giant sense of entitlement.

  6. LarrytheG Avatar

    May not be as big a hit as thought if those who are unemployed typically are characterized as those who “do not pay taxes” anyhow, eh?

    All of those folks are going to get both helicopter money and unemployment and in turn that money will go directly for things that generate sales tax revenues.

    Then small businesses are going to get money also plus instant loans, then the State also money, so we may come out relatively unscathed – the FIRST year. Second year.. that’s the problem.

    Must feel good to be able to add 2, 3, 5 trillion of debt nationally, eh?

    yeah.. we were supposed to pay it down when the economy was good so in bad times it would balance out. I can understand how Trump thinks but the GOP – what happened?

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