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.
