How They Spent That Money

By Dick Hall-Sizemore

Steve Haner and I unofficially tag-team on the state budget. Fittingly, he covers the revenues (taxes) and I cover the spending.

Regarding the revenues available for spending, it is notable what was missing from the presentations by the Governor and Secretary of Finance in their appearances before the money committees last month. There was no mention of the $5.1 billion balance tirelessly touted by the Governor in his public calls for more tax reductions.

In the presentations and charts presented, it was difficult to discern what that unencumbered balance actually was. Using the data in the staff presentation to the Senate Finance and Appropriations Committee, one is able to tease out the $5.1 billion being touted by the Governor. First, there was $2.1 billion. This is hard to follow, but basically it was a balance designated in 2022 for “Additional Taxpayer Relief” and subsequently rolled into the unrestricted general fund balance. However, both the administration and the money committees were carrying it on their spreadsheets as an amount reserved for taxpayer relief and that is how the Comptroller identified it in her annual report to the Governor.  To that $2.1 billion the Governor added the additional $3.0 billion in general fund revenue projected over the official estimate.

That was a valid projection of the general fund balance at the end of FY 2023. However, as both Steve and I have pointed out several times on this blog, that was a gross amount. After deducting for the required deposits to the Rainy Day Fund and the Water Quality Improvement Fund, the appropriation in the “skinny” budget bill enacted last spring, and the amount required to fund the Pass Through Equity Tax previously enacted, the net general fund balance available at the end of FY 2023 was approximately $2.4 billion.

A balance of $2.4 billion is undoubtedly a lot of money, probably a record year-end balance. But it is about half the amount that the Governor frequently claimed would be available.

In addition to the unencumbered balances, the General Assembly had additional sources of general fund money that it could use in developing the 2023 budget bill. For example, the money committees include a transfer of an additional $37.6 million in ABC profits to the general fund. There are also “found” savings in the existing appropriations for FY 2024. A bit item in this category was $259.3 million in “technical savings reflecting the most recent Medicaid expenditure forecast.” In developing a budget, there are a lot of moving parts.

Following are summaries of the major areas in which the General Assembly uses the additional general fund money. The sources for these figures and other data cited in this article are the briefing documents prepared by the staff of the House Appropriations Committee and the Senate Finance and Appropriations Committee.

Tax Cuts–$1.3 billion

Steve Haner has covered this area well in his earlier article.

K-12 Education — $559.2 million

The centerpiece of this package is $418.3 million for “Student Learning and Flexible Operating Support.” Interestingly, the money is not being funneled through the SOQ funding formula. Rather, it is to be dispensed on a per pupil amount, with two-thirds on the basis of the number of free-lunch eligible students and one-third based on average daily membership. No local match is required. The funds are to be used for implementing the Virginia Literacy Act.

It is certainly no coincidence that Governor Youngkin released his plan for spending that money the day after the General Assembly adopted the budget.

It should be noted that the House briefing document terms this appropriation as “one-time payments.” The Governor’s plan calls for localities to hire reading specialists and tutors. Localities are probably going to have trouble finding reading specialists and tutors as it is. If this is truly one-time money, the task will be even more difficult.

Another major component of the K-12 package is $152.3 million to increase the number of support positions funded through the SOQ formula. Finally, there is $54.6 million for a two percent salary increase for SOQ-supported teachers.

Higher Education — $189.8 million.

The bulk of this total, $143.3 million, is provided to “maintain affordable access” to higher education. In this category, $75 million is allocated among the various institutions for general operations. To support need-based undergraduate financial aid, $62.5 million is provided. Finally, there is $5.8 million to enable institutions with nurse training programs to increase faculty salaries in those programs in order to remain competitive.

Special Education Study Subcommittees

The Appropriation Act has language establishing two special joint subcommittees, one on funding for K-12 and one on funding higher education. The K-12 subcommittee is directed to “review and prioritize JLARC recommendations and develop long-range implementation plan.” For the higher education subcommittee the “priority is placed on a review of operations and financial aid funding models.“ The reporting date for the K-12 subcommittee is Nov. 1, 2024. The reporting date for the higher ed subcommittee is not clear.

These subcommittees need to be established and the method of funding K-12 and higher education need serious consideration. However, it is highly unrealistic to expect the work to get done by November 2024. No work will be done this fall—everyone is busy on elections. Besides, due to numerous retirements and primary defeats, many of the current members, who would likely be appointed to such a study committee, will not be around after January.

Nothing will get done through the General Assembly, of course. It is uncommon for subcommittees such as these to do any work between the adjournment of the General Assembly and the ”veto session.” Assuming that the budget is adopted on time, the earliest one could expect these special subcommittees to convene and get to work would be the beginning of June. To expect these subcommittees to grapple with the complex issues involved and come to a consensus in five months would be almost asking the impossible. The most that one could expect would be a request to authorize the subcommittees to continue their work in 2025.

Behavioral Health — $154.6 million

Most of the additional funding is provided for crisis services, adding to that which the Governor proposed in his introduced budget.

Economic Development — $268.6 million

The bulk of this funding is provided for “business ready sites” ($200 million) and the Major Headquarters Grant Fund ($35.5 million).

As alluded to earlier in comments on Bacon’s Rebellion, there is $8.5 million provided to support a cruise ship port-of-call location and related visitor support and tourism in the York River at Yorktown, Virginia.”  The appropriation implements that designation.

Transportation — $150 million

This funding is for the expansion of I-64 from the New Kent/Henrico border to James City County.  The 2022 Appropriation Act provided $110 million for this project and designated another $150 million to be paid out of the FY 2022 revenue balance.

State Employee Salary Increases — $60.6 million

The funding is for a two percent salary increase for state employees and local employees supported by the general fund.

Capital Outlay — $211.3 million

Almost half, $100 million, of the new money in this area is for budget shortfalls in projects already approved. It should be noted that this appropriation is in addition to the $100 million appropriated in 2022 for the first year for this purpose. The next largest item is $36 million for equipment for previously approved projects nearing completion.