Is Aubrey Layne Serious about a $2B “Hit” to Virginia’s Biennial General Fund from COVID-19?

By DJ Rippert

Penny Layne. Aubrey Layne is Virginia’s Secretary of Finance under the Northam Administration. Previously, Layne served as Secretary of Transportation under the McAuliffe regime. Prior to his time in government Layne held a number of executive positions in private enterprise including the presidency of Great Atlantic Properties. Layne is listed by Wikipedia as being a Republican. If true, he must have shown considerable competence and talent to be appointed to senior positions in two consecutive Democratic administrations.

Five days ago, during a Q&A with Richmond Times-Dispatch Magazine Layne effectively made an astonishing prediction. He was asked about the economic fallout from the COVID-19 epidemic in Virginia. The interviewer noted that COVID-19 would trim $2 billion from the state’s $48 billion General Fund budget within the $135 billion biennial budget. Here’s the question, “When the state budget was passed earlier this month, it was based on a full-throttled economy. Now the state is forecasted to lose potentially $2 billion in the upcoming two-year budget because of the coronavirus pandemic. How will the Northam administration address the drastic change facing the approved $135 billion budget?” Layne went on to answer that question and others without ever calling the $2 billion estimate into question.

Is it possible that the economic hit to Virginia from COVID-19 (even after federal bailout money) will only be $2 billion from the General Fund over two years? That’s just over 4% of the General Fund and just under 1.5% of the total budget.

Orange man bad … but please send us money! It’s hard to argue that the Trump Administration’s initial reactions to the health consequences of the Coronavirus epidemic were spotty at best. While he did lockdown flights from China on Jan. 31 to cries of xenophobia, he once again let his words dig him a deep hole. He too quickly declared that the U.S. was fully prepared, this would not be a major disruption and Coronavirus was just another flu. All wrong. However, if you put aside the possible negative consequences of ballooning deficits, Trump’s fiscal stimulus has been on point. Trump’s Treasury Secretary, Steven Mnuchin, worked effectively with Congressional Democrats to quickly fashion a massive stimulus bill that passed Congress and was signed by Trump. Federal money is on the way and Virginia will benefit from that.

Worse than a SWAG. This article involves “arm chair accounting” at scale. However, our legislature is going to re-convene on April 22 and the time to make guesses about the impact of COVID-19 is now. I will happily accept further input into the analysis of COVID-19’s fiscal impact.

The bailout bill passed by Congress has an astronomical $2 trillion price tag. Meanwhile, Virginia has about 2.6% of America’s population. Suspending disbelief and assuming all benefits of the bailout flow to the economy and Virginia gets its “fair share” … we’re due about $50 billion in federal economic benefit. Needless to say, that largesse comes in a myriad of ways rather than just a check payable to Governor Northam. The best way to guesstimate the impact of the federal funds might be to consider those funds as a replacement for lost economic output statewide.

Pre-Coronavirus, Virginia had an estimated state GDP of just over half a trillion dollars per year. That’s a trillion over two years. Accepting the potential for large errors in this analysis … Virginia’s federal payout of $50 billion would cover a 5% decline in economic output across the Old Dominion over the next two years. After that, Secretary Layne thinks we’ll be $2 billion short in the General Fund and an unspecified amount short overall. Of course, there could be further federal bailouts. The supply of printing ink in Washington has apparently not been impacted by the Coronavirus .

Calculating the overall impact. Estimates vary widely regarding the overall economic impact of COVID-19 and its related societal lockdown. The St Louis Fed is pessimistic. predicting 42 million lost jobs and an unemployment rate of over 32%. That unemployment rate is considerably worse than the worst year in America since 1929. Worse than the worst year of the Great Depression. Some will say that the COVID-19 depression / recession will be “V shaped.” This is a familiar refrain among optimists at the outset of every financial crisis  It never seems to work out that way but hope springs eternal. But wouldn’t even a “V shaped” recession / depression with a trough of 32% unemployment set Virginia’s economy back by more than 5% over two years? If so, can we see Secretary Layne’s acceptance of a $2 billion state revenue hit to the General Fund over the next two years as reasonable? It seems wildly optimistic to me.

Never waste a crisis. Normally, speculation about Virginia’s economic future would be just an idle hobby on a cold day in early spring. This year is different. Our General Assembly will reassemble in a few weeks, and budgeting will be one of the critical items for discussion. The Democratic majority will be torn between its almost genetic propensity to tax and spend and the realities of the COVID-19 economic impact. Underestimating that economic impact will invariably result in too little belt tightening and a further fiscal crisis later in the year.

Rahm Emanuel, President-elect Barack Obama’s chief of staff, was quoted as saying, “Never waste a crisis” in The New York Times during the 2008 – 2009 financial meltdown. Emmanuel would go on to become Mayor of Chicago where he would create a world-class crisis for his successor not to waste. Last fall Chicago Mayor Lori Lightfoot would project that Chicago will incur an $838 million budget deficit in 2020 with the possibility of over a billion-dollar deficit in the future. And those estimates were before the Coronavirus. What now Chicago?

Will Virginia’s General Assembly accept rosy financial projections in an effort to create a crisis that they won’t let go to waste? Who can forget how Mark Warner’s campaign promise not to raise taxes was reversed when he “discovered” a fiscal crisis shortly after being inaugurated? Will our General Assembly budget for a $2B hit to the General Fund over the next two years only to “discover” a much bigger fiscal crisis this fall? The time for aggressive cutbacks in state spending is now.

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22 responses to “Is Aubrey Layne Serious about a $2B “Hit” to Virginia’s Biennial General Fund from COVID-19?

  1. This is the third post in two days speculating about the state’s financial situation, when we all know that the state’s people are working overtime tracking and projecting exactly that. Layne is a CPA, a relevant point. When I saw that $1B a year projection in one of Dick’s articles last week, I said in a comment it was ridiculously low, then later I told Dick to double his worst nightmare on the revenue drop. So my guess is the answer to your headline question is, no, Layne doesn’t think that now. That’s old data. That was wishful thinking.

    April 11 we will see the amendments and if they are silly we’ll all have 11 days before the General Assembly votes to say so. Me, I’m keeping my powder dry.

    As to the federal response, I’m in general agreement. They are responding as if this is 2008-09 again, which it is not exactly, but the FED has been laser focused on maintaining credit and liquidity markets, to prevent a long depression. When the “rescue” check comes to my account, I’m going to do something long term to benefit the grand kids (it is their money we are borrowing, after all) and rest to various charities.

    • I remember your comments. Thought you might write something but, as you say, you’re waiting. Then I read the March 28 T-D Q&A with Layne this morning. When I realized he was sticking with the $2B as of last weekend I thought somebody should say something.

      This is one of the problems with the Northam Administration – they just can’t seem to force themselves to be open, transparent and honest. Layne know the $2B number was BS on March 28 but did the Q&A anyway. He could have “walked back” the number but he didn’t. Just like Northam could have “walked back” his mumble mouthed comments around infanticide but didn’t.

      Layne seems like a competent guy but he’s falling into the Northam trap of disrespecting the voters and taxpayers of Virginia. If you honestly make a prediction that you now know is wrong you need to say that. Not just roll forward pretending the prediction is still right.

      As TJI noted the budget just passed by the legislature represents a 30% spending increase since Northam took office. And he was inaugurated just over two years ago! Seems like there must be plenty of room to slice and dice that runaway spending back down to size.

      Fiscal conservatives should remember to never waste a crisis too.

      • “Layne seems like a competent guy but he’s falling into the Northam trap of disrespecting the voters and taxpayers of Virginia. If you honestly make a prediction that you now know is wrong you need to say that. Not just roll forward pretending the prediction is still right.”

        Explaining complex accounting and financial issues to individuals without financial/accounting knowledge is very difficult. Add on the layer of explaining Federal spending, and how that flows to individual state agencies is even more of an ask (and I commend Dick Hall-Sizemore for being very good at this).

        Correct me if I am wrong, but the issue is that the fiscal stimulus included funds for states that are earmarked only for pandemic related expenses, not to replace lost revenues. My guess is that there will have to be another stimulus package to address the revenues shortfalls, which not only affect the state adversely but all of the local government as well.

        The problem Layne is having in giving you the perfect prediction that you want is that we’re in one of the worst times of uncertainty this country has ever faced. We just simply don’t know.

        • Yep – but DJ is on a ” you better be right or else” tear….

          That’s the problem with the ” keep govt accountable” crowd, sometimes.

          they’re looking for any flaw, any weakness upon which to go after them.

          I would think on the rainy day fund – use – if there ever was a rainy day… what the dooda are we waiting for?

          I have confidence in Layne that he will do a good job. Not one that everyone will agree with or like – but a competent and responsible job. I’ll change my mind if he morphs into someone different than he has been.

          Benefit of the doubt – not suspicious and sure that he’ll do bad.

        • “Explaining complex accounting and financial issues to individuals without financial/accounting knowledge is very difficult.”

          Maybe so. I earned my Accounting degree from the University of Virginia. Where did you get yours?

          Layne made a prediction. He then was interviewed discussing that prediction. If, as you say, “We just simply don’t know” then why did Layne make his prediction? Why does he continue to stick with that prediction in public discussion?

          Northam’s performance on the health side of the COVID-19 epidemic has been abysmal and Layne is off to a bad start on the fiscal side.

          You can extend that dynamic duo all the excuses you’d like. Personally, I think it’s time to start holding members of Democrat administrations as accountable for this blunders as everybody wants to hold the Trump administration accountable for its blunders.

          • jesus H. Keeeerist – DJ – this thing is just starting and you’re
            ready to hang em high……….

            Layne would be downright irresponsible to speculate and conjecture any more about the budget right now.

            DO you expect him to be a soothsayer?

            If Northam ignored his advisors like Layne and went on TV shooting his mouth off, you might have a comparison, but you actually condemn Northam because he does not do ENOUGH of that.

            You’ve got a cockeyed thing going on here.

            what’s got into you?

          • generally_speaking

            Maybe so. I earned my Accounting degree from the University of Virginia. Where did you get yours?

            A lot has changed since the 1950’s 🙂

            You can extend that dynamic duo all the excuses you’d like.

            No, I’m just being what’s called reasonable given the current circumstances of a global pandemic.

  2. If this projection is right, the Virginia peak of new COVID cases will occur around May 23 -May 26.
    https://covid19.healthdata.org/projections Some rural areas will lag behind that significantly. As of April 11 we will have a relatively poor fix on what the impact is going to be on Virginia’s economy and tax revenues. Not saying we shouldn’t make our best estimate as of April — but it seems to me a reconvened or special session in late summer is going to be inevitable to come up with a revised estimate to match the revised realities at that time.

    • I’m sure that’s on the options list. My bet, the governor will ask for max flexibility on his own authority, and if denied that late summer session might be required.

    • It’s a very hard prediction to make. It seems that our state government will have two choices – One: cut hard, add to reserves over the short term and then either spend those reserves if things start to look up or don’t spend them if things are as bad as the Fed apparently expects. Two: Cut lightly and hope for the best precipitating a likely crisis later in the year.

      The 1958 – 1959 flu epidemic really did spawn a V-shaped recession. But we didn’t shut down society over that disease. This time we did shut down society. We’ll have to see how that turns out, economically speaking.

      My bet is that the Spendthrift Triplets, Northam / Saslaw / Filler-Corn, won’t be able to stomach the liberal blow back from any serious budget cuts so soon after their free-spending budget victory earlier this year.

      State pensioners beware! We all know how an unbalanced budget can be made to appear balanced.

  3. re: speculation – speculation and waiting to pounce!

    Layne is not only a Republican and CPA, he has a track record as a prudent and relatively honest and pragmatic budget guy that I would be surprised if he started playing games with numbers now. He’s just not going to tip his
    hand until he feels like he knows the reality of the numbers and is then willing to go forward with his recommendations.

    This is an unprecedented period of our history , chaotic and in flux so I’m not expecting a 100% steady-as-she-goes budget cycle.

    And I expect Layne to be using as much scalpel as he can rather than meat cleaver and that’s a longer and more deliberate process…

    I just get the impression that DJ is hovering and circling just waiting to swoop down and give someone holy-hell… as soon as he finds out what it is he can give holy-hell for……. 😉

    • He already tipped his hand when he said $2B. Why is this hard for you? Once you publicly make a statement (even if made in good faith) and you realize that statement was wrong you need to correct that statement. Here’s a possibility:

      “We made the $2B estimate with the best information we had at the time. We now know much more than we did. We are revising our estimates and expect to have a new number ready by April 8. As you know this is a fluid situation and we are trying to provide the taxpayers of Virginia who pay all of our salaries as good an estimate as we can. Thank you.”

      Was that so hard?

  4. johnrandolphofroanoke

    The cancellation of tourism in 2020 alone will have a destructive effect. What jumps out to me is this. $1.8 billion generated in tourism tax revenue. Tourism supports 234,000 jobs in Virginia. Those workers were paid $6.1 billion dollars. Most of those dollars will not be paid out, collected, or spent. Because those dollars did not exist in 2020. The impacts are going to be very deep. And we are just talking about tourism.

    https://pressroom.virginia.org/tourism-is-an-instant-revenue-generator-in-virginia/

  5. One cannot divide the $2 trillion in federal rescue money proportionally among states based on population. $350 billion of that package is earmarked for small businesses. Another $500 billion is earmarked for corporations to be selected by Mnuchin. Another $125 (?) billion is for direct payments to individuals; that one you could do proportionally. Virginia state and local governments are projected to get $3.3 billion, with about $1.8 billion slated for the state. However, that $1.8 billion can be used only for necessary expenditures incurred as a result of the coronavirus crisis.

    Layne’s projection of a $1 billion hit each year was made about a week ago. The outlook is probably bleaker now and the shortfall may be more. No one knows at this point.

    As I have said before, I don’t expect many budget amendments in the upcoming reconvened session related to coronavirus for the biennial budget bill. It is still too early for good projections and, as Don implied, any projections now would probably have to be revised in the fall. There is a time and a process to adjust the biennial budget. The more immediate problem is the current year’s budget, which, constitutionally, cannot show a deficit. I would think the attention of Layne and the budget forecasters at the Dept. of Taxation is fixed on the revenue prospects for the next three months. The budget bill (known as the caboose bill) will be where most of the Governor’s proposed budget amendments will center.

    • Between now and April 22 Layne, et al are going to have to figure out some way to estimate how much of the Federal money will apply to Virginia, at least over the next three months and, I hope, somewhat beyond that as well.

      Northam and his Democratic majority in the General Assembly have proven to be an amazingly free spending crowd. According to TJI – between his inauguration and the newly passed biannual budget (which extends into the future) state spending in Virginia has risen (or is budgeted to rise) by about 30%. Now comes the reckoning. The sooner we admit that we can’t afford that level of drunken sailor spending the better.

      Good Time Ralphie’s Got the Blues.

      • A large part of that additional spending was federal Medicaid money and other nongeneral fund revenue–that is, not revenue generated from general taxes, such as income, corporate, and sales.

        • Yep. When you’re ranting and raving about Dems and taxes what difference does where the money came from make?

          Disingenuous? The heck you say.

        • Spending is spending. Virtually every dollar spent is the result of monies received through the threat of incarceration of people unless they forfeit their personal or corporate property to the government.

          • NO guy. THAT is disingenuous and you know it. You’re blaming Va Dems for something they did not do – and now you’re invoking the “coercive boot of all govt” stuff. Geezy peezy.

  6. “Layne would be downright irresponsible to speculate and conjecture any more about the budget right now.”

    He speculated and conjectured when he predicted $2B. I guess he’s irresponsible in your opinion. Sorry Larry but anything else is revisionist history.

    • he got out in front of his skis, yes. Irresponsible – no. Satisfy DJ – not in this world.

    • Steve said yesterday, “I am positive the work on the budget is underway, and there is no point in making early announcements. ” And you add, “This is one of the problems with the Northam Administration – they just can’t seem to force themselves to be open, transparent and honest. . . . Layne seems like a competent guy but he’s falling into the Northam trap of disrespecting the voters and taxpayers of Virginia.” What you say might be the right approach in normal, opaque legislative times. But this is a time for involving the public directly in building support for what is likely to be a hugely-stressed, hugely-dislocated (from normal priorities) budget. I’ve been harping on the theme “Where’s the leadership from Northam” and this is a good example of what seems totally lacking: any effort to inform and persuade, to make the case to the public in advance ofseeking that additional “manuvering room” for the flexibility we already know the Gov. is going to need.

      Why is it that N’s default method (now pressed on Layne) for shaping public policy is to cut secret deals with the GA rather than explain to the public, the rest of us mere mortals, what his administration’s imperatives are, what the public policy goals are, before they’re locked into compromise legislative language by committee vote? I’m coming to believe it is because he doesn’t know what his imperatives are; he doesn’t know what the public’s goals ought to be; he doesn’t even understand how bad it’s going to get; he doesn’t get it that people in his state are hungry for leadership right now. He’s just reacting, bouncing from wall to wall like the virtual ball in an arcade game.

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