New Budget Woes

By Dick Hall-Sizemore

The outlook for the state budget gets grimmer.

The most immediate concern is the budget for the current year. The state collects about a third of its fiscal year revenue in the last quarter (April-June). Income tax filings and payments are usually due May 1.  (This year the payments can be delayed until June 1 without penalty.) The COVID-19 crisis probably will not affect that revenue stream; it is based on calendar year 2019 income. But, the prolonged crisis will affect sales tax receipts, current withholding  tax receipts, and, possibly, non-withholding estimated payments. There will be some savings—state travel has been drastically curtailed and the filling of vacant positions can be put on hold, for example—but it is not known to what extent these actions will counteract the loss of revenue.

The Secretary of Finance, and staff in the relevant agencies under him, the Department of Planning and Budget (DPB) and the Department of Taxation, will need to make those projections to determine what amendments will be needed for the current year’s budget bill. Although the last quarter will have barely begun, they do not have a lot of time. By law, they Governor must submit any amendments proposed for pending legislation, including the budget bills, to the General Assembly by April 11 (about the time that the monthly revenue report is generally released).

The other bad news for the budget is that the $1.8 billion that the Commonwealth is projected to receive from the huge rescue package recently enacted by Congress can be used only for necessary expenditures incurred as a result of the COVID-19 emergency. It cannot be used to replace reductions in general tax revenue. According to today’s Richmond Times-Dispatch, the Northam administration is asking the state’s Congressional delegation for action to give states more flexibility in spending the money.

In addition to this general category of funding for states and localities, the federal legislation established additional pots of money for specified areas, such as higher education and public safety, which would benefit the state. Details on those programs are not available to Bacon’s Rebellion at this time.

Because the $1.8 billion will be available to cover certain expenditures, it will likely be sent out in the form of reimbursements. It will take some time to set up the bureaucratic mechanisms to handle such payments on the federal end and, on the state end, to collect the data on the eligible expenditures. In Virginia, that task will probably fall to the DPB. (Another reason I am glad I am retired.)

In the meantime, there is the matter of the biennial budget to worry about. There will be reserve funds to cover some of the revenue shortfall (if the Governor did not need all that reserve to cover a 2020 shortfall). However, if Secretary Layne is correct in his projection of a $1 billion revenue hit in each year of the biennium, there will need to be significant budget cuts. But that will need to wait until there is an official revenue re-forecast in the summer. It is going to be a busy and stressful fall for agencies and the central budget folks.

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12 responses to “New Budget Woes

  1. re: ” the huge rescue package recently enacted by Congress can be used only for necessary expenditures incurred as a result of the covd-19 emergency. It cannot be used to replace reductions in general tax revenue. ”

    wow! that’s gonna put a hitch in the budget giddy-up… it only applies
    to expenditures not the loss of revenue?

    I note in the FLS this morning that those on unemployment – have to re-apply EVERY WEEK they remain unemployed. And if anyone has every tried to navigate the online unemployment application – I invite you to get frustrated….. it’s almost as if it’s meant to discourage people from applying.

  2. The Fairfax County BoS Budget Committee had a hearing today. Some of the supervisors were whining about the same thing. They don’t want federal help with the cost of the pandemic. They want to have their good time budget revenues restored. Fortunately, there are a few veterans on the board, including Chairman Jeff McKay, who understand they need to cut the budget and relook at it quarterly.

    I was talking on the phone to a physician friend. He is of the opinion that COVID-19 will transform the country drastically. One of his examples was higher education. He believes that the switch to online learning will take over much of higher education and that people will quickly challenge the outrageous prices charged by many colleges and universities. Can a school command $50 K and up tuition in an age of online learning?

    He also predicted a major growth in telemedicine, especially as 3-D video rolls out. The tech has been available since the mid-90s but is waiting for costs to fall. 5G radio technology certainly has the bandwidth to deliver the signals.

    Keep up the great work following the budget, Dick.

    True leaders would recognize this trend and start Virginia down the path of adapting to a major cost-cutting jump in technology and lifestyle. A lot of jobs are going away while new ones will appear.

  3. I too believe that this will accelerate innovation and disruption of things that may have already been starting to trend.

    I don’t think it will changed higher ed much because the gold standard for many is the on-campus, total college life that parents want for this kids. Online and distance education has been around for years – a decade with for profit companies like Phoenix and institutions like Liberty U which is the largest University in Virginia by enrollment.

    I’ve always said that there are a lot of ways to get 4-yrs of college without paying the prices that are demanded for the 4-yr on-campus version.

    For K-12 – I DO think we’re going to see big changes going forward but we do have equity issues with low income kids who cannot afford laptops or internet.

    I don’t know about telemedicine – if we do not have electronic medical records. Perhaps this will be what makes that go forward.

    • I think what might make the difference is the experience students and their bill-payers will have with online learning. For many courses, there won’t be any difference between online and classroom except the price.

      • I think times will change but the on-campus experience is something that many College-educated parents want for their offspring. Anything short of that is not the same for them and the big institutions know this and they actually compete with each other to provide more academic offerings, more sports and other amenities.

        Just going to College during the day and coming home at night is not the same to them.

        The alternatives to that, remember “night school” – it still exists and people still attend it. Liberty U offers 100% online degrees and they have thousands of enrollment. Northern Virginia Community College and Rappahannock Community College have been around for decades and attract a good many folks.

        Online has been around quite a while. Remember all the whoop-de-do over MOOG – massive open online courses?

        If they took away easy high ed loans, there would be a huge shift away from Tradtional Higher Ed to these alternatives but as long as those unlimited loans are available – people will willingly choose that path and the big institutions know this and know they can put a premium price on it.

        Get rid of the loans – and change will happen when people have to come up with that money themselves and demand for the high priced options plummets. Otherwise, I’m skeptical.

  4. Post-secondary education is ripe for change. For too many years we have been pushing too many kids towards college. Now, we have too many highly educated coffee shop baristas who are struggling to pay off their overpriced education. Not only that, but we don’t have nearly enough vocationally trained folks. Many of these vocationally trained occupations pay more than several 4-year degree positions. Our well-meaning subsidization of higher ed has driven the cost through the roof and provided little in return.

    • but they never had to pay for the high-pried spread to start with. Many, many people got top notch college educations without going into debt up to their eyeballs.

      All of those coffee-shop folks could have gone to a Community College or online degree instead and still not be deep in debt.

      People CHOSE that path and now it’s an excuse that people make for a mistake they made.

      This is like getting a 60K car loan then cry about it when the rent is due.

    • It should also be pointed out that many of these vocationally trained occupations require a bit more smarts than what many people assume.

      I suspect that are quite a few people who have the smarts to be a good electrician, mechanic, HVAC tech, etc instead go to college and get a useless degree.

      And we all suffer for it.

  5. To get back to the main point…..As bad as your worst nightmare might be, Dick, double it. You still can’t get how bad this will be.

  6. On subject of new budget woes, this seven year old Bacon’s Rebellion article has now popped up again to the top of the charts. Need we wonder why?

    Sullivan’s Risky Bet on STEM
    Posted on April 5, 2013
    by Reed Fawell III

    Teresa Sullivan’s proposed four-year financial plan will forever alter the character and mission of the University of Virginia, undermining the financial model that has enabled the university to thrive. If adopted by the Board of Visitors, the plan will raise student tuition to fund the conversion of the University from a teaching institution to a scientific research institution dependent on the federal government for its future financial success.

    The Sullivan Plan will shift the University’s primary mission from teaching to research, with a primary focus on STEM research. Starting July 1, 2103, the University faculty will spend more of its time, talent, resources and collaboration on independent research. Their efforts will concentrate in the fields of science, technology, engineering and medicine. Thus, UVa will become Virginia Tech’s great in-state competitor. And it will vie for federal grant and contractor research dollars with the likes of Johns Hopkins, MIT and Stanford.

    This shift of focus will require the university to make major expenditures in heavy infrastructure projects, including the building, purchase and operation of highly complex and sophisticated scientific labs, equipment and buildings. Large additional outlays of funds also will be spent on the training of a whole new generation of scientists, engineers, researchers and other technocrats. Searching for, hiring, training, setting up and putting in place all these new faculty along with their new disciplines and tools will cost the University even more money. In effect, the University is getting into a new and unexplored business with which it has no experience.

    The University will fund this transformation on the backs of the students. Higher tuition will be the primary source of funding to start up, build and, thereafter, enlarge and maintain the STEM concentration. In addition to hiking tuition roughly 20% over four years, she proposes to create a Strategic Investment Fund that will skim monies and borrowing power from University coffers, place that fund outside the control of the Board of Visitors, and vest power over those monies in university administrators and faculty. (For details of the Fund see the last comment to Article “More Big Tuition Hikes ahead for UVa.“)

    But that is not all. President Sullivan is betting the farm on the theory that UVa can win an ever-larger share of dwindling federal research grants. This undertaking is risky, if not downright irresponsible. Let’s look at some facts:

    1. Monies available for Federal grants are in rapid decline. Given the nation’s financial crisis, the chances are that this decline will be steep and prolonged.

    2. UVa’s income from federal grants also has been in decline recently. So are its returns on fixed costs from such research. Earlier gains before these declines were largely the result of the Obama administration’s massive stimulus package whose effects are expiring.

    3. UVa to date has been a minor player in the federal grant business.

    4. The competition for federal grants, always fierce, will increase as other universities, far more experienced in seeking government-funded research, vie for pieces of the shrinking pie.

    The Strategic Investment Fund, dreamed up by administrators and faculty and controlled by them as well, will deplete the monies available for other needs, putting additional pressure on student tuition and university borrowing generally. If shortfalls occur, the University will be forced to raise student tuition and/or trim other university programs. Under the Sullivan plan, the university administration will be less accountable than ever.

    For more see:
    https://www.baconsrebellion.com/wp/sullivans-risky-bet-on-stem/

  7. I am starting to get the distinct impression that the liberal “Never waste a crisis” crowd is licking their chops over the potential from the economic fallout from COVID-19. Given that trillions of dollars in “free stuff” is the economic cure from the Trump Administration one can only wonder what the antidote might be if a Democrat is elected in November. Closer to home the Fairfax County BoS will follow its usual highly creative past by simply raising the real estate tax rate until they are generating as many dollars as ever. Let the little people figure out how to pay for the county’s grand and glorious government nirvana. Northam will start by draining the Rainy Day fund. After all, it is a rainy day. But that won’t be nearly enough no matter what Layne thinks. After that he and his fellow Democrats will expand their existing practice of taxation through regulation. Maybe a lot of Virginians should get free electricity, free internet, free cellular service, free trash collection, free water and sewer. All that’s necessary is a mandatory set aside of funds by provider of those services to allow freebies. This isn’t a tax. Just like Medicaid expansion didn’t require a tax on the people – just on healthcare providers.

    Of course helping those hurt the worst by the COVID-19 recession will never end – even long after the COVID-19 recession is over. The taxation through regulation will never be rolled back. It will become a permanent increase in the scope of government. Remember, never waste a crisis.

    • The POTUS pontificated yesterday that he wants a two trillion dollar infrastructure bill but not a penny for the Green New Deal.

      Used to be in the not to distant past – the GOP were budget hawks.

      no more……….. but we’re still pointing at those liberal boogeymen!

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