No! We Want to Spend the Money!

By Dick Hall-Sizemore

After more than a month into a special session called primarily to deal with revenue shortfalls resulting from the pandemic-induced economic slowdown, the House and Senate finally have produced their versions of a revised budget.

I wonder if Governor Ralph Northam is regretting having even called this special session. Neither house limited its budget amendments to provisions related to revenue shortfalls, COVID-19 response, or the fiscal impact of other legislation being considered by the special session (criminal justice reform). For example, the Senate has an amendment related to the development of a “linear park” in the Shenandoah Valley. In effect, both houses have proposed major re-writes of the budget.

Furthermore, the General Assembly has seized (been handed?) the initiative on development of the mid-biennium budget bill, an initiative that has traditionally been enjoyed by the governor. The first instance of this seizure comes in the case of the inevitable freeing-up of appropriations through changed circumstances and delays in the start of new programs. Ordinarily, governors are able to identify those savings and propose alternative uses in their revised budget bills proposed to the General Assembly. However, now the legislature has taken those savings and used them for its priorities. One example is the proposal by both houses to reduce the appropriation for the Economic Development Incentive Payment program by $6 million as a result of the recently-announced closing of the Rolls-Royce aircraft parts plant in Prince George County.

Governors generally have flexibility regarding the spending of nongeneral funds that had not been anticipated when the budget was developed. Furthermore, the 2020 General Assembly gave the Governor free rein in allocating the $3.1 billion in federal CARES money for which the Commonwealth was eligible. After distributing to local governments their $1.3 billion share, Northam was left with $1.8 billion over which he had the discretion to spend within the guidelines of the federal law. By June 30, the governor had spent or committed a little over $500 million of that amount.

Both houses have stepped in, saying, in effect, “Not so fast! We want to say how most of the rest of that money will be spent!” The Senate was a little less explicit than the House and left the Governor with a bigger amount over which he would have discretion.

There is another pot of money over which the Governor would lose part of his influence under these amendments. That is the revenue that would be brought in by the one-year extension for the operation of “games of skill,” better known as “gray machines.” Under the terms of the legislation adopted last year, the licensing revenue collected from the operation of these machines was to be used for COVID-19 expenses. Both houses proposed to appropriate $95 million of these revenues to local governments to replace the reduction in sales tax revenue dedicated to public education.

The 2020 General Assembly unallotted approximately $2 billion in general fund appropriations in the Appropriation Act in anticipation of revenue shortfalls. However, the FY 2020 final revenue was not as low as had been anticipated. If he had pursued the administrative budget reduction process followed by his predecessors, that additional revenue, along with identified savings and year-end balances resulting from actions taken by the administration in the spring, e.g.  a hiring freeze, would have enabled the Governor to choose which unallotted appropriations to free up. However, the General Assembly is making those choices this year.

Finally, both houses have amendments with contingency appropriations. These amendments say, in effect, “If the revenue forecast improves or does not fall too much, this is our list of priorities for the use of additional revenues.” This is another area in which the Governor normally has the advantage that comes from going first. The legislators have jumped ahead of the Governor and said, “This is where we expect you to put in any additional money.”

One could make a strong case that the legislators are more directly accountable to the people and, therefore, should have the most power over the budget. But that is another topic for another day. In this instance, is it clear that Governor Northam has ceded much of his power over the budget to the legislature by calling a special session.

As is normally the case, there are differences between the two houses that will have to be reconciled. There is no official schedule or time line, so it is not known when that will happen. It cannot be too soon for state agencies, which are already one-fourth into the fiscal year without knowing their final appropriations.

The differences include the allocations of the CARES money and which unallotments to free up. A lengthy comparison of all the differences would be too tedious and soon be obsolete. Therefore, I will wait for the final product before providing a detailed report. (For those readers who would like to dive into the weeds, the House amendments are here and the Senate’s are here. Because the House floor proceedings will be virtual, the House is taking the unusual step of posting potential floor amendments on-line, as well, here.)

In the meantime, however, here are some of the potential big winners in the legislators’ budget amendments:

Higher education

House: $119 million in federal CARES money and $80 million in general fund appropriation “to maintain affordable access” to Virginia schools.

Senate: $65 million in federal CARES funding.

Public education (K-12)

House: $200 million in federal CARES funding (“Costs for re-opening schools”) and $95 million from “gray machine” revenue to replace loss in sales tax revenue for public education.

Senate: Same as House.

Unemployment assistance

House: $210 million in CARES funding. The House directs the Governor to work with the Virginia Employment Commission to determine the “best use of these funds.” This language would seem to authorize the Governor to provide a supplement to unemployment benefits.

Senate: The Governor may deposit what is left over ($586 milllion?) into the Trust Fund to reduce future unemployment taxes. This language implies that the Governor may spend some or all of the balance on other activities.

Utility customers

House: $120 million in CARES funding to help offset utility debt for customers with accounts over 30 days in arrears.

Senate: No appropriation. Language imposing a moratorium and requiring utilities to set up repayment plans.

Testing and contact tracing

House: $103 million in CARES funding

Senate: $72 million in CARES funding

My Soapbox

There is so much federal money sloshing around in these amendments and the amounts allocated to state agencies so large that one wonders (i) how these costs could be so great and (ii) how the money can be spent efficiently.