Stop Gap Budget Amendments

By Dick Hall-Sizemore

Not surprisingly, the Governor did not try to re-write the budget in the reconvened session. There is just not enough information available now regarding the extent to which state revenues will be affected by the economic downturn brought on by the novel coronavirus. Using the process set out in the Appropriation Act and implemented several times in recent years, the re-rewrite (with major cuts) will happen next fall.

The Governor used his proposed budget amendments to accomplish several objectives: increase the amount of general fund cash available to address revenue shortfalls; freeze spending on his and on General Assembly initiatives; allow additional spending to proceed in specified, de facto mandated areas; and give himself and agencies administrative flexibility in dealing with COVID-19 situations.

Liquidity and flexibility

The most pressing budget issue is getting through the current fiscal year. The amendments proposed for the caboose bill (the budget bill for the current fiscal year) are aimed at accomplishing that, as well as dealing with the immediate effects of the novel coronavirus.

The first imperative was freeing up general fund cash to plug the anticipated revenue hole. The Revenue Reserve Fund (not to be confused with the Revenue Stabilization Fund, otherwise known as the Rainy Day Fund) is the most obvious source for that task. After actions by the 2019 General Assembly, the Governor’s introduced budget, and the amendments by the 2020 General Assembly, there was a proposed $602 million deposit to the reserve fund. The Governor’s proposed amendment would negate that deposit, thus freeing up that general fund revenue.

One of the federal COVID-19 bills increased the federal match for Medicaid expenditures by 6.2% and lowered the state’s share by a corresponding amount.  According to the Richmond Times-Dispatch, that change will save up to $150 million in general fund costs every three months, dating back to January 1.

The administration is hoping that the combination of: (i) higher-than-projected revenues collected through March, (ii) the short-circuiting of the deposit into the Revenue Reserve Fund, (iii) the $300 million in Medicaid general fund savings, and (iv) savings generated through the hiring freeze and clamp down on discretionary spending already ordered by the Governor will get the Commonwealth through this fiscal year.

The Governor did propose some new spending. The largest of these is $50 million for any required state match of federal COVID-19 funds and for other emergency situations related to the novel coronavirus crisis. In addition, there is an item for DMAS (the Medicaid agency) for approximately $300,000 to cover the costs of policy changes implemented in response to the crisis.

In addition to language providing agencies more flexibility, there were three other policy changes proposed as a result of the pandemic. The first one would increase, by $20 per day per patient, the rate paid to nursing homes and specialized care facilities caring for Medicaid patients. There was no appropriation accompanying this amendment. The Times Dispatch reported that the cost would be approximately $14 million every three months.

Another amendment was the authorization for the Department of Corrections to release early from prison offenders who have less than a year on their sentences to serve. That authorization would expire July 1, 2021.  (That authorization was discussed here on this blog.)

The other proposed major policy change is the moving of local elections scheduled in May to the November general election date. The Daily Press reports that this proposal is running into a lot of opposition, with at least one Democratic senator, Chap Petersen, saying he will oppose it.

Proposed amendments to the biennial budget bill continue the Medicaid rate increase and the prisoner release authorization.

My Soapbox: I was surprised that the authorization for early offender release would be effective for more than a year. It would seem to be more appropriate to make it effective only while the Governor’s Order of Public Health Emergency was in effect.

Unallotments and Spending

Unallotments

In addition to language providing flexibility to deal with the pandemic, most of the amendments to the biennial budget would unallot approximately $2.0 billion in new spending authorization over the biennium.

“Unallotment” is a budget term that says to an agency, “Although you have this appropriation, you cannot spend it until you have express permission (an allotment) to do so.” The language of the 83 unallotment amendments is basically the same, stipulating that the amounts “shall remain unallotted until re-enacted by the General Assembly after acceptance of a revenue forecast that confirms the revenues estimated within this Act.”

That language guarantees the General Assembly will have to meet in special session next fall. Otherwise, agencies would have to wait until after the regular 2021 Session before they could be sure of their revised FY 2021 appropriations, which would be well after half the fiscal year had elapsed.

The Governor’s actions regarding higher ed were curious. He did not submit an amendment that would change the optional tuition freeze imposed by the General Assembly. However, he did submit amendments unalloting additional funding for those institutions electing to freeze tuition as well as additional funding for tuition assistance. In essence, he would take away the carrot to induce colleges and universities to freeze tuition. If the General Assembly accepts these amendments, it would be a safe bet that some, if not all, higher ed insitutions would raise their tuition rates, at least for the second semester.

My Soapbox

From a budget perspective, there was no need or reason to unallot appropriations in the second year of the next biennium. Agencies could not begin spending those second-year appropriations until July 1, 2021. The budget cuts and other adjustments needed for the second year will be presented by the Governor to the 2021 Session of the General Assembly, if not to the special session that will meet this fall.

The only plausible reason to unallot the second-year appropriations is a P.R. one.  Apparently, the Governor wanted to impress the public that he was taking strong action. “Governor Freezes $2 Billion in New Spending” makes a good headline. It probably was not a coincidence that the $2 billion in total unallotments matched the administration’s earlier projection of the revenue shortfall.

I still am perplexed that the Governor chose to unallot the new spending in this manner. By using this method, he subjects the whole budget cut process to the vagaries of a special session of the General Assembly.

The budget bill sets out a process for “withholding of appropriations” after re-forecasting revenues. It is true that the budget bill language goes on to prohibit the Governor from withholding appropriations (unallotting) until he has presented a detailed budget reduction plan to the General Assembly. Presumably, the administration would argue that it was important to freeze new spending right away and the Governor did not have the legal authority to direct agencies not to spend any of the new appropriations.

Such an argument ignores the option of proposing an amendment to this budget language that would give the Governor the authority to unallot appropriations on his own initiative prior to the development of a budget reduction plan. The General Assembly could rescind that authority when it took up the budget revision at the 2021 Session. After all, the Governor submitted numerous amendments that would waive existing requirements in order to deal with the pandemic crisis. He even submitted an amendment that would allow him to exceed the 15% limit on budget cuts that is currently in the budget bill. Certainly, an amendment giving him additional authority to unallot appropriations would not have been out of line.

It is highly unusual for a Virginia governor to show such deference to the legislature. Perhaps it is because Democrats hold a majority in both houses and he feels they should be involved more fully in the budget reductions. Perhaps, having served in the Senate for six years and presided over it for four years as Lieutenant Governor, he is still somewhat “a creature of the legislature” and thus tends to be deferential, especially since his party in in the majority. Perhaps it is because he and his advisers are inexperienced. After all, Aubrey Layne, the Secretary of Finance, has less than three years’ experience in the budget wars. (Where is Ric Brown when he is needed?)

Allotments

About a week before the Governor submitted his budget amendments, the Times-Dispatch led off a story with, “Gov. Ralph Northern will suspend all new spending in the pending two-year, $135 billion state budget….”  Chief of Staff Clark Mercer was quoted as saying, “We’re going to hold all new spending.” Except the Governor didn’t.

On this issue I do not fault the Governor. There were some additional appropriations that were not “new spending,” per se, but were were needed to keep the status quo intact. Other new appropriations were needed to satisfy mandates or to address health/medical issues. In its news releases and interviews, the administration was announcing its basic approach, without going into the details or exceptions.

Following are the main exceptions in which new appropriations were not unallotted:

  • Technical adjustments—Every budget bill contains new appropriations that are not for new programs or expansion of existing programs (policy decisions) but, rather, are needed to continue policies already in place. The most common of these so-called “technical” amendments are related to state employee compensation and benefits. There is no total for these amendments publicly available, but it most likely is close to $200 million for the biennium. For example, $110 million was needed over the biennium to “annualize” the funding for the 2019 employee salary increases and other employee benefits for the Department of Corrections, the largest state agency.
  • Legislative branch—Because the legislature is a separate, co-equal branch of government, governors traditionally have not tampered with its appropriations. In accordance with this tradition, the Governor did not propose unallotting any of the $12.2 million in new biennial appropriations  provided for the legislative branch in the amendments adopted by the General Assembly.
  • New legislation—The 2020 General Assembly passed 28 bills that needed budget amendments. (For the list of those bills, see here.) Those amendments totaled $21.7 million for the biennium. The Governor proposed unallotting only $1.5 million of that amount.  There are few, if any, of these bills that are so important that their effective date could not have been delayed, especially in the face of having to deal with a pandemic. Furthermore, it seems contradictory to tell agencies on the one hand to freeze hiring and then to sign legislation directing them to establish new programs or positions, such as the Office of the Children’s Ombudsman in the Governor’s Office (HB 1301) or the position of Animal Welfare Inspector in the Department of Agriculture and Consumer Services (SB 891). Presumably, the agencies involved will not move to implement these bills and any savings will be available for budget cuts in the fall.
  • K-12—The Governor chose not to unallot the additional appropriations needed to fund the state’s share of the increased costs of the current SOQ. The primary items in this category were the cost of “rebenchmarking” and updating student enrollment projections. The total cost for all items in this category was approximately $400 million per year.
  • Medicaid—In addition to leaving allotted the increased appropriations tied to utilization and inflation, the Governor exempted the proposed new money for an increase in the number of developmental disability slots and the funding provided to increase the rates for organizations providing personal care and services to elderly and disabled persons. In total, $277.9 million in the first year and $652.2 million in the second year in new spending for Medicaid would remain allotted.
  • DOC medical—The Governor left allotted the additional appropriations of $16.5 million in the first year and $20.5 million in the second year for offender medical costs.

Spending Proposals

The Governor did include several traditional budget amendments in his submission. One provided an additional $1.0 million to DMAS to cover policy changes implemented in response to COVID-19.  Two other amendments actually reduced or eliminated appropriations:

  • Virginia Innovative Partnership Authority—reduction of $6.1 million in the first year;
  • Department of Education—elimination of $21.7 million in the first year and $28.4 million the second year provided to expand the number of counselors in public schools.

Borrowing

In case revenues lag more than anticipated or there are more COVID-19 related expenses than projected and funded, the Governor’s budget amendments for both the caboose bill and the biennial budget bill would provide an additional tool—short-term borrowing.

The unusual provision would authorize the state to issue tax and revenue anticipation notes issued as commercial paper to assist the Commonwealth as well as local governments in managing their cash flows and any shortfalls. The limit on the issuance of such notes for the benefit of the state would be $500 million and they would mature within 12 months of their issuance. The limit on notes to benefit localities would be $250 million and they would mature in 24 months.

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35 responses to “Stop Gap Budget Amendments

  1. I’m impressed. Three times. First with Dicks exceptional knowledge of the budget process… I’d not be surprised at all if his analyses are the best in the media in the state.

    But I’m also impressed with the Northam administration. The things being described by Dick do not sound like the actions of neophytes.

    Finally, the budget process itself looks to be a fairly careful one with checks and balances… and safeguards when revenue forecasts are not matching up with expenditures.

    I much worry about the Federal level. How much can we spend in debt before it causes serious distortions in the economy perhaps even affecting people’s pensions? Can we really bail out everything? I’m betting there is bad news downstream… along the lines of “you can’t get something from nothing”.

    Thanks Dick – your budget tomes do make me Dizzy! 😉

    • If I may, perhaps a small answer.

      Four senators dumped their portfolios after receiving an NSC(?) brief, saving themselves a 20+ drop. I hope their proceeds are sitting in cash in their settlement accounts. Pay me now, or pay me later.

    • Cramer/other financial analysts seem to say the Fed can print as much money as it wants to, and the approach so far has been to error on the side of distributing money freely as needed to bail out junk bonds, which were failing, municipal bonds etc. Of course after I already sold my muni’s then the Fed intervened to pump em back up. The most recent debate is that the cities need mega-billions to keep going. DeBlasio was making his appeal to Trump on CNN yesterday. How we recover from the spending spree, I do not know, but the USA economy seems to be the least dirty shirt in the laundry so far.

  2. johnrandolphofroanoke

    What about all of the bills that passed the costs on to local government? Like this one: https://www.richmondsunlight.com/bill/2020/sb232/

    Did Ralph put the brakes on this kind of spending?

  3. no schools, no menstrual needs… right?

    we’re about to find out something with respect to school and staffing costs.

    Are teachers going to continue to get paid if schools don’t open back up especially if local govt revenues are clobbered?

    I see some pain coming up.

  4. “Apparently, the Governor wanted to impress the public that he was taking strong action… ” More likely the rating agencies, Dick.

    • You might be right. However, the Governor and the GA members usually make the pilgrimage to meet with the ratings agencies in the fall. Then, he would be in a position to show them real cuts.

  5. Governor Cuomo, who several weeks back declared New York State broke financially, strongly implied today that most, if not all, states are broke or are headed that way quick given the path they have traveled over the past 50 days and seem destined to continue into an uncertain future, all built on decades of too many spending increases.

    In any case Cuomo said the state’s needed some half trillion dollars right now from Federal Government. “Bailout” term was never used. That what is sounds like to me with the implication that this was only the first installment of many bailing out the states. And that does not begin to include the state public schools from top to bottom, nor the hospitals, nor student debt.

    If so, why is it not reasonable to require Virginia along with other state’s to do far more now than simply postpone brand new spending that arises out of the state’s last legislative sessions, but instead to require Virginia to go on a long term spending diet, before it gets bailed out by the Federal Government for massive state shortfalls?

    Cuomo speculated too on new future state needs given lessons learned by this crisis, using terms like social equity. Now the veil covering progressive hidden agenda finally lifts into public view. Likely too, the great contest begins across a new virus induced political battlefield. Cuomo likely too just opened his campaign for President in 2020, along with how to deal with lessons learned and damage done by this crisis, all funded with the Federal Government’s money, including its funding much of the Democratic presidential campaign along its progressive wish list for future. Why is not this same basic strategy playing out right now in Virginia?

  6. States, unlike the Feds, usually have to balance their budgets and also important to understand where the shortfalls are in the State revenues.

    On the expenditure side – both at the State and local level , more than 1/2 of the money goes for education with another 1/4 or so for public safety.

    If a locality or Virginia ends up with severe shortfalls, it’s going to come out of education.

    The state will cut back on the SOQs – and the localities will cut back on teachers that are not SOQ-mandated and also are not partially funded by the state and instead 100% funded locally. These positions are usually not core academics like math, science, language but rather the more optional offerings. They’ll make this by offering online versions that are far cheaper. e.g. instead of French in the classroom – French on the computer.

    I don’t know about New York but I expect Virginia to hunker down intelligently… they will balance their budget if at all possible, take quite a big of pain… and try to climb out downstream.

    Finally, in the end , if the Feds are going to bail out small business to save the jobs of restaurant workers, are they not going to also save the jobs of teachers?

    • “On the expenditure side – both at the State and local level , more than 1/2 of the money goes for education with another 1/4 or so for public safety.”

      The financial hits here are likely to be very hard. As to education, the solutions might turn out to be easily to find, repetitively cheap, and very beneficial, and perhaps the nature of this particular crisis makes possible what was impossible before due to vested interests.

  7. I fear a whole lot of people across the board will take a very big bath here, given the ripple affect that easily can cascade in many places, take home mortgages, not to mention home values, not to mention student loans, etc. etc. etc. etc, for example. We are in for very challenging times, but I suspect we will come out the better for it, if we manage it right. But that is a very big if, and the downsides are huge, if we do not. I suspect it’s a tightrope we are walking, trying to keep in balance back and forth, in a gale or what could easily erupt again.

  8. Meanwhile Fairfax County and Fairfax County School employees are each eligible for two pension plans. The General Assembly raised the gas tax but not the fees for overweight trucks that do much of the damage to Virginia’s roads and bridges.

    “The state will cut back on the SOQs – and the localities will cut back on teachers that are not SOQ-mandated and also are not partially funded by the state and instead 100% funded locally.” Not Fairfax County. More jobs equals more union dues equals more campaign contributions. Stop all campaign contribution bundling.

    • Yep. Unlimited campaign contributions are at the heart of the rot in Virginia politics. The usual excuse from the plantation class elite is that our system is so transparent that unlimited campaign contributions are not a problem. This is horse manure. As an example, Dominion’s money floods through Democrat “Dominion Dick” Saslaw’s campaign funds. He bundles and re-bundles that money and then hands it out washed of any direct Dominion labeling. Other Democrats take Saslaw’s washed money and have the audacity to claim they are not funded by Dominion. Meanwhile, VPAP sits on its hands with the re-bundling as it selectively publishes left-leaning news articles and opinion while claiming to be a non-partisan watchdog. The final cherry on top of the sundae is essentially no useful reporting of how those unlimited campaign contributions are spent.

      If the Democrats would have worked to contain the graft in the past GA session I would have given them credit. But they didn’t, not even with a state government trifecta. Instead they raised taxes and made a corrupt government even bigger and more invasive.

  9. Think schools without school buses, cafeterias, auditoriums, sports,
    career tech/shop, classrooms, – What will that “school” look like?

    Think home-schooling. What does that look like?

    How much of the school budgets go to the above things?

    K-12 Schools are scrambling to figure out how to operate without the above things.

    How about Higher Ed? no dorms. no sports. no libraries. no labs.

    Imagine a Big 10/NCAA school without a campus and without a Sports Program, no basketball, no football,

    Basically, no Campus Life.

    this is what “small govt” will look like?

  10. Oh…an that “regulation thing”:

    Nursing Home Deregulation Continues, Despite Substantial Risk to Residents

    Under the Trump Administration, the Centers for Medicare & Medicaid Services (CMS) has been advancing efforts to deregulate the nursing home industry by rolling back the rights and protections of nursing home residents. These efforts include reducing accountability for substandard care, such as by shifting the default financial penalty for the most serious health violations from a daily fine for every day of noncompliance to just a single fine, no matter how long the violation persists.

    The proposed rule rolls back Requirements dealing with critical health care standards and residents’ rights. The far-reaching proposal would reduce standards for infection control, behavioral health services, facility assessments, bed rail safety, food and nutrition management.

    • Regulation of Medicaid funded nursing homes is done by the state as Capt Sherlock has explained. In the case of Canterbury that would be the Northam Administration.

  11. In much of public health care and education today, the higher the costs, the more the regulation, the more elaborate the infrastructure, the lower quality of results one gets. That is what the facts show me. And the facts are overwhelming, including in Virginia.

  12. It’s hard to take seriously talk of smaller govt and less spending given what’s going on now both philosophically and practically.

    We used to flap out lips about deficit and debts til they were sore.

    and now look – and not a whimper… ..crickets…

    and we cut Federal regulation on nursing homes, then blame Virginia for the consequences of that.

    we’re bailing out small businesses that pay the lowest wages possible such that many of their employees earn so little, they pay no Federal taxes and require Medicaid for their health care.

    And we’re told the solution is to take away that health care and let the hospitals absorb the costs at the same time they’re expected to take every single coronavirus victim and pay whatever it takes to try to keep them alive.

    The one law that may actually save us is Darwins… 😉

    • Much economic regulation nowadays is designed to hobble competitors or advance an incumbent company (i.e., with significant market share) or sometimes inefficient competitors (newer market entrants). Advancing competition, rather than protecting competitors, is the best way to go.

      Where there is a natural monopoly or extreme circumstances, economic regulation may make sense.

      Bona fide health and safety regulations can make sense. But even there, there needs to be a cost-benefit analysis.

      • Some of it is, yes, agree but that’s usually law. If for a given law, the regulators are caught treating competitors differently on the regs – ie. favoritism, it often ends no so good.

        But reducing regulations on Nursing Homes, then have a bunch of folks die as a result – is not that and the problem is when the “gut regulation” types get control of the apparatus, they don’t seem to be able to know the difference.

        I note this: Trump administration scraps mercury emissions rule as rollback of Obama-era regulations continues
        Regulation covers coal industry, for which agency’s chief previously lobbied… is that helping competitors?

  13. DeMuth is your basic think tank critter.. he writes opinion pieces, silly ones about “deregulation” which is pretty much the GOP standard fare when they get the opportunity. They often blow up like the nursing home “deregulation” and the culprits say “who me?” or try to blame someone.

    He did apparently save AEI from bankruptcy.. credit there… but saving AEI ? I dunno… save them so we have more critters like him? geeze.

    • Yes, you’re right. The state-based regulation of Canterbury by the Democratic Northam Administration was a major success. You and your liberal ilk must be so proud.

      • “The Trump administration has been working to relax regulations governing America’s nursing homes, including rules meant to curb deadly infections among elderly residents,” the New York Times reports.

        “The main federal regulator overseeing nursing homes proposed the rule changes last summer, before the coronavirus pandemic highlighted the vulnerability of nursing homes to fast-spreading diseases. The push followed a spate of lobbying and campaign contributions by people in the nursing-home industry.”

      • It was not the policy of regulations or the regulations themselves that were at fault. The fault, if there is any, would lie in the enforcement of those regulations.

        • That is correct Dick but if the regulations are relaxed… then who is responsible?

          The relationship here feels a little like the EPA and DEQ where the EPA sets the regulations and DEQ enforces them.

          But if EPA pulls back on something like coal plants – is DEQ responsible for that if their enforcement pulls back also per the weakened regulations?

          I’m trying to be fair here. This nursing home narrative walks and talks like a political effort to me – because the nursing home problem is going on across the country – and we have this thing going on here to tar VDH in Virginia.

          I asked before – there are over 280 nursin homes in Va that VDH enforces regulations. It this particular one a one-off or part of a larger pattern statewide?

        • Regulations that go unenforced are not particularly useful. Once again the left hand of our ever growing government doesn’t know what the right hand is doing.

  14. veering off course here… if the Feds reduce regulations – and that’s a fact, do you blame the folks who reduce enforcement per the loosened regulations?

    That’s actually NOT left hand-right hand – it’s actually totally connected.

    this is standard fare. When the GOP takes power they pull back the regs and when the Dems get in they put them back in.

    When regulations are loosened and bad stuff happens – all the folks who loosened them – run and hide and/or try to blame the regulators.

    no magic here… it’s the way things work.

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