by Dick Hall-Sizemore

With one foot out of the Virginia Governor’s Executive Mansion and both eyes on the White House, Gov. Glenn Youngkin is being careful not to cross Donald Trump. In recent comments he has praised Trump actions and downplayed or publicly ignored any negative effects on the Commonwealth of recent Trump initiatives.

Tax and spending bill

He recently lavished praise on Trump’s tax and spending bill, saying that it would result in tax relief of about $2,800 per family. Most Virginians should not start counting on that level of tax relief. What Youngkin did not say was that that figure is an average and that the actual distribution of the bill’s tax benefits is highly skewed to high-income families.

The Tax Policy Center  largely agrees with the average tax benefit, but goes on to report, “The biggest beneficiaries would be households making between $460,000 and $1.1 million (the 95^th-99^th income percentile), who would get an average tax cut of $21,000, raising their after-tax incomes by 4.4 percent.” Further down the income ladder, middle-income households ($67,000-$119,000) would get an average tax cut of $1,800, which would raise their after-tax income by 2.3 percent. Lastly, the lowest -income households, those making less than $35,000, would get an average tax cut of $150, or less than one percent of their after-tax income.

The federal bill would substantially increase the Commonwealth’s costs for the Supplemental Nutrition Assistance Program (SNAP), commonly known as food stamps. Effective in about two years, the bill would increase the state’s share of administrative costs from 25 percent to 50 percent and require the state to pay part of the benefit for the first time. According to the administration, those provisions would result in a $360 million annual cost for the state.

Youngkin downplayed this projected effect by pointing to the bill’s provisions that would reward states that have a SNAP error rate (underpayments and overpayments) of less than six percent. He pointed out that the state could avoid paying $270 million as its share if it could reach this threshold.

According to the United States Dept. of Agriculture, Virginia’s latest error rate is 11.5 percent. That may sound high, but is in line with other states. Only eight states currently have error rates below six percent.  he national average error rate is 10.93 percent. Youngkin says that he intends to work with local social services departments, who determine eligibility, to reduce the error rate to six percent before the penalties become effective. “I am confident that Virginia, by the time this comes into effect, can do this, but it’s going to require us to transform the way that the SNAP benefit is managed.”

Local social services directors point out that more resources will be needed for training and to improve, if not replace, the outdated SNAP case management system. It will be interesting to see what provisions for this effort Youngkin will include in the budget bill he will present to the General Assembly in December.

Interestingly, in 2022, Youngkin’s first full year in office, Virginia’s SNAP error rate was 9.34 percent, below the national average of 11.54. It edged up to 9.86 percent in 2023 and then jumped significantly in 2024 to 11.5 percent. Perhaps the next governor can reverse the course that the state was on under Youngkin.

Actually, the Commonwealth would be better off to continue to increase its SNAP error rate. The SNAP provisions of the bill become effective in fiscal year 2028. However, states that have an error rate of 13.34 percent or higher get a two-year additional implementation period before the cost sharing requirements kick in. This provision was put in by Senate Republicans to gain the support of Sen. Lisa Murkowski (R-Alaska). Her state had the highest error rate (24.66 percent) in the country.

In his comments on the federal reconciliation bill, the Governor ignored completely two major features of the bill — Medicaid and its impact on the federal budget. 

There are numerous provisions in the federal bill related to Medicaid, but only two major ones will be considered here. The issue of provider taxes has been covered previously on this blog. A presentation prepared by the Virginia Dept. of Medical Assistance Services (DMAS) includes a summary of them. The state levies a provider coverage assessment tax on 63 private acute-care hospitals of six percent of their net patient revenue. The $650 million annual revenue from this tax is used to pay the state share of the additional cost of Medicaid expansion. It also levies a six percent provider payment rate assessment tax on all hospitals (with some exceptions). The $1 billion annual revenue from this tax is used to fund the state share of supplemental payments to hospitals and providers.

Beginning in fiscal 2028, the federal bill would require the state to reduce its tax assessments by 0.5 percent annually to 3.5 percent. This action would reduce the amount of revenue that could be raised to cover Medicaid expansion and supplemental payments to providers. To maintain the current level of services, the Commonwealth would have to make up the difference from general fund revenues.

This reduction in revenue from the provider assessments would not be the only threat to hospitals resulting from the federal legislation. The bill would require that, beginning July 1, 2028, the rate that Medicaid uses to reimburse providers be reduced by 10 percent annually until it matches the Medicare rate.

About six days after Gov. Youngkin’s remarks to the press praising Trump’s tax and spend bill, the chief financial officer of DMAS reported to the General Assembly’s Joint Subcommittee on Health and Human Services Oversight that the reduction in the Medicaid reimbursement rate to the Medicare rate would cost the Commonwealth’s private acute-care hospitals $24.8 billion in federal funding over a 14-year period. In addition, the physicians at VCU, UVa, EMS, and Chesapeake Regional hospitals would experience a $1.3 billion loss over that period, for a total loss in federal funding of $26.1 billion. He told the subcommittee members that the cuts would be “a macroeconomic financial shock, not just to the hospitals, but also for the state writ large.” He added, “There will be a reduction in labor force participation — because the quickest thing to do is reduce head counts when you’re faced with something like that — as well as population, as people move to try and migrate out to do jobs elsewhere.”

Gov. Youngkin’s office disavowed the remarks and data from the chief financial officer of the state office under his administration. Those “comments were not based on an official DMAS analysis,” the governor’s spokesman said. He added, “Any economic impacts should be evaluated by individuals with specific expertise in hospital finance.” The current chief financial officer has been in that position for more than six years. Furthermore, the director of DMAS, a Youngkin appointee, is listed as a co-author of the report to the subcommittee.

There is one mitigating provision in the federal legislation. It provides $50 billion ($10 billion annually, 2026-2030), for a Rural Health Transformation Program, to ease the effects of the Medicaid cuts on rural areas. One-half of the amount is to be distributed equally to states. Therefore, Virginia will be getting at least $100 million annually. The other half is to be distributed according to a formula set out in the law. The additional amount the Commonwealth would be eligible for is not known yet.

Finally, it should be noted that the bill’s provisions are harsher for states that have expanded Medicaid, such as Virginia, than for those states which have not done so.

The second major aspect of the federal bill that Youngkin ignored was its effect on the national debt. In March, the governor voiced alarm over the size of the federal debt. “Today, we know we have a federal government that is facing huge fiscal issues with $37 trillion in debt… What that requires is real action quickly.” The Committee for a Responsible Federal Budget projects that Trump’s bill, if implemented as enacted, would increase the federal debt by $4.1 trillion in ten years. If all the provisions of the legislation were made permanent, the national debt would increase by $5.5 trillion over that time span. Despite his previously expressed fears about the national debt, this aspect of Trump’s bill did not seem to dampen Youngkin’s professed enthusiasm for it.

Most of the onerous provisions of the federal legislation are not effective until fiscal year 2028, or, in the case of the step-down of Medicaid rates, fiscal year 2029. Therefore, Youngkin will not have to deal with the large fiscal impact the legislation will have on the Commonwealth’s budget; his successor will inherit that task. However, the biennial budget bill that Youngkin will present to the General Assembly in December will cover FY 2028 in its second year and, to be responsible, he should incorporate the projected reduction in federal funding in the provisions of that bill.

Unemployment

As reported by the Richmond Times-Dispatch. Virginia’s unemployment rate increased in June for the sixth straight month. According to the federal Bureau of Labor Statistics, the Commonwealth was the only state to have a statistically significant increase.

Gov. Youngkin tried to downplay this development. Conceding that the number of people employed in June had decreased by 8,400 from the May level, he pointed out that “the full year saw [employment] growth of more than 35,000.” Of course, he does not mention that, for half of that June 2024-June 2025 period, the other party was in power in Washington. 

The administration tried to put the best face on the situation by pointing out that, at 3.5 percent, Virginia is still below the national rate of 4.1 percent. “If you go from an A-minus to a B-minus, that’s not failing,” said Bryan Slater, Virginia’s Secretary of Labor. Now that the Trump administration has gotten the green light to fire federal employees, the Virginia unemployment numbers are highly likely to get worse.

However, Youngkin will soon be gone and will not have to deal with the unemployment numbers and the reduction in tax revenue that will likely result. In the meantime, he will be careful not to raise the ire of the man who controls the Republican Party.