Gov. Terry McAuliffe and members of the General Assembly announced Monday a compromise to address a nearly $900 million shortfall in the state budget.
The compromise preserves K-12 education spending by cutting higher education spending by $90 million, reducing aid to municipalities by $60 million and forcing state agencies to slash a combined $192.4 million from their budgets through June 2016.
Another $272 million cuts will be announced by McAuliffe in December, according to a news release announcing the compromise.
The cuts are necessary due to a projected budget shortfall of about $2.4 billion through June 2016. McAuliffe said in an August speech to the General Assembly’s money committees that $1.55 billion of the shortfall can be addressed with existing funds; however, a $346 million shortfall remained for fiscal year 2015 and $536 million in fiscal year 2016, which run from July 1 to the end of June 2015 and July 1, 2015, to the end of June 2016, respectively.
According to the bill filed Monday to correct the shortfalls, the College of William & Mary would lose $2.3 million in state funding in each of the two fiscal years. The bill stipulates the savings must be found through “productivity and operating efficiencies” and not through rate increases on tuition or fees.
The fallout for local governments in the Historic Triangle is less clear. Each of the three Historic Triangle municipalities include millions in revenue from the state as part of their fiscal year 2015 budgets.
State budget officials will be required to provide each municipality with a list of local programs receiving state aid along with a revised estimate of funding levels the municipalities can now expect to receive. Local budget officials will then have to work out how to implement the reductions.
The compromise will not include any increases in taxes or fees.
McAuliffe praised the compromise as “bipartisan” in the news release, noting the compromise should send “much-needed certainty” to Wall Street to preserve the state’s AAA bond rating.
“While the budget shortfall is forcing us to tighten our belts, I am proud that we were able to protect many of our core Democratic priorities,” he said.
Bill Howell (R-28), the speaker of the House of Delegates, echoed McAuliffe and several other lawmakers in praising the bipartisan deal.
“We have once again proven just how big a difference 90 miles can make,” Howell said. “While Washington continues to kick the can down the road, Virginia is demonstrating that elected leaders can work together, make tough decisions, and find ways for government to live within its means.”
State Sen. Tommy Norment (R-3), whose district includes parts of James City and York counties in the Senate of Virginia, said the state is “once again serving as a model on how government should address fiscal challenges.”
“Today’s announcement is the result of collaboration and cooperation between the Executive and Legislature, the House and the Senate, and Democrats and Republicans,” Norment, who is the Republican majority leader in the Senate, said in the release. “The hard work of Chairmen [Chris] Jones and [Sen. Walter] Stosch, Governor McAuliffe, and Secretary [of Finance Ric] Brown has resulted in the Commonwealth quickly taking the steps necessary to preserve its hard-won reputation as America’s best fiscally managed state.”
McAuliffe said the August speech to the money committees that the $1.55 billion already addressed comes from $846 million of budgetary reserves and $705 million from the state’s Revenue Stabilization Fund. Monday’s announcement closes the $346 million deficit in fiscal year 2015 and part of the fiscal year 2016 deficit. Plans to deal with the remainder of the fiscal year 2016 deficit will be announced in December.
In the August speech, McAuliffe identified sequestration — across the board spending cuts to the federal government — as the culprit behind the shortfalls. He said between 2011 and 2013, Department of Defense contracts in Virginia declined by about 20 percent, or $9 billion. Because of sequestration, he said the state is projected to lose about 154,000 jobs. He also pointed to sluggish employment growth and the loss of high-paying federal jobs as problematic for revenue collection in Richmond.
“The federal government cutbacks impact jobs, income, and business and household spending,” McAuliffe said in the August speech. “The government shutdown and the debt-ceiling discussions in the Fall of 2013 worsened this fiscal drag.”
McAuliffe offered the money committees a bleak portrait of a state lagging behind its peers due to its reliance on federal spending. While payroll employment nationwide grew 1.7 percent during fiscal year 2014, Virginia experienced 0.4 percent growth. According to a recent Joint Legislative Audit and Review Commission study, between 18 and 30 percent of Virginia’s revenue comes directly from federal spending.
News of the shortfall came after months of wrangling between McAuliffe and the Republican-controlled House of Delegates over whether to expand Medicaid in Virginia as part of the Patient Protection and Affordable Care Act, more commonly known as Obamacare. That fight delayed the passage of a budget for fiscal year 2015, pushing the state to less than two weeks away from a shutdown of the state government.
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