RICHMOND — State officials disclosed a $300 million shortfall in state revenue collections Monday, putting the state’s stellar bond rating in jeopardy — and placing new pressure on lawmakers and Gov. Terry McAuliffe to break their budget deadlock.
The drop in revenue during the first two weeks of May, reported by Virginia Finance Secretary Ric Brown, was so large that it raised new fears about the state’s bond rating, which was already under threat from the looming potential of a government shutdown in July. A shutdown could force the state to miss a July 1 bond payment, tarnishing the state’s reputation with investors.
“It’s very concerning,” said House Appropriations Committee Chairman S. Chris Jones (R-Suffolk). He said budget plans will have to be adjusted to reflect the lower revenue, making it even more important that the House and Senate get back to work on them.
McAuliffe (D) met separately with House and Senate budget leaders Monday to discuss the shortfall, blamed primarily on a drop in capital gains taxes. He spent an hour behind closed doors with each side, urging them to take the legislative steps necessary to resume negotiations on a two-year, $96 billion spending plan.
“Let’s talk about what we need to do the remainder of the year so we can get our budget done,” McAuliffe told reporters after he emerged from the last meeting. “We need to compromise. I’ve said it from Day One, we need to compromise. We need to come together and we need to get this done very quickly. So that’s what I’m focused on.”
The dire budget news seemed only to drive the House and Senate further apart, as each side used the bleak financials to bolster its case for or against Medicaid expansion. The central sticking point in the budget impasse is whether to open the health-care program for the poor to an additional 400,000 Virginians.
Senate budget leaders, who like McAuliffe support expansion, say the shortfall shows how much Virginia needs the federal Medicaid money, which initially would amount to $5 million a day.
But House budget leaders, already skeptical that Virginia can afford expansion, says the bleak financials are another reason to keep it at bay.
Under the Affordable Care Act, states can expand their Medicaid rolls and Washington will pay the full tab for the first three years. That would amount to about $2 billion a year in federal Medicaid money provided to Virginia.
Eventually, the federal share drops to 90 percent and states pick up 10 percent. At that point, Virginia’s cost would be about $200 million a year. Republican opponents are wary of having to pay the 10 percent but also question whether the federal government can afford to keep its promise to pay the 90 percent.
During the regular General Assembly session, the House and Senate advanced budget plans that were remarkably close — except for Medicaid expansion. The House version did not include it, and the Senate plan offered a “private option” version that used the Medicaid money to buy private insurance for enrollees.
The administration said the shortfall had its start with the fiscal cliff of 2012. Nervous investors cashed out stocks and saw a one-time spike in their capital gains tax. States that enjoyed the surplus last year are feeling the pinch this year.
The governor said other states are in the same financial situation, pointing to North Carolina and New Jersey, both of which have Republican governors.
In addition to creating a hole in the current fiscal year, the May shortfall creates a gap in funding in the next budget cycle.
After the regular session concluded March 8 without passage of a budget, those plans died. The General Assembly has since launched a special budget session. The House and Senate, locked in a procedural squabble over whose budget bill will provide the framework for their talks, have not even managed to get their rival spending plans back in front of negotiators.
McAuliffe said he doesn’t care which chamber advances a budget, just that it gets to conference soon.
“You’re all clever folks. You can get this done,” he said he told lawmakers. “It’s time now to come together, put all the issues aside, come together and we’ll figure out how we can get a budget.”
Senate budget leaders did not, however, take that as an opening to give in on that procedural issue.
“Nothing has been resolved,” said Senate Majority Leader Richard L. Saslaw (D-Fairfax). We’re not any closer than we were the day before. We’re still waiting for the House to send us back our budget.”
The House Appropriations Committee, meanwhile, tried to increase the pressure at a morning meeting, where it highlighted legal advice that the governor lacks authority to keep most of the government open past that deadline.