RICHMOND — Gov. Terry McAuliffe unveiled a series of state budget amendments Wednesday mixing belt-tightening and popular job boosters with highly partisan “grenades,” ensuring that the Capitol will grapple with some hot-button issues as well as a grim financial forecast.
McAuliffe’s budget would shore up teacher retirements, double the fund he uses to entice businesses to Virginia and capture more tax revenue from lodgings purchased through online travel companies.
Yet it is his call for new regulation of day-care centers after a rash of deaths, a rollback of tax credits designed to preserve jobs in the coal industry and an increase in restaurant inspection fees that could cause political rancor in the legislative session beginning in January.
Automatic federal cuts in spending because of sequestration threaten to do more harm to the state’s economy, which is still reeling from deep reductions in military contracts.
“We are looking down the barrel of that gun,” McAuliffe (D) told reporters. “If that happens, it will have a dramatic impact on the Virginia economy. And I don’t care if you’re a Democrat or a Republican, this is about Virginia’s future. . . . It is clear our reliance on the federal government and Department of Defense spending — those days are over.”
The governor’s adjustments to the two-year spending plan are subject to legislative approval.
In a 45-minute speech to a joint meeting of House and Senate money committees, McAuliffe also renewed his call to expand Medicaid under the Affordable Care Act, the signature policy of his first-year agenda, and he pushed for a package of gun-control measures — both politically toxic issues in the divided Virginia government.
Senate Majority Leader Thomas K. Norment Jr. (R-James City) called Medicaid and guns “hand-grenade issues” that have no chance of passing. He added that it’s “almost hallucinogenic” for McAuliffe to think Medicaid expansion would fly in a legislature that has killed it three times.
House Majority Leader M. Kirkland Cox (R-Colonial Heights) said that McAuliffe’s refusal to let Medicaid expansion go “somewhat poisons the well,” and he frowned upon a proposed “cornucopia of fees,” including an additional $3.8 million for restaurant inspections.
There was one pleasant financial surprise in Wednesday’s budget announcement, which proposes amendments to the second half of the two-year state spending plan McAuliffe and lawmakers first approved last winter: After dire predictions of a projected multiyear budget shortfall of $2.4 billion blamed mostly on cuts in federal defense spending, the administration now sees reason to be less pessimistic.
Revenue projections were revised downward after the past fiscal year ended with $439 million less in revenue than expected. It marked the first time Virginia’s collections dropped outside of a national downturn.
McAuliffe and lawmakers closed much of the budget gap then, with cuts identified in a bipartisan deal. Since then, revenues have picked up a bit, Finance Secretary Ric Brown said.
McAuliffe’s administration also identified an additional $181 million in savings over two years. The savings allowed the governor to propose spending $176 million on new initiatives.
Day-care centers with religious affiliations do not have to be licensed by the state under current law, even if they receive a state subsidy. But McAuliffe has proposed changing that exemption and has put $2.7 million in the budget to hire 28 people to handle the additional licensing and inspections.
Removing the exemption could raise the ire of conservatives concerned about the erosion of religious freedom.
Much of McAuliffe’s proposed budget savings would come from limiting tax preferences that he says are no longer fulfilling their purpose, citing a 2011 study from the General Assembly’s research arm, the Joint Legislative Audit and Review Commission. Among them are two tax credits aimed at encouraging coal production.
Del. Lee R. Ware Jr., chairman of the House Finance Committee, said that although there were “no glaring non-starters” in the governor’s tax preferences plan, he would like to see a comprehensive approach to tax relief.
“Overall, I’d have to say it’s a modest proposal by a flamboyant man,” said Ware (R-Powhatan). He added that the coal restrictions are potentially problematic. “With what the EPA has already put on coal, to pile on with this, certainly it’s going to put another pressure on an industry that’s already troubled,” he said.
McAuliffe also proposed limiting a tax credit for land preservation and a tax deduction available to those who buy long-term care insurance. He called for combining the state’s three sales-tax holidays — which promote energy efficiency, hurricane preparedness and back-to-school shopping — into a single August weekend.
And he would require online travel companies to remit more sales tax to the state. Travel sites now charge customers sales tax based on the full retail value of hotel rooms, but the sites give the state an amount based on the rooms’ wholesale cost.
In addition, the governor proposed expanding the use of an accounting trick Virginia has been in the process of phasing out: accelerated sales-tax collections. Highly unpopular with retailers, it requires certain merchants to prepay a portion of their July sales-tax remittance in June.
In the midst of the recession in 2009, the General Assembly started requiring merchants with $1 million or more in sales or purchases to make the early tax payments. The threshold was later upped to $5.4 million and then $26 million.
McAuliffe wants to reinstate the early payments for retailers with $2.5 million in taxable sales or purchases, which would affect about 4,300 businesses.
Not all the cuts are controversial. Earlier this year, McAuliffe and the General Assembly agreed to cut about $200 million from state agencies, $90 million from higher education and $60 million in aid to local governments. He also laid off about 565 state workers, mostly in the state prison system. Now the state has plans to eliminate an additional 38 positions, about half of which are in the juvenile justice system.
He would also eliminate budget language prohibiting colleges and universities from increasing tuition to cover the budget cuts, a provision that had been intended to prevent schools from raising rates in the middle of the school year.
McAuliffe’s budget would not cut K-12 funding, but slower-than-expected enrollment rates would save nearly $31 million.
Among McAuliffe’s spending priorities, he said the state expects to earn $250 million from the sale of its backlog of unclaimed property in the form of stocks and bonds, which have been sitting idle — for decades, in some cases.
Of the newfound cash, the state will devote $150 million to paying down the teachers’ pension fund program, which can be a drain on local governments.
McAuliffe also wants to double — to about $20 million — an economic-development fund he uses to lure new business to the state, set aside $28 million to replace voting machines across the state and boost schools’ breakfast programs by about $540,000.