RICHMOND — Gov. Terry McAuliffe suggested tapping the state’s rainy day fund and accepting more federal Medicaid money on Friday as a way to patch the state’s $1.5 billion budget hole.
McAuliffe (D) formally informed legislators of the budget shortfall, the result of lower-than-expected revenue from payroll and sales taxes, at a meeting of House and Senate money committees on Capitol Square.
Raises for teachers and state employees — contingent on higher tax revenue — are already off the table. But the governor urged legislators to otherwise protect K-12 school funding. He also asked them to consider expanding Medicaid under the Affordable Care Act to capitalize on federal health-care dollars.
“We could soften this budget shortfall significantly if Virginia agrees to expand Medicaid and accept federal dollars that remain on the table waiting for our decision,” McAuliffe said. “Those funds would go a long way in relieving some of the difficult budget actions that lie ahead.”
Republican leaders said they shared the governor’s hope that education could be spared cuts. But they flatly dismissed the notion that Medicaid expansion — which the GOP-controlled General Assembly has defeated three years in a row — can alleviate the state’s budget problems.
“I have to admire the governor’s persistency on Medicaid expansion,” Senate Majority Leader Thomas K. Norment Jr. (R-James City) said wryly. He said the program has been a financial drag on states that have expanded.
“If, in fact, Virginia had expanded Medicaid . . . the shortfall that we would have in revenue would have been exacerbated,” Norment said.
Norment also said he was reluctant to raid the rainy day fund, particularly since Virginia’s economy continues to face the threat of across-the-board federal spending cuts, known as sequestration.
McAuliffe has made expanding and diversifying the state’s defense-heavy economy his top priority as governor. He has conducted 20 trade missions to promote exports, foreign investment and tourism, often tapping connections he developed over a long career as a fundraiser for Bill and Hillary Clinton.
Reflexively upbeat, McAuliffe often touts the state’s low unemployment rate and the number of economic-development deals — 784, he noted Friday — since he took office in January 2014. One of those, he noted in his speech, was an announcement that Deschutes Brewery will invest $85 million to establish a brewery in Roanoke.
Many economists say the jobs being created are not necessarily full time or as high-paying as those lost in the recent recession. McAuliffe pushed back against that notion a bit.
“The truth is that there are 36,000 high-paying jobs in Virginia today that are open because we don’t have workers with the right computer and math skills to fill them,” McAuliffe said, going on to make a pitch for investing in education and workforce-development programs.
The good news is that the professional and business-services sector, the part of the economy most tied to government work, has resumed healthy growth after a period of uncharacteristic decline, said Ann Macheras, an economist at the Federal Reserve Bank of Richmond.
Republicans said the shortfall raised questions about the effectiveness of McAuliffe’s economic-development approach.
“He talked about all the businesses he’s brought,” said House Majority Leader M. Kirkland Cox (R-Colonial Heights). “Breweries are great, but you can’t balance the budget with beer.”
The shortfall is among the biggest in state history. The worst was in 2010, when the General Assembly had to confront a $4.5 billion hole.
Virginia braced for an expected $2.4 billion shortfall under McAuliffe in 2014, but revenue projections turned out to be too pessimistic. The actual shortfall that year was about $1.9 billion.
In his speech to the money committees, McAuliffe described the budget hole as $1.2 billion — a figure that did not include a $279 million shortfall left over from the fiscal year that ended June 30. The $279 million is carried over into the current, two-year budget, leaving the state $1.48 billion in the red.