RICHMOND — Gov. Terry McAuliffe on Friday proposed a cautious budget that relies on improved revenue and modest spending cuts to close a shortfall while funding some new initiatives.
Unlike in previous years, the plan he submitted to the General Assembly’s finance committees is not built around expanding Medicaid — a fight he has picked, and lost, for three straight sessions with the Republican-controlled legislature.
But McAuliffe couldn’t resist one more swing at the piñata: Language in his budget would give the governor authority to use hundreds of millions in federal Medicaid expansion dollars if the Affordable Care Act still exists a year from now.
That seems unlikely, since President-elect Donald Trump has vowed to dismantle the health-insurance program. But “if President Trump and a Republican Congress do affirm the policy of Medicaid expansion in some form, the language that I am presenting will give the governor the authority to act quickly,” McAuliffe said.
The move would not affect the current budget.
Republican legislators were surprised, and a little amused, but not amenable.
“He knows we’re not going to give him that,” Del. S. Chris Jones (R-Suffolk), chairman of the House Appropriations Committee, said after the governor’s speech.
The District of Columbia and 31 states have adopted the federal Medicaid expansion under the Affordable Care Act, which provides health-insurance coverage to low-income adults. Because federal money covers the cost, McAuliffe said he could have included $231 million in savings in the budget if Virginia participated.
Republican lawmakers opposed to expansion argue that even though the federal government is paying its full cost now, the burden will gradually shift to states and become a drag on state finances.
The legislators also were cool toward McAuliffe’s proposal to fund a one-time bonus of 1.5 percent for state employees and teachers, saying they’d rather make a lasting fix on salaries.
But otherwise, McAuliffe’s budget drew a muted response as it seeks to lessen the pain of closing a shortfall and add spending for mental-health care and substance-abuse treatment.
The spending plan proposed Friday, which covers the second year of the 2016-2018 biennial budget, mostly uses targeted cuts and revenue adjustments to close a funding gap that has shrunk as the state’s economy has strengthened in recent weeks.
The shortfall for fiscal 2016, which ended in June, and the projected shortfalls for 2017 and 2018 now total a combined $1.2 billion, McAuliffe said, down from $1.5 billion.
The improvement is largely due to increases in payroll tax revenue as the state’s employment picture gets stronger. McAuliffe cautioned, though, that the specter of sequestration — automatic federal budget cuts — could still hurt the state’s economy.
This is the last budget plan McAuliffe will work on with the General Assembly. Virginia governors are limited to a single four-year term, and McAuliffe’s runs out at the end of next year. He will submit a final budget a year from now, but as a lame duck.
McAuliffe, who was seen as the ultimate partisan for his long history of raising money for Bill and Hillary Clinton when he came into office, was a bit more reflective than usual in his presentation.
He ticked off his favorite economic achievements. “We now have the second-lowest unemployment rate of any major state in the United States of America,” he said. “Over the course of three years, our commonwealth has created 182,100 net new jobs and we have attracted a record $14.22 billion in capital investment — not that I’m counting, but $5 billion more than any governor in the history of the commonwealth of Virginia, my fun fact for you to take home to your children.”
But he also made a point of praising the legislature’s ability to work with him on budgetary matters and did little to provoke the other side of the aisle, other than his Medicaid gambit.
“He’s consistently enthusiastic in what he has to say,” said Senate Majority Leader Thomas K. Norment Jr. (R-James City), “but I think he was more deliberative than perhaps he historically [has been]. But I think that’s a reflection of where we are.”
In order to generate more revenue, McAuliffe is proposing a tax-amnesty program and changes to the state’s accelerated sales tax policy, which requires businesses of a certain size to submit most of their June tax payments by the end of that month. Usually, businesses pay the tax in the following month.
Because the fiscal year ends in June, the early payment basically shifts money from the following fiscal year into the prior one. It’s a budget-balancing tactic that the General Assembly had decided to scale back, and small-business advocates were not pleased by McAuliffe’s recommendation. “That’s going to be an issue,” Jones said.
A more popular step was McAuliffe’s call for online businesses with warehouses or fulfillment centers in Virginia to pay state sales tax. He has routinely chastised Congress for failing to enact a nationwide Internet sales tax, and he said his proposal could generate $21 million a year in state and local revenue beginning in fiscal 2018. Norment and Jones both praised McAuliffe’s approach.
Those and other revenue measures — including tapping the state’s rainy-day fund — whittle the three-year budget shortfall to $785 million, McAuliffe said. The governor proposes closing that gap by enacting more than $800 million in spending cuts.
No cuts are proposed for K-12 education, he said, and various public safety agencies were already exempted from cuts. In addition, state colleges and universities will face smaller cuts than expected for 2018 — 5 percent instead of 7.5 percent, McAuliffe said.
He announced earlier this week that his proposal would also call for $31.7 million in new spending to improve state mental-health services and treat substance-abuse issues. Like many other states, Virginia is wrestling with a crisis in opioid addiction and overdoses, and $5.3 million is earmarked in the governor’s proposal for treatment and prevention.
McAuliffe also is requesting $1 million to upgrade Virginia’s voter registration and election management system and $570,000 to continue a program for those serving in the military to get access to secure absentee ballots online.
Members of the General Assembly will get more detailed briefings on the budget before convening Jan. 11. At first glance, though, the governor’s proposal made no huge waves. “We have much more that we have in common” than in opposition, Jones said. “There are some things around the edges that we’ll be tweaking.”