There are few surprises in the new state budget the House Appropriations Committee adopted Friday, but concern about protecting Virginia’s triple-A bond rating will loom over the coming battle with the Senate over whether the final spending plan will expand the state’s Medicaid program.
The committee made a number of important changes to the pair of budgets — one for the fiscal year that will end June 30 and the other for the biennium, and then adopted both by 16-5 votes that reflect a continued division among Republicans over Medicaid expansion.
The committee’s action paves the way for the full House to vote on its version of the budget Tuesday afternoon, when lawmakers return to continue the special session in an effort to resolve the impasse.
The amended House budget bills would tighten the requirement that able-bodied Medicaid recipients work or look for employment, seek a new federal waiver to allow Virginia to bolster its individual market for health insurance, and require all higher-than-predicted revenues at the end of this year go into the state’s new cash reserve.
However, Senate Republicans made clear that the proposed changes wouldn’t change their opposition to Medicaid expansion in the budget.
“The few changes to the House’s original proposal approved by the committee today do not narrow the chasm between our respective proposals,” Senate Majority Leader Tommy Norment, R-James City, said in a statement Friday afternoon.
Gauging revenues
Norment, who is co-chairman of the Senate Finance Committee, called again for “an up-to-date and comprehensive re-forecast” to help the assembly “in its efforts to reach an agreement on a fiscally responsible budget based on sustainable revenues.”
State Finance Secretary Aubrey Layne told the committee Friday that the governor and other assembly budget leaders were right in deciding to not revise revenues in order to reflect higher income tax collections from affluent taxpayers who don’t have taxes withheld from their paychecks, but instead submit estimated payments in response to capital gains or other income gains.
Revenue growth fell by 1 percentage point last month, to 5.2 percent, compared with the previous March, primarily because of the state had one fewer deposit day for payroll income taxes.
Total revenues still are tracking ahead of the forecast of 3.4 percent annual growth with three months left in the fiscal year, but Layne said most of the increase came from nonwithholding tax collections in December, after President Donald Trump signed a tax reform bill that will eliminate the ability to write off state income taxes on federal tax returns next year.
Those gains could be offset by a big surge in refunds beginning in May and declines in other revenues, such as sales tax, Layne said. “It looks like the numbers are not telling us as of right now that a [revised] forecast ... based on economic data is warranted.”
Bond rating
The cash reserve requirement, proposed by Gov. Ralph Northam and Appropriations Chairman Chris Jones, R-Suffolk, is aimed at quieting concerns among national bond-rating agencies, particularly S&P Global Ratings, which placed a negative outlook on Virginia’s financial condition just shy of a year ago.
“Triple-A bond rating is what we’ll be paying very close attention ... and we will do what is necessary in the cash reserve arena to be sure we satisfy the requirements of the rating agencies in that context,” Jones told the committee.
Layne told the committee that S&P continues to ask questions about Virginia’s level of reserves, which was a primary reason the agency downgraded the state financial outlook from stable to negative on April 21 last year.
“They really didn’t like it that we pulled money out [of the rainy day fund] again in 2018,” Layne said, referring to a decision in 2016 to withdraw from the constitutionally established Revenue Stabilization Fund to help fill a projected gap in state revenues over the current biennium.
The finance secretary said earlier this month that he believes expanding Medicaid to accept billions of dollars in federal money under the Affordable Care Act is crucial to generating the resources for Virginia to bolster its financial reserves.
Norment called Layne’s concern “a toothless tiger,” since only four of the 12 states with the highest credit ratings by all three national agencies have expanded their Medicaid programs.
The Senate addressed concerns over state financial reserves in its version of the budget last month by proposing a deposit of about $180 million into the state’s new cash reserve — about $90 million more than the House and about $90 million less than then-Gov. Terry McAuliffe proposed in his parting budget in December.
“It isn’t a toothless tiger,” Quentin Kidd, director of the Wason Center for Public Policy at Christopher Newport University, said earlier this week. “We could be paying more for the money we borrow.”
Cash reserve
The new House proposal would require that if revenues exceeded the forecast by 1 percent or more in this budget — or almost $200 million — all of the money would be deposited in the new cash reserve, the rainy day fund or a state water quality plan.
Anne Oman, legislative fiscal analyst for the committee, estimated 1 percent in additional revenues would generate an additional $136 million for the new cash reserve, boosting it to about $382 million, as well as $38 million for the rainy day fund.
The amendments eliminate a previous House proposal to dedicate any additional revenues at the end of this fiscal year to a one-time bonus for state employees.
Work requirement
The committee also amended the budget to bolster the House’s proposed work requirement for Medicaid recipients, primarily the childless adults who would be covered by expanded eligibility. They would be dropped from benefits until the next annual open enrollment if they failed to look for work in some fashion in three months of the year.
Jones said the new provision is based on the same requirement in the Medicaid work requirement federal regulators approved for Arkansas this month. The previous House budget included money to oversee the requirement, much as the state already does for people who receive welfare and food stamp benefits.
“We’re trying to make sure it’s something that is complied with,” he said.
Federal waiver
The new budget proposal also would allow the state to seek a federal innovation waiver under Section 1332 of the Social Security Act for the state to develop ways to reduce soaring increases in commercial insurance premiums in the individual marketplace. Four states already have been granted such a waiver and others are considering it because many middle-income families and small businesses can’t afford health insurance without federal subsidies.
“States are trying it because it’s a big problem everywhere,” said Del. Mark Sickles, D-Fairfax, who commended Jones for the proposal to address the insurance issue as part of the budget package for expanding Medicaid.
Across town, Northam made his Medicaid pitch to a business-minded crowd at a luncheon hosted by the Virginia Chamber of Commerce and ChamberRVA. The governor said the state has a moral responsibility to help Virginians who could face financial ruin because of an illness. He said the safeguards in place to unwind expansion if federal money disappears make sense from “a business perspective.”
“If they renege in a year or four years, it is still resources that we have today,” Northam said. “So let’s act on today.”
Speaking to reporters afterward, Northam said he’s willing to talk to GOP leaders from both the House and Senate.
“We’ve got everything on the table right now,” Northam said.