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December 16, 2015

5 Things to Look for in the Governor’s Budget

Governor McAuliffe will introduce the first two-year budget of his term to the Joint Money Committees on Thursday morning at 9:30 AM. Here are five questions we’ll be asking:

1) How much general fund revenue is included in the budget and how does that compare to the needs in our state?

Virginia is required to pass a balanced budget, so every dollar lost  due to tax cuts means less money for investing in schools, health care, and everything else that builds a strong economy in the long term. After years of inadequate investment, Virginia has significant needs that demand significant funding, but the state is still lagging in terms of revenue as a share of our economy. New tax cuts decrease state income, while closing loopholes increases the resources available for public priorities.

The estimate of Virginia’s general fund revenue should be a good measurement of whether the state has the resources necessary to get back on track, or if it is giving too many of them away.

2) How will Medicaid Expansion be included in the budget?

Virginia can help 230,000 uninsured residents  stuck in the coverage gap and save $1.55 billion over the next six years by expanding Medicaid under the Affordable Care Act. A key thing to watch for is how the governor proposes making this policy advancement for the uninsured.

He has already announced a cut in the corporate income tax rate from 6 percent to 5.75 percent, a new research and development tax credit, and expansions of the existing research and development tax credit and angel investor tax credit.

Governor McAuliffe and his press secretary Brian Coy haven’t said whether the cuts in the corporate tax rate will be paid for with savings from closing the coverage gap, but this connection has been reported by several papers. If the two are indeed related, it will be the story of Thursday.

3)  Do the investments in K-12 funding get Virginia back to where we were before the recession?

Annual state support for K-12 education has declined by about $1 billion from pre-recession funding levels (spending the same per student as FY2009) after adjusting for inflation. Governor McAuliffe has made K-12 investment his number-one priority and said his investment will be “second to none.”

So far, the Governor has identified $794 million for K-12 schools over two years, including funding for a salary increase for teachers, additional instructors, and more support for services at high poverty schools. These investments, while substantial, do not get us back to where we were before the recession and they seem to fall short of former Governor Warner’s investment of $1.5 billion for K-12 education proposed in the 2006-2008 biennium. The budget seems to show tremendous improvement for K-12, but does it get us to where we need to go?

Reductions in K-12 funding have been driven by changes in Virginia’s key school funding formula; not one-time cuts. This formula, known as the Standards of Quality (SOQ), no longer reflects the true cost of providing a quality education and the cuts have hit the highest poverty schools the most. State cuts were almost three times larger for schools in Virginia’s poorest communities than in its wealthiest. These permanent reductions require permanent solutions distributed to all of Virginia’s schools, instead of one-time funds to some of them. The Governor has announced some adjustments to the formula, such as increasing the number of instructional staff the state will recognize, but he does not appear to address other structural flaws in the formula. Will his proposed improvements counteract the prior damage done to the formula or just chip away at the edges?

4) Where are we on unwinding recession-era budget gimmicks?

The governor’s budget will seek to reduce by half the use of the accounting gimmick known as accelerated sales tax collections. Its use during the economic downturn was part of policymakers’ shell game to avoid a serious approach to the state’s revenue problems. But where does that leave us over six years into the economic recovery? The ongoing use of gimmicks is a questionable strategy.

5) What are the budget proposals to reform Virginia’s criminal justice system?

Policymakers and advocates from across Virginia’s political spectrum are beginning to come together around the idea that smart reforms to criminal justice systems – such as providing access to community mental health care so that jails and prisons aren’t the state’s de facto mental health system – can save the state money and reduce crime. It will be important to see if the budget assumes any changes to the criminal justice system.

– Aaron Williams, Research Assistant

The Commonwealth Institute

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