Virginia’s FY 2014 budget amendments: Better resources for better jobs and a stronger commonwealth

Published: February 28, 2013

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Virginia Governor Bob McDonnell presented his proposed amendments to the 2012-2014 biennial budget on December 17, 2012. During Governor McDonnell’s state of the commonwealth address on January 9, 2013, he highlighted that the state has had “three consecutive budget surpluses, totaling $1.4 billion.” FY 2012’s year-end balance was $976 million, which replaces the $675.5 million previously anticipated. This increase of $300.5 million allows Virginia additional resources for high-priority spending. McDonnell is requesting changes “that will create more jobs and more opportunities.”

The spending increases in the amended budgets focus on six themes:

• Provide adequate funding for core services
• Increase liquidity to guard against future economic uncertainty and the potential impact of federal spending reductions
• Increase support for instructional spending in public education
• Continue investments in higher education
• Improve funding available to transportation
• Improve support to localities

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In line with the themes mentioned above, the education and transportation verticals both saw a 16 percent increase in funding from FY 2012. While Virginia’s schools rate well nationally, individual rankings in specific subject matters do not – 14th in reading, 17th in science, and 25th in mathematics. This has spurred the governor to propose several changes to improve the education system. Projects include implementing a grading transparency that will hold schools accountable via an A-F school ranking scale; establishing a statewide opportunity educational institution to provide an alternative for children attending underperforming schools; and implementing new charter school laws.

Governor McDonnell is requesting approval of a long-term transportation funding plan. The state plans on investing an additional $3.1 billion in transportation networks over the next five years. Large projects, including the Norfolk Tide and the Dulles Metrorail Project, will continue require a large amount of revenue. The governor’s plan also includes eliminating Virginia’s 17.5 cents-per-gallon tax on gasoline and replacing it with a 0.8 percent increase in the sales and use tax. If this change occurs, Virginia will be the first state in the nation to eliminate the gas tax.

The natural resources/environment vertical saw a funding increase of 24 percent. The governor is proposing a $200 million water quality improvement bond that will dedicate $101 million for wastewater treatment plant upgrades and $35 million for urban storm water projects.

Due to the delicate state of government affairs in Washington, D.C., and Virginia’s high proportion of federal workers and defense spending, the governor has proposed several measures to safeguard the state. He has recommended doubling the rainy-day fund from $304 million to $740 million by the end of this biennium, and increasing the Federal Action Contingency Trust (FACT) Fund to address any negative impacts from the federal government.

The cost of Medicaid in the budget has grown 1,600 percent in the last 30 years, and McDonnell has decided to not expand Medicaid eligibility until there is dramatic reform. By capping the disproportionate share payments in the Medicaid program, the state is estimated to save $21.7 million.

The state’s IT budget decreased by 37 percent, with the public finance vertical being cut in half and the homeland security vertical completely eliminated. While the budget decreased for the majority of verticals, the education vertical received the largest amount of funding, which falls in line with the governor’s plan to improve education within the state.

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Analyst’s Take

Governor McDonnell put his strategy for Virginia in simple terms: “We enact policies that actually work.” He is proud that the state “sees results, solutions, job growth, surpluses, and cooperation,” and his plans for the upcoming fiscal year accurately reflect this statement.

It is clear that McDonnell’s plan focuses strongly on improving education and increasing funding for transportation projects. The unemployment rate in Virginia has been steadily decreasing and there has been a heavy emphasis on improving these two sectors to create more educated citizens and more jobs. Although the IT budget decreased for many verticals, vendors should focus on projects that will increase efficiencies and reduce costs within these two markets. The increase of funds due to the surplus has presented an opportunity to provide additional funding for high-priority projects, which vendors will surely benefit from.