Defying early expectations, Virginia emerges from pandemic with cash

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The sun rises over the Virginia Capitol. (Ned Oliver / Virginia Mercury)

Fourteen months ago the makers of Virginia greatly reduced their ambitions for the state budget, expecting the COVID-19 pandemic to wreak havoc on the economy and, by extension, the taxes that fund the government.

As the world moves closer to normal, Virginia is bursting with cash, with officials expecting a budget surplus that could exceed $ 1 billion for the fiscal year ending June 30. On top of that, the state is expected to get $ 4.3 billion in federal funds. relief fund. Instead of looking for things to cut, the main item on the budget agenda this summer is what to do with all that money.

In a presentation to state senators this week, outgoing Virginia Finance Secretary Aubrey Layne said the state’s finances may be in better shape now than they were before the pandemic.

“All of the portions of our income that are generated by economic activity within the Commonwealth are well ahead of expectations,” Layne said.

More than 11,300 Virginians have died from COVID-19, and an estimated 150,000 jobs lost to which they have not returned. Nearly half of the state’s adult population has now been fully vaccinated, but the debate is only just beginning on how Virginia should spend its windfall to come out of the crisis as best it can.

The blow to the budget was played down, Layne said in an interview, as most of the jobs lost during the pandemic were at the bottom of the pay scale. These losses have been offset by large employers like the federal government and tech companies who have created higher paying jobs that generate more tax revenue. But the key factor, Layne said, was the roughly $ 78 billion in federal stimulus and relief funds that flowed into Virginia’s economy through initiatives such as the CARES Act and the Check Protection Program. payroll.

“This is the first downturn in modern history where personal spending and personal income have increased,” Layne said.

Billions of federal aid to Virginia from the US $ 1.9 trillion bailout will be the focus of a special session of the General Assembly in early August. With much of the state’s budget surplus already hinted at under state law, the session will largely focus on the priorities that should be top of the list with unallocated federal dollars.

Democratic leaders are still discussing the details of how to proceed, but last month they released a common set of priorities offering a broad overview of their to-do list. These include upgrading public health services, helping people struggling to pay housing and utility bills, strengthening the state’s beleaguered unemployment system, and replenishing the Fund. unemployment trust, helping small businesses, modernizing public schools and extending high-speed Internet access to more Virginians.

This is a unique opportunity to invest in the long-term future of Virginia, ”Governor Ralph Northam and leaders of the Democratic General Assembly said in a joint statement last month.

One group that hopes to lead the way is the Virginia Restaurant, Lodging & Travel Association, which represents the hard-hit hospitality industry.

The organization requested assistance of $ 184.7 million for hotels and other accommodation establishments, $ 36.7 million for restaurants, $ 10 million for attractions, $ 4.7 million for wedding venues and $ 2 million for campgrounds. The group called for additional millions to be spent on tourism promotion and training programs for hotel workers.

Robert Melvin, director of government affairs for the VRLTA, said he believed policymakers agreed that the hospitality industry was a top priority, in part because it was the sector hardest hit by COVID-19 closures.

“In the last 14, 15 months, they haven’t had any income coming up. Or almost not, ”said Melvin. “They have a lot of unpaid bills. They are also trying to bring back staff. Liquidity is something they are struggling with right now. “

Throughout the pandemic, Republicans have accused Democrats of being slow to reopen schools and of not caring about the hardships faced by businesses altered by government rules designed to slow the virus. These themes seem likely to resurface during the extraordinary session.

“We are working on a number of proposals for the next special session, but they all have one thing in common: to mitigate the damage to students, families and businesses during long and unjustified shutdowns imposed by Democrats,” said Garren Shipley, a spokesperson for parliamentary minority leader Todd Gilbert, R-Shenandoah.

Senate Republicans have suggested using some of the aid money for “back-to-work” bonuses intended to incent people to get increased unemployment benefits to re-enter the workforce. Their proposal called for one-time bonuses of $ 1,500, as long as the beneficiary continues to work at work for at least six weeks.

“With so many Virginia businesses experiencing labor shortages and ‘Help Wanted’ signs seemingly everywhere, we now need to replace additional federal unemployment benefits with ‘back to work’ bonuses,” said Senatorial Minority Leader Tommy Norment, R-James City, said in a press release.

A few weeks later, Northam announced a similar but more narrowly tailored ‘Back to Win’ program, with government-funded bonuses only available to entering workers in small businesses less able to offer bonuses on their own. .

Under Northam’s $ 3 million pilot plan, some companies willing to fund the bonuses themselves would be eligible for up to $ 500 in government matching funds, creating bonuses of up to $ 1,000 for every hire. The government-backed bonuses would only be available to workers hired in positions that pay at least $ 15 an hour, a rule meant to encourage companies struggling to find workers to offer better wages instead. to rely on one-off bonuses to attract people to the bottom. paying jobs.

Secretary of Finance Aubrey Layne. (Ned Oliver / Virginia Mercury)

To address child care labor shortages, an industry many Democrats see as crucial to economic recovery, Northam’s plan exempts child care providers from the rule requiring companies to pay their own bonus.

While the state also expects another windfall from its own taxpayers, the General Assembly has less flexibility to spend that money on new initiatives.

It’s not yet clear how big the surplus will be for the budget year nearing its end, but Layne has said it could exceed $ 1 billion. If it’s about $ 1 billion, the pre-existing rules about what happens to the excess money would require almost half of that amount, or about $ 461.5 million, to be put into reserve funds and a water quality improvement fund in the Chesapeake Bay.

During his presentation to the Senate Finance Committee on Tuesday, Layne noted that Virginia was one of the few states to build up its budget reserves during the pandemic. After being threatened a few years ago with a credit downgrade due to low balances on its reserves, Layne said, the state may soon be approaching the legal limit on the amount of money it is allowed to accumulate. for future contingencies.

Layne, who will quit her job on July 1 for a position with Norfolk-based Sentara Healthcare, said these reserves will help Virginia adjust when federal dollars disappear and the economy experiences a “mean revival.” .

For now, he said, the challenge for lawmakers is figuring out how to make the most of the $ 4.3 billion.

“I hope we’ll use it on game-changing items,” he said.

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