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New House panel formed to shepherd Amazon package through assembly

New House panel formed to shepherd Amazon package through assembly

Posted by on Jan 17, 2019 in News | 0 comments

BY MICHAEL MARTZ, Richmond Times Dispatch, January 15, 2019

As Amazon’s plan for a new headquarters in Arlington County moves from vision to reality, a new House Appropriations subcommittee has formed to shepherd a proposed package of state commitments through the General Assembly to ensure Virginia lives up to its promises, especially in developing a higher education pipeline for high-tech talent.

Appropriations Chairman Chris Jones, R-Suffolk, will chair the five-member subcommittee that he is appointing to oversee the implementation of a $1.85 billion incentive package for the $2.5 billion Amazon headquarters, which must create at least 25,000 high-paying jobs for the money.

“This is to make sure we get it right,” said Jones. He also is carrying one piece of legislation to create a new state fund for $550 million in cash incentives that Virginia would begin to pay four years after the jobs are created and begin to generate new income tax revenue for the state.

Most of the package, about $1.1 billion over the next 20 years, represents broad investments in Virginia colleges and universities to produce 25,000 to 35,000 degrees in computer science and related fields for Amazon and other high-tech companies that need highly skilled talent to grow.

“It’s bigger than Amazon,” Jones said.

The higher education package would include more than $700 million in funding for production of bachelor’s degrees, most of them at institutions outside of Northern Virginia, as well as up to $375 million for master’s degree programs that Virginia Tech and George Mason University would establish in the region around Amazon.

The state’s higher education commitments are not part of its written agreement with Amazon, but would be guided by proposed legislation to create the “Tech Talent Investment Program and Fund.” The legislation has been introduced by Del. Nick Rush, R-Montgomery, and Sen. Frank Ruff, R-Mecklenburg.

Ruff also has introduced legislation, as a companion bill to Jones’ measure, to create the “Major Headquarters Work Force Grant Program” for cash incentives, potentially including an additional $200 million if Amazon creates an additional 12,850 jobs at the National Landing site at Crystal City in Arlington.

In addition to Jones, the new subcommittee will include Rush, chairman of the Appropriations subcommittee on higher education; Del. Luke Torian, D-Prince William, chairman of the capital outlay subcommittee; Del. Riley Ingram, R-Hopewell, chairman of the economic development subcommittee; and Del. Steve Landes, R-Augusta, vice chairman of the full committee.

Jones, Landes and Rush also are members of the Major Employment Investment Committee that vetted the Amazon deal for the legislature, as is Ruff.

The budget that Gov. Ralph Northam introduced last month includes $8.3 million as an initial state investment in the tech talent pipeline, but Jones said he expects the state to require “significantly more” to enable participating colleges and universities to establish and expand degree programs in the desired fields.

“The universities are going to need to present plans that deliver so many degrees, at an affordable cost, in a reasonable time frame,” he said.

The state already included $28 million in the two-year budget adopted last year, before Amazon chose the Arlington site, to boost production of degrees in high-tech fields at public colleges and universities.

Northam also included Virginia Tech’s proposed $1 billion “Innovation Campus” for master’s degrees in the capital budget, which would require $250 million in state money that the university would match while raising an additional $500 million from various non-state sources to pay for the project in the Potomac Yard area of Alexandria.

The package the state unveiled in mid-November also includes $125 million in state money that George Mason would match to expand its master’s degree programs and facilities in Arlington.

Virginia’s commitment to boosting higher education development of high-tech talent was a decisive factor in Amazon’s decision to choose Arlington as one half of its much-ballyhooed $5 billion plan to build a second headquarters. Long Island City, N.Y., was chosen for the second location.

“It’s clear they ultimately weighed talent far greater than cost,” Stephen Moret, president and CEO of the Virginia Economic Development Partnership, said in a presentation on Monday to the State Council of Higher Education for Virginia.

Moret said the Amazon deal would generate an additional $3.8 billion in gross state revenues over 20 years, before considering incentives and other state costs for educating children of new employees. The jobs it creates must pay at least $150,000 a year on average and no more than 10 percent can rely on federal government funding.

“It’s a big diversification opportunity,” he told SCHEV.

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Appropriations chairman won’t consider $1.2 billion tax windfall in budget until Northam, lawmakers reach tax policy deal

Appropriations chairman won’t consider $1.2 billion tax windfall in budget until Northam, lawmakers reach tax policy deal

Posted by on Jan 14, 2019 in News | 0 comments

BY MICHAEL MARTZ Richmond Times Dispatch, January 9, 2019

The House Appropriations Committee quickly dismissed Gov. Ralph Northam’s plan to spend $1.2 billion in “limited time” revenues from federal tax reform without first reaching an agreement with the General Assembly on state tax policy.

Appropriations Chairman Chris Jones, R-Suffolk, opened the committee’s first meeting of the legislative session on Wednesday by declaring that the House won’t consider the so-called windfall as it prepares its own version of the budget over the next 3½ weeks.

“In fairness to the process, we’re not Washington, D.C., we’re Richmond, so we cannot assume revenues that we do not have,” Jones said.

If the legislature reaches an agreement with Northam on tax policy before the committee acts on the budget Feb. 3, he added, “we will, in fact, make adjustments.”

That means the committee will have, at most, about $950 million in new revenue and projected savings to spend, with about half already devoted to filling a $462.5 million shortfall in the Medicaid program that emerged in early November because of a faulty forecast.

“It’s not an easy exercise,” Jones said at the end of the two-hour budget briefing, “but we have to play it where it lies.”

Solving the impasse over tax policy also won’t be easy: Some taxpayers are likely to face higher state taxes this year because of changes in federal tax policy in the Tax Cuts and Jobs Act, which President Donald Trump signed in late 2017.

The heart of the debate is whether the state should spend that extra money or find a way to give it back to taxpayers.

Jones and other House leaders made clear last week that they will seek changes in state policy to allow taxpayers to itemize deductions on their state tax returns even if they claim the standard deduction that the Trump tax cuts doubled at the federal level.

If they don’t, taxpayers who benefit on their federal returns might give savings back to the state, which expects a $594.2 million increase in the first year and $611.1 million in the second, primarily from provisions of the federal tax law for individual taxpayers that will expire after 2024. The business provisions of the tax law are permanent.

The House GOP leadership also proposes to increase the state standard deduction to help taxpayers who don’t itemize their returns, which will compete with a number of other legislative solutions proposed by Republicans and Democrats to adjust the state’s tax policy in the 46-day session that began Wednesday.

Northam served notice in August that he wants to return more than $200 million from the expected windfall to Virginians earning less than $54,000 a year by refunding the portion of the earned income tax credit they don’t use to cover their state tax liability.

The governor then unveiled a series of spending proposals that culminated in his presentation of a revised budget on Dec. 18 that includes plans to spend “limited time” revenues from individual income tax returns to, among other things: bolster the state’s cash reserve; begin a five-year plan for expanding access to broadband telecommunications networks in rural areas; improve water quality in the Chesapeake Bay; and jump-start a bipartisan plan to make $2.2 billion in desperately needed improvements to Interstate 81 primarily with toll revenues.

The additional money also freed Northam to propose a number of budget initiatives with recurring revenues, such as an additional 2 percent pay raise for teachers and a 1 percent, one-time bonus for state employees, state-supported local employees and college faculty.

The budget adopted last year already includes a 3 percent raise for teachers, which local school divisions would have to share, and a 2 percent raise for state employees, with an additional 2 percent for merit pay increases.

“When you’ve got $1.2 billion … it gives you a lot of flexibility so you can make a lot of promises to people,” said Jones, who promised after the meeting that the committee would be “looking carefully at all the spending items in his budget.”

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No time to waste on tax policy as General Assembly convenes for short session

No time to waste on tax policy as General Assembly convenes for short session

Posted by on Jan 14, 2019 in News | 0 comments

BY MICHAEL MARTZ Richmond Times Dispatch, January 5, 2019

The Virginia General Assembly will face a fast start to a short session when it returns to Richmond to tackle the most perilous of issues in an election year: the balance between tax relief and government spending.

A simmering debate over state tax policy finally reached a boil Friday, as Republican leaders in the House of Delegates proposed a plan that targets tax relief for what they call middle-class Virginians — two-income families making between $125,000 and $150,000 — while offering some help to lower-income earners.

The proposal was a challenge to Gov. Ralph Northam, who has proposed to use $1.2 billion in additional state tax revenues from federal tax reforms to help low-income working households and pay for widely sought investments such as improving water quality in the Chesapeake Bay and expanding access to broadband networks in parts of rural Virginia that lack it.

The timing requires immediate attention if the legislature has any hope of making major tax policy changes available to taxpayers who soon will file state returns for 2018. The assembly also needs immediate clarity to determine how much money it has to spend on its priorities in the state’s two-year budget.

“Until we resolve the tax policy issues, we will be unable to produce a budget,” House Appropriations Chairman Chris Jones, R-Suffolk, said during a press conference call Friday led by House Speaker Kirk Cox, R-Colonial Heights.

Jones had called publicly for a special session on tax policy last year in response to the Tax Cuts and Jobs Act, which President Donald Trump signed in December 2017, but the opportunity was lost in the bitter aftermath of the pitched political battle over Medicaid expansion last spring.

The General Assembly has been in special session ever since, but it hasn’t elected judges or filled a long-vacant seat on the State Corporation Commission, much less tackled comprehensive tax reforms.

“They’re already in special session — we could have done this in November,” Secretary of Finance Aubrey Layne said Saturday.

Del. Richard “Dickie” Bell, R-Staunton, tried to jump-start the debate in September, when he filed a bill that would allow Virginia taxpayers to continue itemizing deductions on their state returns even if they claim the fattened standard deduction on their federal taxes.

The same proposal is the linchpin of the tax plan unveiled by Cox and other House Republican leaders on Friday. It includes an emergency clause so that tax policy changes could benefit taxpayers who will file state returns this spring for their 2018 taxes.

“It was filed September 17 in hopes that it might be part of the Republican conversation, but was never part of any conversation on tax reform by the caucus,” said Bell, who said he will not run for re-election after this year.

Now, with political control of both assembly chambers at stake in next November’s election, legislators will grapple with a choice of whether to spend an unintended state income tax windfall from Trump’s tax bill or give it back to taxpayers.

Or both.

“I want to give some back and invest some,” said Del. Mark Sickles, D-Fairfax, second-ranking Democrat on the Republican-controlled Appropriations Committee.

Senate Republican leaders haven’t shown their hand on how they want to play the game, but they generally insist on protecting middle- to upper-income taxpayers who could pay more in state taxes because of the federal law.

“That’s the crux of the session,” said Sen. Ryan McDougle, R-Hanover, chairman of the Senate Republican Caucus. “Virginians will not take advantage of the federal tax reforms unless we make some changes. I think we need to return that money to Virginians and let them spend it.”

But McDougle and other legislators who represent rural areas also want their constituents to have an opportunity to get their share of economic growth through access to high-speed broadband communications networks, especially in light of state incentives for big companies such as Amazon and Micron Technologies to locate or expand operations in Northern Virginia.

In a pre-Christmas spree of budget announcements, Northam proposed a five-year, $250 million investment in broadband — beginning with $50 million in the fiscal year that begins July 1. He would pay for it with “limited-time” money from increased state income taxes under new federal tax provisions for individuals that will expire after 2024.

Senate Republicans support the spending priority, but not necessarily the source of money to pay for it.

“You can make some decisions on priorities with current resources, as well,” said McDougle, a member of the Senate Finance Committee. “It doesn’t have to be new money.”

Democrats back the governor’s proposal to give about $216 million from the temporary federal tax provisions to low-income taxpayers who qualify for the earned income tax credit, but whose state tax liability isn’t large enough to use the entire amount.

They also think Northam’s proposal to give teachers an additional 2 percent raise — on top of the 3 percent increase they are due to receive in July under the current budget — represents a crucial investment in K-12 education that would be financed by recurring tax revenues that have been growing robustly.

“He would return the money to where the impact is the greatest,” said Del. Vivian Watts, D-Fairfax.

However, Watts is preparing legislation that would raise the state standard deductions to offset the effect of the new federal cap on deducting state and local taxes. It’s a big issue for homeowners in Northern Virginia, where property values and taxes are high, but it’s also part of the House Republican tax plan unveiled on Friday as both parties prepare for suburban political warfare.

“It’s going to be your suburban voter,” said House Appropriations staff director Robert Vaughn.

Those same voters are likely to be the lion’s share of the estimated 600,000 taxpayers whom Republicans expect to pay higher state taxes because they could no longer itemize if, under current Virginia law, they choose to claim the standard deduction on their federal returns, which doubled under the new tax law.

Vaughn predicts those voters will discover their higher state tax liability around February, as they are preparing tax returns for 2018.

“I think that’s when you’re going to hear the racket,” he said.

Decoupling the option of itemizing deductions from conformity with other provisions of the federal tax law is the linchpin of the House Republican tax plan. The legislation will be carried by House Republican Caucus Chairman Tim Hugo, R-Fairfax, one of two GOP delegates remaining in Northern Virginia after a Democratic electoral wave in 2017.

Hugo says the legislation would prevent “a hidden tax increase” that Northam’s budget would use to help lower-income earners and pay for new spending initiatives.

“Our proposal keeps more money in the pockets of Virginians without costing the state one penny,” he said Friday.

However, Layne said House Republicans have significantly underestimated the amount of lost state revenue under their plan, which also would increase the state standard deduction by $1,000 for individual taxpayers and $2,000 for couples.

House Republicans say their plan would reduce state revenues by $441 million in the next fiscal year, almost all of the additional money expected from the tax law’s temporary provisions for individual taxpayers, but the finance secretary says the true cost to the state could be “a couple hundred million dollars” higher than Republicans estimate.

Critics say the plan also would defeat the purpose of conforming state and federal tax definitions by requiring Virginia to create its own system for taxpayers to itemize deductions instead of relying on the IRS to define and police them.

“What do you itemize and who’s going to check up on it?” asked Watts, a member of the House Finance Committee.

The lower-income earners who would benefit under Northam’s proposed budget also make up a growing chunk of the population in suburban districts — more than 23,000 in Chesterfield County and 26,000 in Henrico County — said Michael Cassidy, president and CEO of the Commonwealth Institute for Fiscal Analysis, a liberal policy organization that favors a “refund” of the full earned income tax credit due to those who are eligible.

“It ain’t your grandpa’s suburbs anymore,” Cassidy said. “There are a lot of working-class people trying to make ends meet in these suburban districts, which are also swing districts.”

The legislative outlook is further complicated by a competing proposal, introduced in the House by Del. Chris Peace, R-Hanover, that would double the state’s standard deductions and drop its corporate income tax rate by a percentage point over two years.

Those proposals — which Layne estimated would cost $440 million and $160 million a year, respectively — echo a plan pushed by the Thomas Jefferson Institute, a conservative policy outfit that sponsored a poll which found taxpayers strongly in favor of the state returning the money instead of spending it.

“Hugo’s approach is to try to make everybody whole and go back to where we were before the Tax Cuts and Jobs Act,” said Steve Haner, a former state Republican party official who is a senior fellow at the institute. “Our goal is tax reform.”

“It would give broader tax cuts to millions of people, as opposed to a few hundred thousand,” Haner said.

But trying to address comprehensive tax reforms in a short legislative session “would be folly,” said Jones, the House Appropriations chairman.

The assembly’s failure to address tax policy in special session last year “may have been a wasted opportunity to address Virginia’s tax code,” said Nicole Riley, Virginia director of the National Federation of Independent Business.

The NFIB, with 6,000 small-business members in Virginia, prefers doubling the standard deductions as a simpler way to return additional tax revenues to taxpayers, but its biggest concern is immediate conformity between the state and federal tax codes to ensure that the federal law’s business provisions are enacted here.

“We want to see conformity to the federal changes,” said Riley, citing provisions that allow businesses to write off more capital expenses and lowering the tax rate on pass-through income.

House Finance Chairman Lee Ware, R-Powhatan, acknowledged that the House plan falls short of comprehensive tax reforms, but he called it “a good step in tax policy.”

However, Layne said it’s not likely to help taxpayers on their 2018 state returns because the legislation comes too late to enact many of the provisions, particularly for itemizing deductions by taxpayers who take the federal standard deduction.

“There’s no way we can get that done this year,” he said.

Instead, House Republicans propose a one-time deduction that taxpayers could use next year in preparing their 2019 returns — months after the legislative elections.

Jones has not given up hope that the General Assembly and governor could negotiate an agreement that could take effect on an emergency basis, which would require approval by 80 percent of each chamber’s representatives. They would have to act within the first two weeks after the legislature convenes Wednesday.

“We need the governor to come to the table,” he said.

But Haner, who has been involved in General Assembly sessions for more than 30 years, cautioned that “getting an emergency bill passed would require a lot more consensus than anyone expects.”

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Statement of House Appropriations Chairman S. Chris Jones on Governor Northam’s $1.6 billion spending package

Statement of House Appropriations Chairman S. Chris Jones on Governor Northam’s $1.6 billion spending package

Posted by on Dec 17, 2018 in News | 0 comments

December 14, 2018

Virginia House of Delegates Appropriations Committee Chairman S. Chris Jones released the following statement Friday on the $1.6 billion in multi-year spending proposed by Governor Ralph Northam.

“Every year governors are eager to roll out their proposed spending priorities ahead of the General Assembly session, but the proposals we’ve seen from Governor Northam so far this year are aggressive to say the least. While my colleagues on the House Appropriations Committee and I are eager to work with the governor on areas of agreement, I am wary of the long-term and recurring nature of the commitments he is proposing.

“All told, the governor has proposed over $1.6 billion in long-term, recurring spending — including millions in spending after his term is over. In fact, the governor is proposing more new spending in the second year of the budget than was included in the entire two-year budget originally passed this year. It’s highly unusual to see this level of spending proposed in the middle of the two-year cycle. While we must always be looking toward the future, we cannot make promises in perpetuity.

“The need for caution is especially true given the status of our bond rating and that many economists foresee an economic slowdown in the not-too-distant future. Just six months ago, the rating agencies applauded our fiscally-responsible approach to budgeting. We must continue to prioritize fiscal steps that shore up our bond rating while focusing on one-time spending and capital projects.

“Unfortunately, it appears much of the proposed spending is predicated on allowing over 600,000 middle-class taxpayers to pay higher taxes. Before we can contemplate new spending, the General Assembly will have to resolve the governor’s willingness to allow by inaction a tax increase and the elimination of key deductions on mortgage interest and property taxes.

“As always, the House Appropriations Committee looks forward to working with the governor, his administration, and our colleagues in the Senate to craft a responsible, balanced budget that invests in Virginia’s future while safeguarding taxpayers, protecting our AAA bond rating, and preserving structural balance.”


Summary of Spending Announced by Governor Northam


Area Committed this Cycle Future Commitment “Envisioned” Total Spending
Broadband Access $50m $200m $250m
School Counselors $36m $72m $108m
Water Quality $140m $633m $773m
K-12 Education $268.7m Ongoing TBD $268m
Refundable EITC $250m Ongoing TBD $250m
Total Spending: $1.649 billion


Governor Northam Announces Major Investment to Accelerate Virginia’s Progress Towards Universal Broadband Access (12/14/18) — “Governor Northam envisions these commitments as the first installments of a multi-year investment totaling $250 million over the coming years…”


Governor Northam Announces Budget Proposals to Add School Counselors and Improve School Safety (12/13/18) — “The $36 million proposal would be the first installment of a three-year, phased strategy to hire enough school counselors…”


Governor Northam Proposes Major Investments to Protect Virginia’s Water Quality and Accelerate Chesapeake Bay Cleanup (12/12/18) — “Governor Northam envisions these commitments as the first installments of a multi-year investment. When added to other currently appropriated and proposed funds for fiscal years 2019 and 2020, Governor Northam’s proposal would total $492 million through FY 2022, and $773 million through 2024…”


Governor Northam Announces Budget Proposals to Invest $268.7 Million in New Money for K-12 Education (12/11/18) — “Governor Northam today announced his proposed budget will feature $268.7 million in new money for investments in Virginia’s K-12 education system.”


Northam says he wants to use $250M from federal tax cuts on refunds for low-income families (RTD, 8/10/18) — “Gov. Ralph Northam wants to take roughly $250 million in extra state revenue caused by federal tax cuts and redirect it to low-income families through tax refunds.”

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Virginia looks to boost Medicaid reimbursement to attract more doctors

Virginia looks to boost Medicaid reimbursement to attract more doctors

Posted by on Nov 27, 2018 in News | 0 comments


With Virginia’s Medicaid program poised to expand coverage for hundreds of thousands of people, the state is considering a proposal to increase reimbursement rates for doctors to encourage them to provide care to more patients under the program.

The Department of Medical Assistance Services has asked Gov. Ralph Northam to include $19.1 million in his proposals next month for the two-year budget to boost Medicaid reimbursements for primary care doctors and reduce the gap with the federal Medicare program for the elderly.

The proposal, limited to the second year of the budget, is part of an emerging state plan to attract more doctors who are willing to participate in Medicaid, a shared state and federal health care program for poor, elderly and disabled Virginians.

With Medicaid expansion set to begin Jan. 1, “the experience of accessing care could still be a challenge across the commonwealth,” Dr. Jennifer Lee, director of the state Medicaid office, told a joint legislative subcommittee on Monday.

State legislators are concerned about the widening gap between state reimbursement rates to doctors in Medicaid and those in Medicare, but they want more information about the potential costs of closing the gap before they convene in January for a 45-day session that will include revisions to the two-year budget adopted this year.

“We need to know sooner than later,” said House Appropriations Chairman Chris Jones, R-Suffolk, who also chairs the Joint Legislative Subcommittee for Health and Human Resources Oversight. “We can’t hit what we can’t see.”

Widening gap

DMAS, as the state Medicaid office is known, says the gap between state reimbursements to doctors in Medicaid and Medicare has widened in the past eight years, especially for preventive pediatric services.

In the 2010-2011 fiscal year, Medicaid reimbursed doctors for those services at 94 percent of the rates paid for Medicare. Lee said the reimbursement has fallen to 71 percent of the rates paid for Medicare in the current fiscal year — a drop of 23 percentage points.

Similarly, reimbursement for other pediatric services has dropped from 83 percent of the Medicare rate eight years ago to 75 percent. The fall has been slightly less for reimbursement of adult preventive and primary care services, which went from 73 percent to 66 percent over the same period.

While the problem isn’t new, the urgency is greater because the state expects to enroll 360,000 people under expanded Medicaid eligibility in the first year, 375,000 by the end of the biennium in mid-2020 and ultimately 400,000 people.

“The combination of declining rates relative to other payers, significant limitations in primary care access throughout the state, and the increased demand for primary care services following Medicaid expansion to an additional 400,000 Virginians creates a pressing need to bring Medicaid rates closer to parity with the market,” DMAS states in its funding request to the governor’s budget office.

Northam isn’t saying what he’ll recommend until he submits his budget proposal to the General Assembly money committees on Dec. 18, but spokeswoman Ofirah Yheskel said, “As a provider, the governor is uniquely interested in discussions on health care in Virginia.” Northam is a former Army doctor and is a pediatric neurologist by occupation.

Estimated cost

In its budget request, the agency estimates that raising physician rates to 80 percent of what the state pays Medicare would cost about $40 million for the existing Medicaid population, with the expense split almost evenly between the state general fund and the federal government.

For the expansion population, the cost would be almost $25 million, with almost all of it borne by the federal government under the Affordable Care Act and the state’s share covered by a new provider assessment on hospital revenues.

Separately, DMAS responded to a legislative request about bringing reimbursement to 75 percent of the Medicare rate for the four specialty areas with the lowest rates. They are: pediatric, already at 74.9 percent; emergency room, at 69.8 percent; adult preventive and primary care at almost 66.8 percent; and anesthesia at 66.4 percent.

Underserved areas

Currently, Medicaid officials say access to care is inconsistent under the program. Parts of the state are left with less than two-thirds of their primary care needs served, primarily in rural Virginia, including the Eastern Shore and Northern Neck.

Lee said her agency estimates that 63 percent of physicians participate in Medicaid and 71 percent of those are taking new patients, but DMAS hopes to get a better understanding through a survey it is conducting with Virginia Commonwealth University.

The partners have sent the survey to all primary care physicians in the state “to assess capacity and willingness to care for [the] Medicaid expansion population.” A second survey has been sent to providers who had not responded to the first questionnaire.

The state also is working with free clinics, including CrossOver Healthcare Ministry in Richmond, and federally qualified health centers to expand their capacity to care for Medicaid patients.

But DMAS is relying most heavily on the six health insurance plans that will oversee 95 percent of the services delivered by the expanded program under managed care organizations.

Lee said an outside consultant, Health Services Advisory Group, confirmed independently that the six plans have adequate health care networks to serve the expanded population.

The private health plans say they are ready, but they acknowledge the limits of what they know about the people they will serve.

“The basic challenge is who’s going to seek care, where and when, and for what reason,” Doug Gray, executive director of the Virginia Association of Health Plans, said Monday.

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How Virginia sealed the deal on Amazon’s HQ2, ‘the biggest economic development project in U.S. history’

How Virginia sealed the deal on Amazon’s HQ2, ‘the biggest economic development project in U.S. history’

Posted by on Nov 19, 2018 in News | 0 comments


As autumn began, Virginia lawmakers were not completely sold on the deal they had been putting together for a year to land Amazon’s second headquarters in the Northern Virginia suburbs.

The lure of a $5 billion investment and 50,000 high-paying jobs was powerful, but so was the fear of having to justify $1 billion in direct state incentives to a company valued at $1 trillion.

Members of the Major Employment and Investment Project Approval Commission also were concerned about the ability of any community in Northern Virginia’s already teeming and traffic-clogged suburbs to handle the massive influx of people.

That’s when Amazon made a pivotal decision to divide the project in half, ultimately awarding 25,000 new jobs and up to $2.5 billion in investment each to Virginia and New York about six weeks later.

“That’s when I knew I could support it,” said House Appropriations Chairman Chris Jones, R-Suffolk, who acknowledged last week that until the decision, “I wasn’t there yet.”

House Finance Chairman Lee Ware, R-Powhatan, resigned from the MEI commission in February “because of the size of the subsidy we were offering Amazon.”

“I couldn’t justify taxpayers subsidizing one of the wealthiest companies in the world,” said Ware, who intends to vote against the proposed incentives when the General Assembly considers them in January. “The company picked two prime development sites it might have picked without inducements.”

Ware said he was not alone in his concern, even though the state had fashioned a package of direct incentives less than one-third of the size promised by New York with the requirement that Amazon produce the jobs and additional tax revenue before it would get any money from Virginia’s general fund budget.

“I think there was a collective sigh of relief that we were now dealing with something more manageable,” Appropriations Director Robert Vaughn said in an interview the day after Amazon announced it would build half of HQ2 in Arlington County in Crystal City and Pentagon City next to Reagan Washington National Airport.

The package that MEI approved unanimously on Oct. 25 ultimately amounts to $1.85 billion, but more than two-thirds of it represents long-term state investments in higher education and regional transportation projects that Virginia policymakers already were committed to doing to establish the state as a leader in the high-tech economy.

The commission — made up of key lawmakers from the House and Senate, working with members of Gov. Ralph Northam’s Cabinet — played a pivotal role in shaping a package that didn’t obligate the state to support affordable housing initiatives in the region or use statewide funds to pay for transportation improvements in Northern Virginia.

Legislators and members of the administration tutored the Virginia Economic Development Partnership on the realities of the state’s general fund budget, which they were reluctant to use to pay for incentives without a measurable payout for the entire state.

“VEDP’s role was to get the deal done,” said Secretary of Finance Aubrey Layne, who sits on the panel as a nonvoting member. “My role was to make sure we were partners and kept in communication with MEI and the money committees.”

Most important to legislators, the final package didn’t commit general fund dollars as incentives until Amazon has hired people at salaries averaging $150,000 a year and generated new revenue to pay for them.

“The positive factor was we had to have the money in our checking account before the check went into the mail,” said Sen. Frank Ruff, R-Mecklenburg, chairman of the commission and a longtime representative of rural Southside localities that will want to know how they will benefit from the deal with Amazon.

State officials estimate the Amazon project ultimately will generate net tax revenue of $3.2 billion over 20 years, after subtracting the $550 million Virginia has committed to paying the company as direct incentives for creating 25,000 jobs. Even after accounting for investments in higher education, transportation and the expected growth in K-12 enrollment, the state expects to receive a net tax benefit of at least $1.2 billion.

“We have positive revenue from day one,” Stephen Moret, president and CEO of the Virginia Economic Development Partnership, told members of the House Appropriations and Finance committees on Tuesday, hours after Northam and Amazon officials announced the deal in Arlington.

For Moret, the Amazon deal represented an economic development triumph that was impossible to imagine when he took the helm of the embattled state authority less than two years ago as General Assembly leaders and then-Gov. Terry McAuliffe were preparing sweeping reforms of the way it operates.

“To the best of our knowledge, this is the biggest economic development project in U.S. history, certainly in Virginia,” he told the House committees at their annual retreat in Harrisonburg.

Former Secretary of Commerce and Trade Todd Haymore pushed for hiring Moret two years ago, even though legislators wanted to wait for the adoption of reforms at VEDP.

“This would not have happened if not for the reforms,” Haymore said, “and it would not have happened if Stephen had not been the quarterback.”


McAuliffe and Haymore were flying to Southwest Virginia in a state helicopter on Sept. 7, 2017, when they got the word that Amazon had launched a North American sweepstakes for HQ2, a mammoth attempt to match the company’s main headquarters in Seattle.

“I said, ‘We’ve got to win this!’ ” the former governor recalled. “Literally, it would finish what we started in diversifying and building a new economy.”

McAuliffe directed Haymore to arrange plane tickets to fly to Seattle the next day and set up a meeting with Jeff Bezos, founder and CEO of the company, as well as owner of The Washington Post and a home in the District of Columbia.

Haymore called Holly Sullivan, an Amazon official whom he and the governor knew from their successful bid three months earlier to establish the company’s East Coast hub for Web Services near Washington Dulles International Airport in Fairfax County.

Sullivan, who previously had worked as economic development director in Montgomery County, Md., one of the 20 finalists for HQ2, advised McAuliffe to stay in Virginia.

“She said, ‘Maybe we’re not ready for him to come just yet,’” the ex-governor recalled with a chuckle in an interview on Friday.

Haymore, who had worked as secretary of agriculture under McAuliffe before taking the commerce and trade post, joked, “It’s one of the only times in four years of working with Governor McAuliffe where I told him, ‘You will not do this’ … and he listened!”

Instead, McAuliffe and Haymore began a feverish attempt to pull together a package of potential sites for the project from all across the state’s urban crescent, not just Northern Virginia, to meet Amazon’s Oct. 19 deadline for proposals.

But first, McAuliffe said, he used his contacts at the company to ensure that the Richmond area and Hampton Roads wouldn’t be wasting their time by investing resources in a search that ultimately would lead to Northern Virginia.

“I was 100 percent assured there were no preconceived notions,” he said.

McAuliffe’s next move was talking to new Richmond Mayor Levar Stoney, a protégé who had served in his Cabinet, and Virginia Beach Mayor Will Sessoms about their regions’ interest in competing for the project.

The state needed professional help to pull together such a complex package in such a short time, so it turned to McKinsey & Company, a global management consultant company, to run the process.

That required money, so Haymore worked with then-Finance Secretary Ric Brown to find dollars they could use from the governor’s contingency fund to pay McKinsey.

But McAuliffe wasn’t willing for the state to foot the entire bill.

“If people want to get involved in this thing and they’re serious, they’re going to have to pony up some money,” he said.

The state staked $1 million, with an additional $1 million raised from economic development partnerships in the Richmond, Hampton Roads and Northern Virginia areas, including $150,000 from Virginia Tech.

“We had a coalition of the willing,” Haymore said. “We reached out to the universities, and Virginia Tech stepped up to the plate.”

Tech, which announced last week that it would build a $1 billion Innovation Campus adjacent to Amazon in the Potomac Yard area of Alexandria, also was the only university to submit a complete financial model for the bid, Moret said.

The final package includes $250 million in state funds for Tech, as well as $125 million to help George Mason University expand its existing Arlington Campus with a new digital innovation institute and school of computer science. The master’s level projects are part of a higher education strategy that includes $710 million to help finance an additional 12,500 to 17,500 undergraduate degrees in computer science and related fields at institutions across Virginia.

“If the Tech piece had not been there, I probably would not have been a big supporter,” said Del. Steve Landes, R-Augusta, one of five House members on the MEI commission.

Virginia pitched 10 potential sites — including three in the Richmond area — in the initial round of proposals from 238 metropolitan areas across North America. The Richmond-area sites were Tree Hill Farm in eastern Henrico County, city-owned land on North Boulevard in Richmond, and the site of the former Galleria project in Chesterfield County.

When Amazon revealed its short list in January, only Northern Virginia was on it, with four potential sites, including the one in Crystal City that won the project last week. The remaining 20 metropolitan areas also included Montgomery County, Md., and Washington, D.C.

Haymore believes the effort and money spent in the Richmond area and Hampton Roads could still pay off, just as it did in Nashville, Tenn., which Amazon chose last week for its East Coast operations hub with 5,000 jobs.

Think of HQ2 as the homecoming queen, he said. “There’s also going to be a lot of very attractive economic development projects that will be part of the court.”


On March 2, about six weeks after Amazon narrowed the field, Northam, Maryland Gov. Larry Hogan and Washington Mayor Muriel Bowser sent a letter to Bezos that offered “a shared vision of the future” among the three competing jurisdictions.

“We recognize that if one of our jurisdictions earns the honor of being selected for HQ2, we all win,” they wrote.

The HQ2 sweepstakes forced Virginia, Maryland and Washington to cooperate for a project that would employ people from around the region in high-paying jobs that would benefit all of their economies.

“We decided it was a very big opportunity for the region,” said Jason Miller, executive director of the Greater Washington Partnership, a group of corporate CEOs for a region stretching from Richmond through Washington to Baltimore that produced 11 proposals in the first round of bidding for HQ2.

With all three jurisdictions in the second round, they focused on fixing a public asset critical to their hopes of landing the project — the Metro transit system, which needed a $15.5 billion repair job over the next 10 years.

“Every physical site [considered by Amazon] in Maryland, the District and Northern Virginia was next to a Metro stop,” Miller said.

Virginia’s decision to contribute an additional $154 million a year as its share of the $500 million required annually to repair the system was a crucial moment in the region’s bid for HQ2, he said. “Once we achieved the full amount, it was a pretty clear signal that because of the importance of the system to both the economy and Amazon, the region can come together and tackle its most pressing issues.”

The budget adopted by the General Assembly on May 30 and signed by Northam on June 7 also included $28 million to boost production of undergraduate degrees in computer science and other technical fields and $25 million for CyberX, an ambitious idea conceived by Del. Jones and Virginia Tech President Tim Sands. Both investments are central to Virginia’s effort to jump-start a talent pipeline for Amazon and other potential projects that rely on highly skilled workers in emerging technologies.

“CyberX showed Amazon we’re serious,” said Vaughn, staff director of Appropriations, who was part of the meetings between Jones and Sands that led to the surprise initiative in the budget initially approved by the House in February.

Those commitments ultimately may have been more important to Amazon than the direct incentives to the company for the jobs it created, said Layne, a former Virginia Beach businessman and state transportation secretary.

“Incentives didn’t really drive the decision,” he said. “At the end of the day, it was the workforce development and education pieces, which we already had decided were going to happen regardless.”

The MEI commission voted unanimously on Oct. 10, 2017, on an initial proposal that would have paid $22,000 a job — almost one-third of what Virginia promised Micron Technologies to add 1,100 jobs at its Manassas plant and, more importantly, keep the 1,400 jobs already there.

The commission never wavered on its position, Jones said. Instead, it improved the deal by negotiating for the average salary to increase from $100,000 to $150,000 a year, plus benefits.

“We were not going to take extraordinary measures to land the company,” he said.

The commission balked at a proposal for $100 million in state subsidies to maintain affordable housing in the region — which both legislators and administration officials agreed is the proper role of local governments and private developers.

It also made clear in September — the day Northam ordered an emergency evacuation of the Virginia coast for Hurricane Florence — that it wouldn’t allow money from the general fund or statewide transportation fund to pay for projects in Northern Virginia for Amazon.

Instead, the state is using a combination of federal money restricted to Northern Virginia and money from the toll concession for express lanes on Interstate 95 to pay for five projects, including new entrances to two Metro stations, improvements to U.S. 1 and a pedestrian bridge from Crystal City to Reagan National Airport.

“It was not taking any money from anyone else in the commonwealth — that was key,” Layne said.

Still, the scope of the project and the $1 billion incentive for 50,000 jobs was daunting both for legislators and some members of the administration, so Amazon’s message that it was considering splitting the project was welcome in Richmond.

“We felt that half was a better fit for us because it was more digestible,” Jones said.

Senate Finance Co-Chairman Emmett Hanger, R-Augusta, said splitting the project allowed him to vote for the final package on Oct. 25.

“It helped me because of the reduced level of incentives,” Hanger said Thursday.

Virginia still has a chance to get more jobs out of the deal because the state committed up to $200 million in incentives for a second phase with an additional 12,850 jobs — or $15,000 a job, almost a third less than the first phase.

“Having MEI as part of economic development is a very, very positive thing for the commonwealth,” Haymore said. “I would put it on the list of reasons we landed Amazon.”

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