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Virginia revenues up more than $550 million for fiscal year, building reserves

Virginia revenues up more than $550 million for fiscal year, building reserves

Posted by on Jul 16, 2018 in News | 0 comments

BY MICHAEL MARTZ Richmond Times Dispatch, July 12, 2018.

Virginia’s revenue reserves are getting a $550 million boost from soaring income tax collections in the last fiscal year.

Gov. Ralph Northam announced Thursday that income tax collections rose by $325 million in the fiscal year that ended June 30 for taxpayers who make estimated payments on capital gains and other income that isn’t subject to payroll withholding taxes. Those payments began rolling into the state treasury soon after President Donald Trump signed the Tax Cuts and Jobs Act in December.

Virginia also is benefiting from a $227 million jump in income tax withheld from paychecks, the biggest single source of state revenue.

Total revenue collections rose by 6.3 percent in the fiscal year, ahead of the revenue forecast of 3.4 percent growth.

“On the strength of a record $2.4 billion in revenue collections in the month of June, I am happy to announce that preliminary figures indicate that the state concluded fiscal year 2018 with an approximately $551.9 million surplus in general fund revenue collections,” Northam said in a statement.

“This significant surplus will substantially increase the commonwealth’s cash reserves in order to protect taxpayers against a future economic downturn and further affirm our valuable AAA bond rating.”

Withholding revenue rose 5.4 percent for the year, almost 2 percentage points higher than the forecast of 3.5 percent.

“I think a lot of it has to do with the [federal] budget passed by Congress, increasing defense spending, and the tax cuts at the federal level,” Secretary of Finance Aubrey Layne said in an interview. “We think it’s stimulative in the short term.”

The nonwithholding income tax collections are trickier for the state to gauge because they could reflect taxpayer efforts to avoid limits imposed on deductions for state and local taxes in the new federal law.

Virginia has refunded $75 million in estimated tax payments and some large taxpayers have made payments but haven’t filed their state returns, which are due by Nov. 1 for extended filing.

“We still don’t know what part of it is going to be subject to being refunded,” Layne said.

Speaker of the House Kirk Cox, R-Colonial Heights, said in a statement that the revenue surplus is “thanks in large part to responsible budgeting and strong economic growth spurred by Republican policies at the state and national level.”

Wary of windfalls

Virginia lawmakers and policymakers have been wary of counting on windfalls of nonwithholding tax revenues since 2014, when the bottom fell out a year after a big surge in payments in response to an increase in the federal capital gains tax in late 2012.

As a result, the state places a “collar” on the volatile source of revenues that limits the amount of new nonwithholding revenue that can be available for spending in the two-year state budget.

This year, Northam and the General Assembly already have agreed to deposit any surplus tax revenues in either the Revenue Stabilization Fund or a new cash reserve. The commitment helped to persuade S&P Global Ratings to upgrade Virginia’s financial outlook from negative to stable the day after Northam signed the budget on June 7.

“There is no question that the decision to appropriate 100 percent of the surplus to replenishing our cash reserves was key to S&P,” House Appropriations Chairman Chris Jones, R-Suffolk, said of the role the reserve commitment played in the national rating agency’s decision.

His committee had estimated an additional $500 million in revenue to bolster reserves, while the Senate Finance Committee said the total could exceed $600 million.

“I’m very pleased that it exceeded our target by $50 million,” Jones said. “That puts more money into our cash reserve.”

S&P had downgraded the financial outlook to negative a year ago because of concerns that Virginia had depleted its rainy day fund by drawing on reserves even when the state’s revenues were growing.

The state has withdrawn money twice to balance the budget to avoid cutting core services to make up for projected revenue shortfalls — first in 2014 because of the collapse of nonwithholding payments, and again in 2016 because payroll taxes didn’t increase as fast as forecast because of slow wage growth.

Sales taxes

In addition to income taxes, Virginia’s sales tax collections increased by 3.1 percent in the fiscal year, a 10th of a percentage point higher than forecast, for a total of $3.5 billion.

Sales tax collections do not reflect potential changes in Virginia law after a decision by the U.S. Supreme Court last month that overturned a prior ruling that prevented states from collecting taxes on internet sales.

State officials estimate the taxation of online sales — in addition to sales taxes already collected from Amazon and other online retailers with distribution warehouses in Virginia — could boost the state treasury by $250 million to $300 million a year.

Layne expects the General Assembly to address the issue of online sales taxes, as well as state conformity with the federal tax reforms, in its 45-day session that begins in January.

Northam will address the assembly’s joint money committees on Aug. 17 with final revenue numbers for the last fiscal year and July. The state will then go through its normal process for revising its revenue forecast for the governor’s budget proposals in December.

“Neither internet sales nor [tax] conformity will be part of the new forecast because they are not law,” Layne said.

The new budget already will spend $60 million a year in additional income tax withholding revenues anticipated in the biennium.

Some of the additional money collected at the end of the last fiscal year could have come at the expense of revenues for the first month of the new fiscal year, Layne said.

With the July Fourth holiday falling on Wednesday, some taxpayers may have made withholding tax payments early because collections in the first two days of the new year were lower than a year earlier.

“It looks like we had about a $100 million flip,” he said. “It’s still cash revenue in the [previous] fiscal year, so it’s got to be counted.”

mmartz@timesdispatch.com

(804) 649-6964

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Cybersecurity research grants bolster new state initiative aimed at Amazon, other technology giants

Cybersecurity research grants bolster new state initiative aimed at Amazon, other technology giants

Posted by on Jun 11, 2018 in News | 0 comments

BY MICHAEL MARTZ Richmond Times-Dispatch, June 10, 2018

With the launch of a state initiative aimed at attracting Amazon and other high-tech companies to Northern Virginia, the timing couldn’t have been better for Virginia Tech and George Mason University to each receive a $250,000 grant to hire a top researcher in cybersecurity.

The two academic research powerhouses are likely to be big players in an ambitious new initiative, dubbed CyberX, that Virginia is launching in the budget that Gov. Ralph Northam signed on Thursday.

The project seeks to develop marketable technologies and a skilled labor force in cybersecurity to boost the state’s economy.

“Northern Virginia has over 30,000 unfilled cyber- and technology-related jobs, a number that will grow if Amazon chooses the Washington, D.C., region for its second headquarters,” state House Appropriations Committee Chairman Chris Jones, R-Suffolk, said Friday.

“CyberX is an initiative born to meet the needs of Virginia technology-based industries by creating a partnership with Virginia’s colleges and universities that offer degrees in cybersecurity, data analytics and autonomous technologies,” said Jones, who conceived the plan with his staff and Virginia Tech President Tim Sands in February as part of a proposed budget that will become law on July 1.

Jones is a member of the legislative commission overseeing Virginia’s bid to land the Amazon HQ2 project — with a potential $5 billion investment and 50,000 new jobs.

He and other state officials would not comment on the contents of a state incentive package to land the coveted headquarters, but Jones confirmed the state would rely heavily on indirect incentives, such as investments in higher education and transportation improvements that Amazon has made priorities in the high-profile site search it began in September.

Virginia Tech will lead the CyberX project, known formally as the Commonwealth Cyber Initiative, building on work already being done at the university’s Hume Center for National Security and Technology in Arlington County.

“We are pleased the budget signed this week supports higher education and industry’s efforts to address Virginia’s critical workforce needs in cyber and technology,” Sands said in a statement on Friday. “We are encouraged by the recognition that collaborative alignment of university research with industry’s needs can provide a path toward economic sustainability.”

Tech “is already a recognized leader in the cybersecurity sector,” he said, “and we look forward to working alongside our higher education colleagues from around Virginia on the Commonwealth Cyber Initiative to enhance and integrate research, innovation, and education in cyber.”

George Mason is likely to become one of the main spokes connected to the initiative’s hub, planned in Tysons Corner as the center of a research and teaching enterprise with a statewide reach.

“We will see how it shakes out, but I expect it to be a great place for scholars from Virginia Tech and scholars from George Mason to potentially get together,” GMU President Angel Cabrera said Wednesday. “Anything that creates a bigger critical mass of research in this area will benefit everybody.”

“Northern Virginia is really probably ground zero for cybersecurity in the nation,” Cabrera said.

Northam announced last week that Virginia Tech and George Mason will receive “eminent scholar recruitment” grants through the Commonwealth Research Commercialization Fund, which the Center for Innovative Technology administers and the state finances. The grants must be matched by a combination of university and private industry funds, and show potential for commercial use of cyber research.

“The goal of commercialization with potential economic impact is paramount,” said Nancy Vorona, vice president of research investment at CIT, based in Herndon.

Both universities have industry sponsors to help match the state funds. CACI International, based in Arlington, will contribute $125,000 for the partnership with Virginia Tech. Lockheed Martin Corp., headquartered in Bethesda, Md., will provide $200,000 for the project with George Mason.

Virginia Tech said the timing of the grant with the new state initiative is coincidental but fortunate.

“The Eminent Researcher Recruitment Program grant, while not directly related to the [cyber initiative] budget appropriation, provides funding to support the initiative by enhancing our efforts to attract another talented faculty member and researcher to Virginia Tech,” Sands said.

Tech spokesman Michael Stowe said the eminent researcher recruitment grant, overseen by Charles Clancy, director of the Hume Center, is not “related to or affiliated with” a similar grant to Kenneth Ball, dean of the Volgenau School of Engineering at George Mason.

However, Stowe added, “to the extent public universities in the commonwealth are investing in hiring high-caliber faculty in cybersecurity, that bolsters the cyber aspirations of both the Commonwealth Cyber Initiative and Virginia overall.”

The cyber initiative emerged publicly in the House budget proposed in February with $40 million.

The General Assembly scaled back the state investment to $20 million in the second year of the final budget Northam signed.

Virginia Tech would receive $10 million to lease space and establish hub operations in Northern Virginia.

The state research investment fund would receive $10 million to recruit research faculty at the hub and “spoke” institutions across the state. The budget also appropriates $5 million in existing state bonds for equipment and renovations.

The purpose is clear in the budget: “The Commonwealth Cyber Initiative shall be established to serve as an engine for research, innovation, and commercialization of cybersecurity technologies, and address the Commonwealth’s need for growth of advanced and professional degrees within the cyber workforce.”

The initiative emerged well after the deadline for public colleges and universities to submit applications for the eminent researcher recruitment grants — one of five programs funded through the Commonwealth Research Commercialization Fund at CIT.

The other programs include matching grants for a wider array of public and private higher education institutions, as well as research consortia such as the Commonwealth Center for Advanced Logistics Systems, based in Colonial Heights.

The center is a partnership of five higher education institutions, the Crater Planning District Commission and an industry sponsor.

It received two grants, each for $100,000, which must be matched at least 1:1. Both grants involve biomedical research at Virginia Commonwealth University, which also received a $100,000 grant for another biomedical project.

“It’s a great shot in the arm,” said Mark Manasco, president and executive director of the center.

Altogether, CIT received 120 applications for the five programs under the commercialization fund, which is administered through a rigorous process that includes review by subject-matter experts and then by the Research and Technology Investment Advisory Committee made up of university, industry and economic development experts.

The committee makes recommendations to the CIT board of directors to decide. This year, the center awarded $2.7 million in grants.

“This strong turnout demonstrates the need for funding at a critical time in these research commercialization projects,” said CIT’s president and CEO, Ed Albrigo, in a news release from the governor’s office. “We look forward to monitoring the progress of the latest recipients as they generate significant long-term benefits for the commonwealth’s economy.”

The biggest grants went to Tech and Mason to recruit “eminent researchers” and establish research programs that university officials predicted will lead to even bigger contracts with federal defense and other agencies focused on cybersecurity.

“It is a very smart way for the commonwealth to plant seeds that are very significant for our economy,” said George Mason’s Cabrera.

mmartz@timesdispatch.com

(804) 649-6964

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S&P upgrades Virginia’s financial outlook to stable after budget approval

S&P upgrades Virginia’s financial outlook to stable after budget approval

Posted by on Jun 11, 2018 in News | 0 comments

BY MICHAEL MARTZ Richmond Times-Dispatch, June 8, 2018

S&P Global Ratings has restored Virginia’s financial outlook to stable and reaffirmed the state’s coveted AAA bond rating, the day after Gov. Ralph Northam signed a new budget that the national rating agency credited for rebuilding revenue reserves and investing in core services such as public education.

“The outlook revision reflects the adoption of a structurally aligned 2018-2020 biennial budget, planned reserve fund deposits, and stronger projected revenues and economic indicators,” the agency said in its report on Friday.

S&P’s action ends a year of uncertainty for state officials and legislators who were alarmed by the agency’s decision more than a year ago to downgrade Virginia’s financial outlook to negative, raising concerns about a potential loss of the AAA rating that enables the state to pay lower interest on bonds to finance capital projects.

“It’s fantastic news!” said House Appropriations Chairman Chris Jones, R-Suffolk, who negotiated the two-year, $117 billion budget with Senate Finance Co-Chairman Emmett Hanger, R-Augusta, to end an impasse over expansion of Virginia’s Medicaid program.

“The most important responsibility I have as chairman is to protect our AAA bond rating,” Jones said. “S&P was very clear when we met with them last year about what needed to be done. The budget addressed those concerns, so it is extremely gratifying to see the results of those efforts acknowledged so quickly.”

Hanger called the upgraded outlook “extremely good news” and added, “I knew we were heading for solid footing, but it is great that they reacted that quickly.”

Northam, whose administration pushed legislators to pledge any revenue windfall this year to the state’s reserves, said, “This demonstrates the fiscal health of the commonwealth and affirms the work we have done over the course of the session to ensure our critical AAA bond rating remains intact.”

House Speaker Kirk Cox, R-Colonial Heights, called the report “vindication that the hard work we put in to crafting the budget has paid off.”

S&P noted the risk to Virginia and other expansion states if the federal government cuts back Medicaid spending, but said the budget plan to accept federal funds under the Affordable Care Act and impose a tax on hospital revenues to pay the state’s share would offset the costs and “mitigate” potential pressure on the general fund for core services.

“We always wanted to do it in a fiscally responsible way,” Finance Secretary Aubrey Layne said Friday.

Layne had pushed publicly for Medicaid expansion because of the additional federal funding that would result in nearly $371 million in state savings that could be used to bolster reserves and invest in core public services.

Senate Majority Leader Tommy Norment, R-James City, has maintained that Virginia could have bolstered reserves and satisfied rating agency concerns without expanding Medicaid, which he and the majority of Senate Republicans strongly opposed.

After Moody’s Investors Service affirmed Virginia’s AAA rating and stable financial outlook this week, Norment called arguments that expansion was necessary to protect the state’s bond rating “complete poppycock.”

Cash reserve

S&P credited Virginia for using the new budget and anticipated windfalls in tax revenues to bolster its depleted financial reserves, which had fallen to the bottom of the 14 states that have a AAA bond rating from the agency.

The budget adds $90 million to the state’s new cash reserve, on top of the $156.4 million carried over from the last fiscal year. It projects more than $500 million in unanticipated revenues in this fiscal year, ending June 30, most of it a one-time windfall related to a surge in income tax payments tied to the adoption of comprehensive federal tax reforms in December.

Any additional revenues would be held in reserve.

Altogether, S&P expects the state to boost its revenue stabilization fund, known as the rainy day fund, by $193.2 million and its cash reserve by $412 million in the next biennium to bring the combined reserves to $976.3 million, close to the pre-recession peak of $1.2 billion in 2007.

“This is a home run,” Layne said.

Defense spending

The rating agency also predicted an improved economic outlook for Virginia with the end of federal budget sequestration as a threat to the defense-dependent state economy and the likelihood of higher military spending.

“Given boosts to defense spending in the recently enacted federal omnibus spending bill, we view it as likely that Virginia’s economy will benefit,” S&P said while noting some risk to the state from federal trade policy and “the threat of retaliatory tariffs.”

The agency noted that Virginia’s revenues were growing at almost twice the annual forecast of 3.4 percent, but agreed with state officials and legislators that much of the increase could be one-time gains from “tax planning related to federal tax policy changes.”

S&P said that while the forecast in the next biennium does not consider higher tax revenues because of changes in tax policy, the budget does reflect an increase of about $60 million a year from higher income tax collections withheld from paychecks and other, sustainable sources of revenue.

The additional money, combined with state savings from accepting more than $2 billion in federal funds to expand Medicaid, helped pay for what the rating agency called “additional spending on several policy initiatives,” such as public education, raises for state employees and teachers, and infrastructure projects such as dredging Hampton Roads Channel and the Elizabeth River.

“This is a positive sign for Virginia’s economy, and I look forward to continuing to work with the General Assembly to make the commonwealth work better for every family,” Northam said.

Pension obligations

S&P also credited the state’s progress in funding pension obligations for state employees and teachers, primarily by fully funding the contribution rates certified by the Virginia Retirement System to pay ongoing costs and unfunded liabilities for the retirement plans it administers.

“This is an improvement and gets the state to full funding of the [actuarial contribution] one biennium budget ahead of schedule under its pension reform,” the report states.

The agency warns that it would consider lowering its rating if Virginia backtracks on its commitment to rebuilding reserves, maintaining a structural budget balance, or “experiences consistently weaker economic performance relative to the U.S.”

mmartz@timesdispatch.com

(804) 649-6964

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Ahead of budget signing, Moody’s affirms Virginia AAA bond rating

Ahead of budget signing, Moody’s affirms Virginia AAA bond rating

Posted by on Jun 11, 2018 in News | 0 comments

BY MICHAEL MARTZ Richmond Times-Dispatch, June 6, 2018

Virginia’s new budget just passed its first test, even before it is signed by Gov. Ralph Northam.

Moody’s Investors Service reaffirmed the state’s AAA bond rating and stable financial outlook on Wednesday, a day before Northam is expected to sign a pair of budget bills that will boost the state’s financial reserves to allay jitters on Wall Street.

The budgets, one for the current fiscal year that ends June 30 and the other for the next two years beginning July 1, also will expand Virginia’s Medicaid program and pay for the state’s share of the cost with money from a new tax on hospital revenues.

Moody’s said the arrangement will leave Virginia “less exposed to potential future cutbacks in federal Medicaid spending” than most other states.

The decision by Moody’s, one of three national bond-rating agencies that advise investors on their potential risks, represents the first hurdle Virginia has cleared in reassuring Wall Street financial institutions that the state is operating with a structurally balanced budget and ample reserves against future economic risks.

Finance Secretary Aubrey Layne privately relayed Moody’s decision to Northam and said the governor called the report “very positive” for the state.

“Governor Northam is pleased that the passage of a balanced and fiscally prudent budget that expands Medicaid has already affirmed Moody’s confidence in Virginia bonds,” spokesman Brian Coy said in a statement. “He looks forward to continuing to work with the General Assembly and all Virginians to build on this momentum and make our commonwealth work better for every family.”

Virginia is one of 12 states with AAA ratings from all three national agencies for the bonds it sells to investors for a wide variety of state capital projects, from a new General Assembly Building to dormitories and research buildings at public colleges and universities. The AAA rating enables the state to borrow money at lower interest rates, saving public tax dollars over the life of the bonds.

“This is not just academic stuff,” Layne said. “The rating is very serious to our citizens.”

Protecting the AAA rating has been a top priority for state officials and legislative budget leaders since S&P Global Ratings downgraded Virginia’s financial outlook from stable to negative in April 2017. S&P has not yet reacted publicly to the General Assembly’s adoption of a new budget, which Northam will sign on Thursday in a ceremony on the South Portico of the Capitol.

The General Assembly adopted the budget May 30 after seven weeks in a special session that Northam called after the legislature adjourned its regular 60-day session March 10 without a budget because of a political impasse over Medicaid expansion. The new budget represents a compromise that House Appropriations Chairman Chris Jones, R-Suffolk, and Senate Finance Co-Chairman Emmett Hanger, R-Augusta, negotiated in order to win approval in a sharply divided Senate.

“I am very pleased that Moody’s has reaffirmed Virginia’s bond rating,” Jones said Wednesday. “I believe their actions are reflective of the General Assembly’s commitment to build up our cash reserves, make investments in education and meet the needs of Virginia business through workforce development.”

Senate Majority Leader Tommy Norment, R-James City, said via text message that the Moody’s report was “no surprise to me. I repeatedly said during the session the threat of losing AAA was demagoguery and false assertion to try to scare legislators into voting for expansion. Complete poppycock.”

S&P downgraded the state’s financial outlook last year while reaffirming its AAA rating because of concern over Virginia’s depleted Revenue Stabilization Fund — also called its rainy day fund. Withdrawals from the fund to balance the current budget lowered the reserve to $281.7 million, or about 1.4 percent of state general funds. That level is the lowest among the 14 states that S&P rates AAA.

Similarly, Moody’s previously had cited low reserves “as a factor that could lead to a downgrade,” Public Resources Advisory Group, an outside state consultant, said in a report shared with legislators last month.

The pending budget appropriates an additional $90 million for the cash reserve, on top of the $156.4 million already pledged from excess revenues carried over from the fiscal year that ended June 30.

However, Layne said a surge in income tax payments after President Donald Trump signed the Tax Cuts and Jobs Act on Dec. 22 could produce additional revenues of more than $500 million in one-time payments of income taxes not withheld from paychecks, such as those paid on capital gains.

The budget projects the combined revenues held in the new cash reserve and the rainy day fund could exceed $976 million at the end of the biennium in mid-2020. That would represent about 5 percent of the state’s general fund revenues.

mmartz@timesdispatch.com

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Virginia budget includes $350 million for Norfolk port-deepening project

Virginia budget includes $350 million for Norfolk port-deepening project

Posted by on Jun 6, 2018 in News | 0 comments

BY GORDON RAGO The Virginian-Pilot, June 5, 2018

In a race for the largest and deepest East Coast port, Virginia is about to leap ahead.

The budget about to be signed by Gov. Ralph Northam includes $350 million to kick-start a major dredging project in the shipping channel. If the project goes forward, shipping channels in the port of Hampton Roads will go from 50 feet to 55 feet in some places, surpassing Los Angeles, the busiest port in the nation.

The dredging project, headed up by the U.S. Army Corps of Engineers, will also widen shipping channels in Hampton Roads up to 1,400 feet.

The push to dredge is fueled by ultra-large container vessels more frequently criss-crossing the world, and the ability of ports along the East Coast like Virginia, Charleston and Savannah to accommodate them. Charleston is in the middle of a deepening project, and Savannah is pushing for the same.

“The port has always been an economic engine for the commonwealth, not just Hampton Roads,” said Del. Chris Jones, R-Suffolk, chairman of the Virginia House Appropriations Committee.

Currently, the Coast Guard temporarily closes shipping channels in Norfolk when an ultra-large vessel passes through, sometimes for hours, because the channels aren’t deep or wide enough to allow for two-way traffic.

The money in the budget includes $20 million for design, while the remainder would be in state bonds the Port of Virginia could use as the project progresses. Dredging would take place in a channel ships use to come into the port, as well as channels closer to shipping terminals in Norfolk and Newport News.

There are still hurdles to clear. The Corps of Engineers will pass its final report up the chain for review and, if all goes well, the project would be included in a report to Congress for review and authorization of funds.

State officials see the project as keeping Norfolk competitive, especially since a 2016 expansion of the Panama Canal.

A Northam spokeswoman said the expansion would increase the port’s capacity by 40 percent or, put another way, 1 million more containers.

Gordon Rago, 757-446-2601, gordon.rago@pilotonline.com

 

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Virginia set to expand Medicaid as Senate and House back budget deal

Virginia set to expand Medicaid as Senate and House back budget deal

Posted by on May 31, 2018 in News | 0 comments

BY MICHAEL MARTZ Richmond Times Dispatch May 30, 2018

Six years after the U.S. Supreme Court left the decision to states on whether to expand their Medicaid programs under the Affordable Care Act, Virginia is about to extend health care coverage to hundreds of thousands of Virginians without it.

Gov. Ralph Northam has left no doubt he will sign a pair of budget bills that will begin a two-phased process of receiving federal approval to expand Medicaid in Virginia on Jan. 1, relying on billions of dollars in long-available federal funds and a pair of taxes on hospital revenues to pay for it.

The decisive vote came in the Senate just after 7 p.m. on Wednesday, when a bitterly divided chamber voted 23-17 to adopt a two-year budget that includes Medicaid expansion. Earlier in a grueling six-hour debate, the Senate adopted a revised budget for the current fiscal year that ends June 30, by the same margin, that directs the state to move forward on expansion.

A little more than an hour later, the House of Delegates adopted identical budget bills embodying a compromise negotiated by House Appropriations Chairman Chris Jones, R-Suffolk, and Senate Finance Co-Chairman Emmett Hanger, R-Augusta, to resolve an impasse that had left Virginia without a budget for the next biennium when the General Assembly adjourned its regular session on March 10.

“It’s not about the House. It’s not about the Senate. It’s about Virginia,” Jones said on the House floor. “And the 8.3 million people we represent.”

The victory was especially hard-fought for Hanger, a moderate Republican from the Shenandoah Valley who had been thwarted by fellow Republicans from expanding health coverage in 2014. This year, he had to overcome fierce opposition from Senate Republicans led by Majority Leader Tommy Norment, R-James City, who bitterly denounced the outcome and the backdoor negotiations with the House that produced it as “a degradation of the customs, usage and traditions of the Senate.”

Norment issued a statement saying the legislature had approved a budget “that abandons Virginia’s long-standing reputation for fiscal responsibility” and “marks a stark departure, both from the conservative fiscal policies observed by the commonwealth for generations and in the manner in which it was approved by the General Assembly.”

Hanger called Norment’s remarks “unfounded,” and Sen. Janet Howell, D-Fairfax, said the budget deal was necessary after the legislature failed to adopt a budget in March and the Senate Finance Committee didn’t propose its own amendments until seven weeks after the assembly convened in special session.

“Something had to happen,” Howell said. “You can’t just stand around and wait until we go over the cliff.”

In the end, three other Republican senators — Frank Wagner of Virginia Beach, Ben Chafin of Russell County and Jill Vogel of Fauquier County — joined Hanger and the Senate’s 19 Democrats in adopting the pair of budget bills to end a standoff that has been watched closely by national bond-rating agencies and institutional investors who hold the state’s AAA-rated bonds.

“We should be in much better position with our bond-rating agencies now,” Hanger said after the vote.

While Norment and other Republican opponents denounced the budget bills as anything but conservative, Wagner defended his decision to vote for them as a way to gain concessions that would allow the state to seek federal waivers that would impose work and other requirements on Medicaid recipients and fashion ways to lower commercial insurance premiums for middle-class Virginians.

“It’s a helluva lot more conservative than it was initially,” Wagner said after the vote.

House Speaker Kirk Cox, R-Colonial Heights, also defended his decision to support Medicaid expansion after almost five years of opposing it and after House elections last fall that almost cost the GOP its majority.

Cox said the budget “includes what I consider the most conservative set of reforms to Medicaid in the nation as part of a plan to expand health care coverage to working Virginians,” but Senate Republican opponents scoffed at the proposed work requirement and other reforms, while predicting future tax increases to pay for the expanded health care entitlement.

“In the 17 years I’ve been here, this is the one budget that scares me to death,” said Sen. Bill Carrico, R-Grayson.

His seatmate, Sen. Bill Stanley, R-Franklin County, denounced the budget as “a ticking time bomb” and a “$1.2 billion bailout to our hospitals.” Private hospitals would receive an estimated net benefit of about $880 million over the next two years from a pair of provider assessments that raise money for the state’s share of expansion and an increase in reimbursement rates for treating Medicaid patients.

Stanley also contended the state would not be able to reverse course and take back benefits for new recipients if the federal government reduces its share of the funding. “Once you ring this bell, you cannot unring this bell,” he said.

But Chafin and Vogel defended their decisions as necessary to invest in core public services, while expanding health coverage to people who need it and the hospitals that provide it.

“I came to the conclusion that ‘no’ just wasn’t an answer anymore,” he said.

Like Chafin, Vogel said she has opposed Medicaid expansion in the past, but supports the budget proposal because of the reforms it includes, as well as funding for her priorities.

“There’s a lot more in this budget than just Medicaid expansion,” she said.

For Democrats, victory was sweet after years of disappointments. “I can’t say enough good things about Emmett Hanger,” Minority Leader Dick Saslaw, D-Fairfax, said at a news conference of Democrats who applauded and replied, “Yes!”

“And also, Frank Wagner. It took a lot of guts,” Saslaw said.

Before the Senate could act on the budget bills that Hanger negotiated with Jones and Northam, the Senate first had to reject a package of amendments proposed by Norment and adopted in a tense Finance Committee meeting on Tuesday. The package embodied the budgets the Senate had adopted in February without Medicaid expansion or hospital assessments, with additional money from higher tax collections and spending on pay increases for public employees.

The Senate voted 22-18 to reject the committee amendments, with Vogel supporting them.

Hanger then fought off a series of amendments proposed to his substitute bills, including two by Sen. Steve Newman, R-Bedford, to the budget for the current fiscal year in an attempt to require approval of the federal waiver before the program could expand and to make the proposed work requirement more stringent.

The Senate then considered and rejected 18 amendments proposed to the biennial budget, including three Newman offered to put in further safeguards in case the federal government reduces state Medicaid funding or the state’s program takes up too much of the state general fund budget.

Hanger blocked each amendment in order to preserve his agreement with the House and governor and avoid amendments that could require a conference committee to reconcile the House and Senate budgets.

“We’ve got a responsibility in this chamber to get this right,” Newman complained, adding, “I don’t care about the agreement with the House. I don’t care about the agreement with the governor.”

In the end, however, the adoption of the budgets without amendments in both chambers cleared the way for quick action by Northam, who told reporters the legislature’s action was “a proud day for Virginia.”

“This is a budget that I really am proud of,” the governor said. “I think it’s good for all Virginians. It’s structurally sound. It expands health care in the commonwealth of Virginia and it protects our triple A bond rating.”

mmartz@timesdispatch.com

(804) 649-6964

Staff writers Graham Moomaw and Patrick Wilson contributed to this report

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