Governor Ralph Northam touted record economic investment and Virginia’s growing reserves in an address to the General Assembly’s joint money committees on Tuesday.
But the governor and his administration warned that the good times might not last, with economic headwinds likely to put a dent in the state’s current forecasts for growth.
“As we go into this new budget cycle, we must be cautious and strategic,” Northam said.
The governor used his speech last year to lay out a failed bid to use expected surplus tax revenues to fund low-income tax credits. This year, he steered clear of big policy proposals for the upcoming budget in favor of issues he’s emphasized in the past, including affordable housing, early childhood education, rural broadband, and workforce training, offering few specifics on the plans.
Northam celebrated a $797 million surplus but warned much of that money was likely already spoken for, including to fund a GOP-sponsored tax cut.
Lawmakers will also likely have to spend the next budget addressing rising health care costs under Medicaid, adjusting school funding to account for inflation, and on capital and agency projects that collectively could cost hundreds of millions of dollars.
Northam and his Secretary of Finance, Aubrey Layne, pointed to President Trump’s trade war, cuts to defense spending, and growing consumer debt as causes for economic concern, with employment and wages growing slower than expected in Virginia during the last fiscal year.
Layne told lawmakers the state missed its targets on the money it got from sales and withholding taxes and said that his office would likely cut revenue forecasts for the next fiscal year by an unknown amount.
“I think it’s going to be a fairly difficult cycle,” Layne said. “We’re probably actually going to have less revenues than we thought this year.”
The governor emphasized his administration had presided over $20 billion worth of economic development deals -- more than any of his predecessors over the course of their four year terms. He also boasted of Virginia’s top spot on CNBC’s list of top states for businesses, reignating a debate with Republicans over who deserved credit for that mark.
Republican Senate Majority Leader Tommy Norment (R-James City) was also more measured about the odds of a recession.
“From the senate’s perspective, I don’t know that we have enough data to have a genuine concern about a downturn,” Norment said. “Virginia’s economy is very sound. And while we are impacted to recessionary trends, we’re not in a devastating place like many other states.”
Northam and Republican leadership in the General Assembly took credit for the state’s growing reserves, which are set to hit $1.6 billion by 2021. Del. Chris Jones (R-Suffolk), who chairs the House Appropriations Committee, said that money would cushion the state in a downturn, and called for boosting the reserves even higher in future years.
“We feel comfortable we’re in a good spot--the best spot we’ve been in as far as a recession,” Jones said. “But we don’t really have new money to spend.”
“So it’s business as usual,” Jones said.
