The General Assembly is set to vote on Thursday on an approximately $140 billion two-year spending plan amid economic uncertainty caused by the COVID-19 pandemic.
The vote comes a day after stocks plunged nearly 6%, ending an 11-year bull market, and President Donald Trump announced a 30 day ban on Europeans entering the U.S.
Lawmakers built their budget based on economic forecasts from Gov. Ralph Northam’s administration that showed roughly 2% growth in state GDP over the next couple of years.
They want to use the tax windfall from that forecasted growth to pay for things like raises for state employees and school teachers.
But those forecasts, which showed roughly a 4% increase in state revenues for the next two fiscal years, were made before the coronavirus outbreak sent the stock market into a free fall and disrupted trade and travel. There are already signs that the state economy may be taking a hit from COVID-19, with the Port of Virginia reporting on Wednesday that cargo volumes were down 9 percent in February compared to a year ago.
Secretary of Finance Aubrey Layne told VPM that the risk of recession had increased even if it is too early to say if there’ll be broad economic fallout in Virginia. He expressed confidence the state would hit its projections through the end of the fiscal year in June, but said Northam could ask for a new economic forecast in the next few months if current conditions continue.
Layne said the state has built up reserves to pay for essential services, with that total set to reach over $2 billion by July 2022 under the proposed budget.
“I'm very comfortable that we're prepared and we'll adjust accordingly,” Layne said. “And we're in much better shape than we were a couple years ago.”
Virginia has traditionally been somewhat insulated from both peaks and valleys of the economy thanks to a large federal workforce. Still, lawmakers made steep cuts to some state services after the 2008 recession, sparking a renewed interest in building up reserves.
Del. Luke Torian (D-Prince William), who chairs the House Appropriations committee, said it was too soon to say whether the state might have to make cuts to its current plan in response to the virus.
“I can’t say yes and I can’t say no,” he said. “It’s yet to be determined.”
Torian said lawmakers anticipated a downturn as they drafted the budget.
“But we didn’t think that it would come so soon with the coronavirus,” he said.
If lawmakers approve the budget on Thursday, Northam can suggest changes and alterations that the General Assembly will take up at their reconvened session on April 22.
