Budget sets McDonnell's priorities

Gov. Bob McDonnell on Monday unveiled a two-year, $84.9 billion spending plan that balances increases in transportation, higher education and the state's pension system with $882 million in targeted reductions largely to Medicaid and public education funding.

The proposed budget for July 1, 2012, through June 30, 2014, contains no tax increases but raises certain fees, including $10 million worth from the Department of Motor Vehicles.

The 458-page document, which outlines spending priorities for the last two years of McDonnell's four-year term, plows $2.2 billion into the Virginia Retirement System to shore up state employee and teacher pensions. It provides $100 million a year for higher education and diverts to transportation an additional $110 million in sales tax revenue that previously has been spent on general fund expenditures such as schools and police.

"The budget bill I am presenting today reflects the core priorities of government and our administration," the governor said in his address to a joint meeting of the General Assembly's money committees in Richmond.

"We must solve specific big problems, like a near-broken pension system, an underfunded transportation maintenance system, and a higher education system in which tuitions have more than doubled in the last 10 years."

Critics say the new investments shift more than $1 billion in costs to localities and sacrifice necessary spending on public schools and health care for low-income families.

"It looks like he's passing the buck to localities to make up the difference for inadequate funding in education and the demands to fund the VRS," said Del. David J. Toscano, D-Charlottesville, the House minority leader.

McDonnell carves out about $882 million in his plan — $84 million from cuts at state agencies, which could include up to 200 layoffs and job eliminations.

The bulk of the cuts, $799 million, would come mainly from what the administration termed "targeted savings" in public education and Medicaid.

In public education, McDonnell would save about $282 million by not providing for inflation to the costs of nonpersonnel services, not replacing exhausted stimulus funds that went toward the Standards of Quality, and scrapping the "cost of competing" adjustments made for noninstructional staff in some localities, mainly Northern Virginia.

His budget team finds savings of $81 million in funding for the Virginia Preschool Initiative by using different membership projections than those provided by the state Board of Education, but his staff says it would not eliminate any slots.

Still, the governor's budget allows for $438 million in net new funding for K-12 education over the two years, the bulk of it — $342 million — going toward teacher pensions.

Medicaid sees a $650 million increase in his plan over the biennium. Provider rates will stay the same, but the governor's plan withholds more than $300 million in inflation costs for hospitals, nursing facilities, outpatient rehabilitation facilities and home health providers.

"Given the economic environment, we understand and are grateful that the rates were at least kept flat and we have an opportunity to work on our costs," said Katharine M. Webb, senior vice president of the Virginia Hospital & Healthcare Association.

But, she added, program funding changes have a different impact by hospital, with a greater effect on those that serve a higher Medicaid population.

"Some will be very severely impacted," she said.

McDonnell's transportation funding plan gradually would increase the portion of the state sales tax dedicated to transportation to 0.75 percent from 0.5 percent over the next eight years.

The governor said the first increase could generate an estimated $110 million over the two years.

Democrats predicted a fight over the sales tax shift.

"It troubles me that we're funding transportation with non-general funds," said Del. Mark D. Sickles, D-Fairfax, the chairman of the House Democratic Caucus. "What we're doing is taking money from public safety, the environment, health care and education and spending it on paving roads."

Sen. A. Donald McEachin, D-Henrico, the Senate Democratic Caucus chairman, went a step further: "As long as the governor's sales tax is in the budget," he said, "he's not going to get 21 votes in the Senate."

McDonnell's spending plan also calls for girding the state government against economic downturns or reduced federal funding.

The governor proposed adding $20 million to the Federal Action Contingency Trust Fund. That would be in addition to the $30 million in seed money he proposed allocating from the surplus.

The budget also makes a deposit to the state's rainy-day fund, increasing it by $132 million in 2013 and $168 million in 2014.

During his address, the governor drew a big laugh from the lawmakers when he joked that he didn't think there was a need for any amendments. Now it's the legislature's turn.

The General Assembly convenes Jan. 11. Republican leaders, who control the House of Delegates and half of the seats in the Virginia Senate, appear ready to endorse McDonnell's agenda.

"I wholeheartedly support the reform measures and reprioritizations contained in Governor McDonnell's proposed biennial budget," said House Speaker William J. Howell, R-Stafford.

But lawmakers on both sides of the aisle undoubtedly will make changes.

"That's why we have a General Assembly," said Del. John M. O'Bannon III, R-Henrico.

"The big picture, the vision, I like," O'Bannon said. "I like the idea of long-term stability, financial liquidity and solving big problems. … But we really are going to have to be careful that we don't hurt the health care side of it too much," added O'Bannon, a physician.

McDonnell's proposed budget also would:

restore $25 million previously cut in aid to localities;

eliminate $7.2 million in funding for public broadcasting;

add $30 million to the behavioral health trust fund;

provide $11.7 million in 2013 linked to proposed legislation to stiffen penalties on repeat drug dealers;

spend an additional $40 million on economic development, including $10 million for a new biosciences research consortium to include Virginia Commonwealth University and other schools;