Last week brought Virginia good and bad financial news

The week before last, the House of Delegates passed its amendment to the biennial budget, but was missing two key pieces of information: how January revenue numbers would impact the budget shortfall and how much money Virginia would gain as a result of the federal stimulus bill. Some of that information has now come to light, and it contains both good and bad news.

First, the bad news. Last week, the governor presented revised revenue forecasts based on actual January revenue collections. Unfortunately, the current and deepening recession has led to a sharp decline in state revenue. Sales tax collections for the holiday season declined 8.8 percent, the largest recorded drop ever in Virginia. As we've lost jobs, payroll withholding of state income taxes declined 16 percent in the last half of January. Estimated income tax payments for December and January declined 20.3 percent. As a result, projected revenue for the next two years has declined by an additional $821.5 million, bringing the total budget shortfall to $3.7 billion.

Now for the good news. The passage of the American Recovery and Reinvestment Act of 2009 will provide Virginia with additional resources to offset general fund revenue declines. While many of the details are yet to be ironed out on how some of the funds will be distributed to Virginia, initial estimates are that Virginia could receive up to $4 billion over two years.

Two specific components of the act -- Medicaid reimbursement and the flexible component of the Fiscal Stabilization Fund -- can be readily determined for fiscal years 2009 and 2010 and incorporated into the budget today. Those components will bring Virginia slightly more than $1 billion in revenue, more than offsetting the additional revenue decline.

The stimulus bill changes the fundingmatch ratio for Medicaid funding. Currently, Medicaid funding is split 50-50 between the federal government and Virginia. The stimulus bill increases the federal funding ratio to 56.2 percent through December 2010. As a result, we have an additional $808.2 million of Medicaid funding for the biennium.

The bill also creates a State Fiscal Stabilization Fund, divided into two parts. The largest portion is directed to education services, and will require additional time for the U.S. Department of Education to develop rules to govern the program and for states to determine how to appropriate these funds. The second portion is a flexible fund designed to help states meet critical general fund needs. Virginia will receive $216 million over the biennium, which can be used to offset the January revenue reductions.

Other components of the bill will increase funding to Virginia and its localities and provide economic benefits to Virginia citizens. These include:

It will take anywhere from a week to a few months to determine funding levels and specific requirements of these provisions of the stimulus bill. Thus, we will likely not be able to reflect all of them in the budget before we adjourn on Feb. 28. The governor and the General Assembly's leadership have committed to work together to implement the different funding and requirements as they become known, so the money can be put into Virginia's economy as soon as possible.

Whether you supported the stimulus bill or not, the fact remains that it comes at a critical time for Virginia. While Virginia is better off than most other states, our already battered economy has taken even more hits with the significant loss of jobs since December. With these job losses, demand for such services as unemployment benefits and Medicaid will only increase.

The influx of federal stimulus money will allow us to better meet these demands, as well as the education, public safety, health care, and transportation needs of our citizens, without increasing taxes.

Things will likely get worse before they get better. However, the stimulus bill -- on top of the limited investments Virginia can make -- should help begin the long road to economic recovery.

Jennifer McClellan is a Democrat who represents Virginia's 71st House of Delegates District, which includes parts of Henrico and Richmond. She may be contacted at or (804) 698-1071, and she has a newsletter available at http://www.jennifermcclellan.com.