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The governor said the state needs to brace for the shutdown and plan for the next budget cycle.
Saturday, October 5, 2013
The same day Gov. Bob McDonnell and state lawmakers met with bond rating firms in New York City, Moody’s Investors Service deemed the federal shutdown a “credit negative” for the local governments close to the D.C. metro area.
In the event of an extended shutdown, Northern Virginia localities could see declining sales tax revenues and potentially less aid from the state if it’s trying to manage its own financial strain.
Moody’s issued its report Thursday, the day state leaders met with that firm as well as Fitch Ratings and Standard and Poor’s.
McDonnell said after the meetings that conversations were “frank and detailed,” and that actions taken at the state level were received “very favorably” by the three firms. He cited the transportation funding plan passed this year and the beefed-up rainy day fund, among other things.
“They know that in Richmond we are doing what we can to keep Virginia on a sound financial footing in a very uncertain fiscal climate,” he said in a statement. “Much of that uncertainty stems from Washington, D.C., and in a state like ours, with such a large federal workforce and footprint, the current shutdown is cause for great concern.”
The McDonnell administration has asked state agencies to report by next Friday on any effect the shutdown will have on programs and staff in their areas.
Meanwhile, the administration is trying to craft a new two-year budget.
State agencies are being asked to identify potential cuts equal to 4 percent of their budgets for the upcoming two-year fiscal plan.
In an Oct. 1 memo to executive branch agency heads, McDonnell’s chief of staff, Martin Kent, laid out the elements that could potentially buffet the state’s finances, from the partial federal government shutdown to Medicaid costs.
“It is our core responsibility as leaders of state government to react and plan accordingly for how the continued federal budget actions or inactions will impact state general fund revenue and thus state-funded programs,” he wrote.
Kent said McDonnell will convene work groups to find “targeted savings strategies” for programs such as higher education, public education and Medicaid.
For all other programs, he wants agency heads to find savings for fiscal year 2014 equivalent to 2 percent of their general fund appropriation. That fiscal year ends June 30, and McDonnell can ask the legislature to make tweaks in the upcoming General Assembly session.
For fiscal years 2015 and 2016, agencies are asked to find savings equal to 4 percent.
McDonnell will present his final, two-year budget before leaving office in January.
Kent says that even though the state posted a surplus for the last fiscal year, much of that money is spoken for, and there are some key upcoming obligations the state must meet.
That includes a rebased budget for the Standards of Quality and other public education programs that could cost more than $350 million in the next biennium, he writes.
“Also, because of the federal government’s actions and just as a matter of experience, we expect to see large increases in general fund cost in the Medicaid program,” he writes.
State agencies have until Oct. 21 to submit their plans. The administration used similar approaches in past years. In 2011 and 2012, Kent asked state agency heads to conduct sweeping reviews of their programs to find potential savings.
McDonnell spokesman Tucker Martin said that while the letter addresses the circumstances of the shutdown, and what it could mean moving forward, that the memo is a routine, annual budget planning request.
“No decisions have been made at all,” he said. “The information garnered simply helps the governor and budget staff as they prepare the commonwealth’s next spending document.”
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