BUDGET SURPLUS
For now, as we prepare, we have good news and bad news. From a budgetary standpoint, the good news is first: we have about a $2.2 billion one-time surplus that will be available in the next session. While that is good news, one-time surpluses can be risky when making decisions about how to use the additional revenue. It is irresponsible to build ongoing spending or permanent tax cuts upon a one-time surplus. There is no guarantee we will see a surplus of any kind in 2026, and there are plenty of warning signs that there will be challenges in the years ahead. At the same time, there is a continuing need to invest in various services.
For example, we are still trying to address the Joint Legislative Audit and Review Commission (JLARC) report from a few years ago that showed a massive underfunding of K-12 education in Virginia. In order to make our school system the best in the country and give our children the best opportunity to succeed, we must invest in public education. We have been ramping up investments over the past couple of years, and we have a work group that is trying to develop a new funding formula for education. As you can imagine, there are various interests that are pulling and tugging at that process.
In my view, the best option is to use the budget surplus in four ways. First, we could accommodate what is certain to be a demand by the Governor to provide tax relief. I anticipate he will propose some form of permanent tax cut. I would suggest the one-time surplus calls for, at most, some type of targeted one-time relief, such as a rebate. The second option would be to provide grants to localities for school construction. A third option would be to enhance public employment. This could come as one-time bonuses to state employees or an enhanced investment in the Virginia Retirement System to provide more of an incentive for people to work for the state. A fourth option is to invest cash into capital projects. JLARC advised us a couple of months ago that the longevity of at least two of our public institutions or higher learning – the University of Mary Washington and Virginia State University – is threatened by crumbling infrastructure. We could utilize part of the surplus to invest in the infrastructure at both institutions. We could also take this as an opportunity to catch up on some of our investments at Norfolk State University and Virginia State University – Virginia’s two public historically black colleges and universities. Despite additional funding per student, the historic underfunding of our public HBCUs is most evident in the infrastructure. While we have made progress in recent years on the backlog of needs, we could step up our game by making enhanced investments with this surplus.
MEDICAID
 This has been the year of energy policy. In addition to serving on the Commission for Electric Utility Regulation, I chaired the subcommittee focused on solar permitting and siting. The bad news of the budget cycle is that we have about $632 million shortfall in Medicaid spending that is attributable to a long list of factors. While I will highlight a few, generally the issue is that more people remain enrolled in Medicaid, people are using more healthcare, and costs are higher. One unexpected driver is that Indian Health Clinics have made services available to some individuals who are not members of those tribes, and general fund dollars will have to cover those costs. A second issue is that the number of enrollees post-pandemic has not decreased as quickly as anticipated. During the pandemic, states were not allowed to redetermine eligibility for Medicaid recipients. Once the pandemic was over, the state had to then set up a process – called the unwinding – to determine the eligibility of every Medicaid recipient. This process – and the resulting decline in enrollment – has taken longer than we anticipated, and 35,000 people, some of whom may not be eligible, are still awaiting redetermination. So, a chunk of the shortfall is a carryover from the last fiscal year to cover those costs, including for some who ultimately were ineligible. Some of the other cost drivers included increased reimbursement rates and Medicare premiums, additional DD waiver slots, the cost of weight loss drugs, and overutilization of emergency rooms.
Medicaid continues to grow as a proportion of our overall state budget, so we must be vigilant about reviewing the program and how it meets the needs of Virginians. There have been many of us – me included – who have worked hard to increase Medicaid funding in the past. My sense is that the more people we have insured, the healthier workforce and population we will have, which benefits all of us. It is also important to remember that the aged and disabled population only make up about 25% of enrollment in Medicaid, but they account for around 70% of expenditures. The growth in Medicaid and the increased needs of Virginians are not going away. In fact, we will have additional Medicaid shortfalls to resolve as early as 2027. This is one of the biggest reasons we shouldn’t be too excited about a $2.2 billion surplus. It is also why we cannot simply provide a huge refund to taxpayers.
We are in the midst of the holiday season, and I trust that everyone will have a healthy and enjoyable time and will end the year on a good note. I know many people are disappointed by the presidential election. I am too. But I know there is no such thing as a permanent election. There will always be another one. In Virginia, we must get ready because 2025 brings election campaigns for all 100 seats in the House of Delegates and our statewide races for Governor, Lieutenant Governor, and Attorney General. I realize we just wrapped up a big election and that people are exhausted, but we have to be ready.
Thank you for allowing me to serve you in the Senate of Virginia. If I can be of assistance or answer any questions, please contact us at senatordeeds@senate.virginia.gov or (434) 296-5491.
Best,
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