Hanger, Jones agree on budget compromise to expand Medicaid in Va., boost reserves and provide raises for teachers, state employees

The stage is set for a showdown in the Virginia Senate on Tuesday over a budget compromise negotiated by Senate Finance Co-Chairman Emmett Hanger, R-Augusta, and House Appropriations Chairman Chris Jones, R-Suffolk, to expand the state’s Medicaid program and pay for the state’s share through a new tax on hospital revenues that also would boost Medicaid payments for inpatient provider care.

The proposal, hammered out over almost a week of negotiations between Hanger and Jones, also would bank an expected $500 million revenue windfall to boost Virginia’s reserve funds to almost $1 billion. It also would provide for a 3 percent teacher pay raise and up to 4 percent (2 percent across the board and 2 percent merit pay) in salary increases for state employees in mid-2019 if the revenues are adequate at the end of this year.

The proposal also would provide targeted raises to direct-care staff in state mental hospitals and other behavioral health facilities, while boosting pay for sheriff’s deputies and officers in corrections, juvenile justice and marine police. It also would fund all 435 judgeships allowed by law, including 31 that had been eligible but not funded.

In a letter to Senate colleagues on Monday afternoon, Hanger said the budget proposal embodies much of the work the body did during the regular session that ended on March 10 without an agreement, as well as suggestions made by members of the Finance Committee at a meeting on May 15.

“All in all, you will see this broadly reflects the priorities of the Senate,” he said in the one-page letter, which outlines the top priorities reflected in the agreement, such as increased new spending on behavioral health and public education.

Hanger still must overcome a major hurdle in the Senate. Majority Leader Tommy Norment, R-James City, leads a Republican majority that opposes expanding Virginia’s Medicaid program with billions of dollars in federal money available to the state under the Affordable Care Act. It would provide health coverage for hundreds of thousands of uninsured Virginians.

Senate returns Tuesday

Norment also serves as co-chairman of Senate Finance, which has yet to propose its own version of the state budget or schedule a time to meet on Tuesday afternoon. The full Senate convenes at 3:30 in a special session that began on April 11 but stalled while Republican senators waited for updated information on state revenues.

Hanger appears to have enough votes in the full Senate to approve Medicaid expansion, but not in the Finance Committee. Minority Leader Dick Saslaw, D-Fairfax, told reporters last week that he’s prepared to move to discharge the committee so the Senate could consider the proposals as a committee of the whole.

That’s not the preference of Hanger, who wants the committee to pass its own version of the budget that he can seek to amend on the floor.

In an interview on Monday morning, he called the rarely used committee discharge “a last resort.” However, Hanger added, “I will use whatever parliamentary maneuver is permissible, but we can’t let it linger in committee.”

The House Appropriations Committee will meet at 8:30 a.m. Wednesday, followed by the full House of Delegates at noon to consider whatever the Senate approves. Jones sent a letter to House members with proposed budget amendments.

“Our efforts were motivated by the unique circumstances we all face and the need to complete a budget in a timely manner,” Jones told delegates.

The compromise is aimed at winning approval in both the Senate and House so that the budgets — one for the current fiscal year and another for the biennium — can go directly to Gov. Ralph Northam for his signature.

“After many productive conversations over the past few weeks, Governor Northam is encouraged by the progress leaders in the House and Senate are making on a budget that expands health care to people who need it and invests in the fundamentals of a healthy economy,” spokesman Brian Coy said. “The people of Virginia have waited long enough. The General Assembly should pass a budget this week.”

Health care

The budget proposal embodies both the House plan to expand Medicaid on Jan. 1, using a provider assessment on hospitals to pay the state’s share of up to 10 percent of the cost, and Senate priorities for health care spending, particularly in behavioral health.

“The theme is people and health care,” Jones said in an interview.

The proposal includes almost $192 million in new spending on Virginia’s struggling behavioral health system, both for people with mental illness and addictions, and also for those with intellectual and developmental disabilities who otherwise would require institutional care.

The proposed budget would accelerate funding of the STEP-VA plan the General Assembly adopted last year to require uniform care of people with mental illness and substance abuse disorders in communities across Virginia. It also would invest money to relieve pressure on overcrowded state mental hospitals by expanding housing and treatment options outside of the institutions.

It would include money for Senate priorities such as a statewide system of alternative transportation of people for involuntary evaluation in psychiatric crises instead of relying on overburdened law enforcement agencies. Also included would be pilot programs for getting mentally ill people out of local and regional jails, and expansion of legislative oversight of Medicaid and other health and human resources programs.

The plan would provide almost $61 million to fund state compliance with a U.S. Department of Justice consent agreement to move intellectually and developmentally disabled Virginians out of institutional care by adding almost 1,400 Medicaid waiver slots to pay for care in communities.

It also includes $5 million to serve 326 people currently on the state’s priority-one waiting list for waiver services, a priority of a health care package the Senate approved over the winter but lacked money to fund.

“I’m really pleased with what we put in there, particularly for behavioral health,” Hanger said.

Hanger had opposed the imposition of a provider assessment, or tax on hospital revenues, to help pay for Medicaid expansion, even though most of his Republican colleagues in the Senate supported the idea for the $273 million health care package it ultimately didn’t fund.

Financial reserve

However, Hanger said Monday that he is confident that the proposed budget will boost Virginia’s financial reserves significantly to give the state a cushion in case President Donald Trump and the Republican-controlled Congress accomplish what they failed to do a year ago — repeal the Affordable Care Act.

The budget plan assumes the state will receive an additional $500 million in revenues at the end of the fiscal year on June 30. It doesn’t propose to spend the savings because of uncertainty over the amount of income tax money the state may have to refund in the autumn after big taxpayers file their returns and the effects of sweeping new federal tax changes become clearer.

Instead, Hanger and Jones propose to carry additional revenue into the biennium that begins July 1, with the rest deposited into the constitutional revenue stabilization, or “rainy day,” fund; a new cash reserve; and a constitutionally established revolving fund for water quality improvements.

They estimate the plan would boost the rainy day fund to $474.3 million and the cash reserve to $502 million, which together would represent about 5 percent of general fund revenues and address concerns that national bond-rating agencies raised about Virginia’s low reserve levels relative to other states with triple-A ratings.

“It was a fortuitous opportunity with the additional revenues, but we’ve taken a conservative approach to using them,” Jones said.

Hospital taxes

Hanger also wants money raised by a provider tax to go back into “the health care delivery system,” so the proposed budget would invest revenues generated by two provider assessments into “lockboxes” in the state treasury to ensure the money isn’t spent elsewhere.

One assessment would raise about $306 million for the state’s share of Medicaid expansion costs, which would increase from 7 percent next year to 10 percent in 2020 and thereafter under the federal law. The other would raise about $284 million that would be used to increase Medicaid reimbursement rates for hospitals and their physician groups from 71 percent to 88 percent of their costs.

Sean T. Connaughton, president and CEO of the Virginia Hospital & Healthcare Association, called the compromise “an important step forward on increasing health care access for thousands of Virginians working hard to make a better life for themselves and their families.”

Those assessments allow the state to reallocate money that had been spent on health care using either general fund dollars from taxpayers or Medicaid services that relied on the federal government to pay half of the cost instead of no less than 90 percent under the Affordable Care Act.

The proposed budget would reinvest those savings in priorities such as health care, and K-12 and higher education, including an ambitious House plan for a Virginia Tech-led CyberX research initiative in Northern Virginia that the compromise would scale back from $40 million to $20 million, with an additional $5 million in bonds for equipment.

Less for colleges

However, the compromise also would significantly cut funding the House had proposed for colleges and universities, with almost $16 million less for financial aid and $25 million less for general operations.

The cuts reflected actions by a number of institutions, including Virginia Commonwealth University, to raise tuition charges higher than previously announced, House Appropriations Director Robert Vaughn said. “It no longer became necessary to provide that funding.”

The package also includes capital funding of $350 million to dredge Hampton Roads and the South Elizabeth River to boost the Port of Virginia and a new 60-bed juvenile correctional center to replace the much larger youth prison closed last year at Beaumont in Powhatan County.

The compromise specifies that if a second facility is built, it would not be at the site of the current correctional center at Bon Air in Chesterfield County on valuable real estate the state would like to sell.

Hanger and Jones said the budget compromise reflects progress that a budget conference committee made earlier this year before the negotiators reached an impasse over Medicaid expansion and revenues.

“We were much further along in conference than people realized,” Hanger said.

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