Dear friend: The first full week of the 2012 session is now complete, and the General Assembly is in full throttle. We are racing towards a March 10th scheduled adjournment and have intense work before us if we are to come up with a budget agreement and take the steps necessary to move Virginia's economy forward.

Since July 1, 2012 starts a new budgetary biennium, much of our focus is on the budget. As required by the law, Governor McDonnell introduced his budgetary proposals in December preceding the legislative session. Revenues have grown at a modest rate and are projected to produce about $85 billion in general and nongeneral funds for the state to spend over the next two years, exceeding the roughly $78 billion that was included in the last biennial budget. Several pressures, however, mean this additional revenue will not allow us to restore fully the cuts that have been made over the past six years or create new programs.

Virginia continues to grow as more people choose to make the Commonwealth their home. A growing, vibrant population translates to growth in nearly every school division in the state. More children in the classroom require additional resources to provide every child the tools he or she needs to succeed in the workforce. Growth also puts pressure on our limited social services in the Commonwealth. Already, Virginia has one of the most restrictive Medicaid systems in the country. One could argue, and I think argue successfully, that only the poorest and sickest people qualify for Medicaid in Virginia. Medicaid is a federally mandated program and partially paid for by the federal government to provide health care to pregnant women, children, the disabled and the desperately poor. While the program is federally mandated, states are allowed to develop their own rules and regulations, and our standards are the most restrictive in the land. Nevertheless, we have seen ever increasing numbers of people who qualify for Medicaid because of the economy and our aging population. It is simply impossible to make the standards even more restrictive to limit eligibility without leaving gaping holes in the social safety net.

A third pressure is from the Virginia Retirement System (VRS). VRS needs to serve two functions. First, it is a social compact we have made with state employees. We have an ethical obligation to maintain the trust of those employees who have invested in, and counted on, the retirement system. While VRS is fiscally sound and those who are retired and near retirement have nothing to worry about, over the long term we have about a $20 billion unfunded liability. We must make efforts to restore soundness to the retirement system.

The second function of VRS is to provide an incentive for people to work for the Commonwealth. Our citizens deserve an intelligent, hard-working, and professional workforce. For many years, the retirement system has provided that incentive, in large part because it has been a defined benefit system, one that provides a guaranteed benefit upon retirement. Many argue that a defined benefit program is not sustainable long term without major changes to the way VRS is funded.

Against the backdrop of those three major pressures (and there are others), the Governor introduced his budget and rightfully proposed a major investment in VRS to the tune of $2.2 billion over the next two years. The investment will not restore VRS but will put us on a path towards ensuring its fiscal soundness. The devil, however, is in the details.

To secure $2.2 billion in funding for VRS, the Governor has taken money from programs in the public schools and from health care. He has argued that in the event the federal health care law is upheld in the courts, Medicaid rolls will increase dramatically and state funding will be less significant. In the long haul, he may be right. In the short term, there is a gap of at least six months during which health care facilities, like the free clinics in Charlottesville, Lexington, and Alleghany County, and the health care clinics in Nelson County, Monterey, and Esmont, will suffer significant funding cuts. Those cuts will mean that fewer people in need have access to care, which is unacceptable to me.

A third mechanism the Governor is using to fund VRS is to require local governments to raise more money. Local and state elected officials must have a discussion about how we are going to fund retirement. However, when the state mandates payments from local governments and provides no funding, localities must either cut local programs or raise taxes. There will be significant debate before the budget passes with the Governor's proposals intact.

This week has also seen the uranium issue perhaps come to a head for 2012. The Governor is proposing that his agency heads look at ways to develop a regulatory scheme for mining of uranium in Virginia. While this will give everybody some more breathing room, and more time to digest the multitude of "studies" that have already been conducted in this area, it seems to me that the development of regulations is putting the cart before the horse. The development of a regulatory scheme is technical and will require a significant investment of time and resources. I am uncertain from where the resources will come to do the work.

It is my honor to serve you in the Senate of Virginia. If I can be of service to you, or if you would like to share your thoughts or ask a question, or if you would like to visit Richmond and see the legislature at work, please contact me or Tracy Eppard, my legislative aide, at district25@senate.virginia.gov or (804) 698-7525.

I received a tremendous response to my newsletter last week and appreciate your input.

Best,

Creigh Deeds

creigh@senatordeeds.com

(Electronic mail, January 20, 2012)