On September 11, the Virgina House of Delegates released an extremely comprehensive report about federal revenue and spending effects on the state and the realignment of federal program responsibilities.

While there are many unknowns and rough estimates still in play, the report provides an outline of what to expect in federal changes as they play out in Virginia over the next several years. 

While the impacts of federal contract cancellations and federal employee layoffs are greater in Virginia and Maryland than in other states, this detailed study of revenue losses and potential new spending commitments will be useful to government officials around the U.S. Although other states have been releasing reports on the impact of federal changes, Virginia’s study is unusual in the number of areas it covers and its detailed look at the complex decisions states and localities will be facing. 

The report was formed through the work of an emergency committee that was charged by the Virginia House of Delegates Speaker Don Scott with “collecting data on the potential scope of workforce and funding cuts” with meetings held between February and August. Over this period, more than 100 Virginians and stakeholder organizations provided testimony.

The report notes that “about 24% of Virginia’s economy relies on federal spending” and describes a situation in which state and local budgets cannot easily supplant reductions in federal support for core government services using state and local revenues. The situation will become even more difficult if revenue collections decline due to increasing unemployment levels.

As the report details, this is just the beginning of continuous monitoring that’s necessary to deal with substantial new funding pressures on the state, its local governments and its residents. As the report states, “this information will be critical to help General Assembly leaders plan and prioritize spending for the upcoming biennium.” While many financial effects of federal realignment are still unknown, the report provides detailed estimated fiscal impacts where it’s possible.

For example, on the topic of Supplemental Nutrition Assistance Program (SNAP), it shows that beginning in Fiscal Year 2027 (which starts July 1, 2026) the increase in the state share of administrative costs (from 50% to 75%) will mean an added $90 million a year for Virginia’s SNAP administration, cost allocation and local administration costs.

In addition, unless Virginia can lower its 11.5% payment error rate, its benefit matching requirement will result in a $270 million annual fiscal impact, starting the following year.

The areas covered in the report, include the actions that are embedded in the budget bill that was signed by President Trump on July 4, but also executive actions that reduce funding, as well as grant withdrawal, tax changes and impact on Virginia local governments, as well as the state itself. 

Among the topics covered are higher education research, student loans, food security, economic development, workforce training, emergency management, K-12 funding, housing, coastal resiliency, the health insurance marketplace, and large cuts to Medicaid, which will be staggered over three years. There is also an array of additional administrative costs, including substantial technology needs.

One section of the report is devoted to cancelled grants, noting that “the federal government has paused about $420 million in grants to Virgina agencies, with $300 million attributed to COVID-19 related grants.” 

One of the clear messages of the report is that a lot of the effects of federal changes are still unknown. While the passage of the budget bill in July clarified some issues, the report emphasizes that there’s a continuing level of uncertainty concerning broad economic and societal effects, workforce restructuring and ongoing spending reductions “as well as the overall implications of decreased government spending and employment for Virginia’s economy.”

The number of changes along with economic uncertainty leave the Virginia General Assembly with a complex task and multiple questions for policy makers about how to cover non-optional funding needs such as an estimated $360 million in cost share and new matching requirements for the Supplemental Nutrition Assistance Program (SNAP) in Virginia’s next biennium, and whether to continue programs on a state level from which the federal government has withdrawn support. 

One of the key points made in the report is that Virginia policymakers’ decision-making depends on having more complete data to deal with decision-makers’ need to prioritize -- a task that will get even tougher if economic conditions worsen. As the report states, “State and local budgets only have but so much elasticity to backfill declining federal revenues when economic conditions are positive. In a scenario where worsening economic revenues start to negatively impact state revenue collections, it will be extremely difficult to offset federal funding losses while at the same time addressing demand for core government services in a high unemployment climate.”

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