- Associated Press - Friday, August 15, 2014

RICHMOND, Va. (AP) - Virginia is facing a larger shortfall in the current two-year state budget than officials had expected. But officials aren’t ready to outline specific cuts.

Gov. Terry McAuliffe told the General Assembly’s finance committees Friday that officials are projecting a revenue shortfall of nearly $2.4 billion over a three-year period.

The state already has taken measures to narrow the budget gap - including budgetary reserves of $846 million and an additional $705 million that could be tapped from the Revenue Stabilization Fund - meaning Virginia must deal with a shortfall of about $882 million in the fiscal 2015 and 2016 budget that began July 1.

Officials said $346 million will have to be found in fiscal year 2015 and $536 million will be needed in fiscal year 2016, which will be done by reprioritizing goals and taking other budget actions.

“The budget shortfall we face will require a series of hard decisions that will test our ability to protect our core priorities and balance our budget,” McAuliffe said in his remarks.

Officials said across-the-board or targeted cuts will be announced in the coming months.

“We stand by the fact that we’ve got to balance our budget,” House Appropriations Chairman S. Chris Jones, R-Suffolk, said following the briefing by McAuliffe. “It’s premature to say anything that we’re going to or not going to do today. … We’ve got to roll up our sleeves up and figure out where the cuts need to come from so we can move forward in a very sensible manner.”

The governor also used the meeting as an opportunity to reiterate the need for Virginia to diversify its economy to be less dependent on federal government-related jobs, which has played a large role in the state’s economy and, in turn, the revenue collections. Virginia experienced a disproportionate hit from federal spending cuts, which reduced military contracts in Virginia by about 20 percent, or $9 billion, between 2011 and 2013.

Virginia ended fiscal 2014 with a $438.5 million shortfall, a 1.6 percent drop from the year before. Those figures were off thanks in large part to lower-than-expected tax revenues from capital gains, which the McAuliffe administration said was due to changes in federal tax policy. Payroll and sales tax revenues were also below forecasts, which the administration said was largely due to cuts in federal government spending.

The Democratic governor and the Republican-controlled General Assembly had a months’ long showdown earlier this year over whether the state budget should include expanding Medicaid eligibility. The Affordable Care Act allows states to expand Medicaid eligibility to able-bodied, low-income adults. The bulk of the cost of the expanded coverage would be paid for by the federal government, and McAuliffe has argued that the state cannot afford to forgo that money, which he has said would total more than $5 million per day.

Republicans have countered that they don’t believe the federal government can fulfill its promise of future Medicaid payments and say Virginia can’t afford to expand an already costly entitlement program. GOP lawmakers successfully passed a budget without Medicaid expansion earlier this year.

McAuliffe said that he’s scheduled to receive a plan from Secretary of Health and Human Resources Bill Hazel by Sept. 1 before announcing what action’s he will take to expand health care options for Virginians.

Conservative group Americans for Prosperity used Friday’s budget announcement as an occasion to warn the governor not to try and expand Medicaid on his own without General Assembly approval.

“Medicaid expansion could push the state even further into the red and jeopardize funding for other important government services, force the state to raise taxes, or both,” Americans for Prosperity state director Sean Lansing said in a written statement.

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