The Senate Finance and Appropriations, House Appropriations, and House Finance Committees

Governor Youngkin’s Fiscal Assessment 

Governor Glenn Youngkin presented his assessment of Virginia’s fiscal position to the Joint Money Committee, identifying four key points about the Commonwealth’s financial standing: 

• Financial Position: Virginia has generated $10 billion in excess revenue through consecutive surpluses, with a $4.7 billion rainy day fund balance at FY 2025 year-end. 
• FY 2026 Outlook: The state has a $1.7 billion cash cushion heading into FY 2026, combining FY 2025 outperformance with carry-over balances. FY 2026 forecasted revenue requires only 0.4% growth ($127 million) over FY 2025 results to meet plan. 
• Economic Development Metrics: The administration reports $125 billion in capital commitments over 3.5 years, with 265,000 new jobs created and approximately 250,000 unfilled positions currently available statewide. 
• Federal Impact Assessment: While some federal concerns have diminished, workforce reduction impacts remain under evaluation, with the administration noting the availability of unfilled positions to potentially absorb displaced workers. 

Financial Performance Data

• FY 2025 revenues exceeded original expectations by $2.7 billion ($572 million above spring reforecast) 

• General fund revenues grew 6% year-over-year in FY 2025 

• July 2025 revenues grew 7.3% year-over-year, exceeding projections by $145 million 

• Virginia maintained AAA credit rating while Maryland and DC received downgrades 

Federal Funding Status

• $2.5 billion in federal programs and grants were paused at various points 

• $2.1 billion has been restored through negotiations 

• Of the remaining $420 million, approximately $300 million was expiring COVID funding 

• Virginia positioned to receive $500 million to $1 billion in rural healthcare transformation funds 

Secretary of Finance Fiscal Perspective 

Secretary Stephen Cummings’ presentation aligned with the administration’s fiscal assessment while acknowledging ongoing federal uncertainties. The Secretary’s office is actively tracking federal grant cancellations and their impacts on state agencies, with 24 federal grants to Virginia agencies paused totaling $461 million as of June 2025. 

Emergency Committee on the Impacts of Federal Workforce and Funding Reductions

The bipartisan Emergency Committee established February 4, 2025, by Speaker Don Scott, provided detailed analysis of federal impacts on Virginia’s economy and workforce. 

Virginia’s Federal Dependency

• Approximately 24% of Virginia’s economy relies on federal spending 

• Virginia ranks #1 among states in federal contract spending per capita 

• In 2023, the federal government spent $109 billion with Virginia employers through DOD and VA contracts 

H.R. 1 (Reconciliation Bill) Major Policy Changes 

SNAP Program Impacts

• New state matching requirement based on error rates starting October 2027: $270 million potential cost in FY 2028 (current error rate: 11.5%) 

• 25% increase in state administrative cost share starting October 2026: $90 million in FY 2027 

• Expanded work requirements for participants aged 18-64 effective immediately 

• Reduced eligibility for lawfully present individuals (refugees, asylum seekers) 

Medicaid Changes

• Eligibility redeterminations every 6 months for expansion population (January 2027) 

• Work/education requirements of 80 hours monthly for expansion population (December 2026) 

• Hospital provider tax reduction from 6% to 3.5% over five years 

• Medicaid payment reductions of 10% annually until reaching Medicare rates 

Healthcare Coverage Gap

• Enhanced premium tax credits not extended in H.R. 1 

• Set to expire December 31, 2025 

• $250 million state cost to maintain equivalent coverage support 

Higher Education Impacts

• PELL eligibility restrictions for students with Student Aid Index ≥ $14,000 

• Federal student loan lifetime cap of $257,500 

• Elimination of GRAD Plus program 

• New accountability measures tied to earnings premiums (2028-2029) 

Employment and Economic Indicators

Current Employment Status

• Virginia unemployment rate: 3.5% (projected to reach 3.9%) 

• 8,400 jobs lost between May-June 2025 (ranking 40th among states) 

• Labor force participation declined from 65.8% to 65% (January-June 2025) 

• 1,410 federal workers filed for unemployment insurance as of July 26, 2025 

• 2,114 Virginians from top 100 federal contractors filed unemployment claims 

Projected Federal Job Losses (Weldon Cooper Center estimates)

• 171,600 federal layoffs estimated nationally 

• 162,300 additional positions planned for elimination 

• 11,100 Virginia federal civilian jobs already impacted 

• 10,500 additional Virginia positions at risk 

• Defense Department reductions pose greatest threat to Virginia workforce 

Economic Projections

• Weldon Cooper Center predicts 32,000 total job losses in Virginia in 2025 

• Additional losses expected first half of 2026 

• Recovery anticipated in second half of 2026 

Specific Grant Cancellations/Eliminations

• Infrastructure: $24.2 million (Portsmouth Lake Meade Dam), $12 million (Richmond water treatment) 

• Environmental: $20 million (Hampton Aberdeen Gardens district) 

• Education: Virginia Humanities 20% budget cut, $600 million nationally in teacher pipeline programs 

• State Agencies: 24 federal grants paused totaling $461 million 

Committee Recommendations and Actions

Immediate Support Measures 

Housing Security

• Allow early lease termination for laid-off workers 

• $10 million for Virginia Eviction Reduction Program 

• Consider rental/mortgage assistance programs 

Unemployment Insurance

• Extend benefits to 26 weeks 

• Increase maximum weekly benefit levels 

• Reemployment bonuses for Virginia job acceptance 

Workforce Development

• Expand NOVAnext program statewide 

• Employer incentives for hiring former federal employees 

• Scale talent retention strategies 

Data and Monitoring Requirements

• Direct Department of Planning and Budget to track all federal grant changes 

• Monitor FY 2026 federal appropriations process 

• Assess H.R. 1 implementation impacts 

• Evaluate economic conditions for revenue implications 

Fiscal Considerations

• SNAP cost-share obligations are mandatory, not optional 

• State reserves (Rainy Day Fund, Revenue Reserve) available for one-time costs only 

• Prioritization essential given limited state budget elasticity 

• Additional mandatory spending required for K-12 education and Medicaid 

• Revenue enhancement options to be evaluated by House Finance Committee 

Key Findings and Outlook 

The Joint Money Committee presentations revealed a state facing both fiscal strength and significant challenges: 

Current Strengths

• Record revenue collections and substantial reserves 

• Strong balance sheet and AAA credit rating 

• Significant business investment commitments 

Immediate Challenges

• Rising unemployment and slowing job growth 

• Federal workforce reductions impacting Virginia disproportionately 

• Mandatory SNAP and Medicaid cost increases 

• Loss of enhanced healthcare premium tax credits 

Uncertainty Factors

• Full scope of federal layoffs remains unclear (clearer picture expected Fall 2025) 

• FY 2026 federal appropriations process ongoing 

• Tariff policy impacts on economy unknown 

• No clear federal support mechanism for state/local government responses 

The committee emphasized that impacts will unfold over multiple budget cycles, requiring sustained monitoring and flexible response strategies. Unlike previous economic downturns, federal support for state and local responses remains uncertain, making prudent fiscal management and prioritization critical for the upcoming biennium.