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McDonnell unveils state budget this morning

Gov. Bob McDonnell is unveiling his two-year, $85 billion budget this morning to the General Assembly money committees.

In the budget is more money for state worker retirement, transportation, public education and state colleges.

That funding comes at the cost of almost $900 million in cuts and savings.

McDonnell proposes not to fund inflation increases for Medicaid reimbursements and for public education support services.

Such “targeted savings” will save nearly $800 million total, according to budget documents. That includes about $323 million saved by not budgeting money for inflation increases for Medicaid reimbursements for hospitals, nursing homes and others, and eliminating inflation from public education support services would save another $109 million.

Other targeted savings include $81 million from recalculating the participation rate in Virginia’s pre-kindergarten program; $65 million from eliminating the cost-of-competing adjustment for support positions in public schools (an adjustment mostly used by Northern Virginia school districts); and $7 million by eliminating public broadcasting funding.

McDonnell is also proposing cutting about $84 million through budget reductions at various agencies. Earlier this fall he asked state agencies to submit proposals for cutting their budgets by 2, 4 and 6 percent.

Some of those cuts will result in jobs lost, but major layoffs aren’t expected; apart from jobs lost due to the recent decision to close a prison in Mecklenburg, jobs lost in other areas of the state government should amount to fewer than 100.

Overall, McDonnell’s budget assumes 3.3 percent revenue growth in 2013 and 4.5 percent revenue growth in 2014.

Part of that 2014 growth is expected to come from the federal health care bill. While that bill will increase the state’s costs for people on Medicaid, it will also increase the number of federal dollars coming into the state for the same purpose.

In recent days, McDonnell has rolled out some of the major initiatives of the budget proposal. He wants to devote $2.2 billion to state employee and teacher retirement; about $1 billion of that is expected to come from localities.

He has proposed $200 million in new funding for state colleges and universities, and more than $110 million for transportation needs by dedicating a larger percentage of the state sales tax to transportation.

Today McDonnell is also announcing a net additional $438 million for public K-12 education over the next two years. That money comes with a reform proposal that will require schools to report to the state what percentage of funding they spend on instructional costs; McDonnell wants them to eventually be spending 65 percent of their money on instruction.

He proposes to put more money into the state’s Rainy Day Fund: $132 million in fiscal year 2013, and $168 million in fiscal year 2014. Those payments will double the current size of the fund.

McDonnell also plans to add to a new Federal Action Contingency Fund that he started earlier this year out of concern that federal budget cuts could have a large economic impact in Virginia, where federal contractors and other federal spending are an economic driver. That fund would have $50 million in it by the end of 2014, and be used to make up the loss of federal grants, or to help businesses affected by a loss of federal procurement money.

He is also proposing $40 million more for economic development efforts; $50 million to speed up the phase-out of an accelerated sales tax remittance requirement on retailers; and $30 million in mental health funding for the transition of patients to community-based care.

Legislators will take up McDonnell’s budget proposal when the General Assembly’s 2012 session convenes in January.