Gov. Ralph Northam will propose to delay a ban on electronic skill games for a year, tax their profits and use the money for a COVID-19 response fund to help small businesses, protect people’s housing and support nursing homes and other health care providers.
Northam’s plan would tax the skill games at 35% of their revenues, after deducting prize money payouts, to generate more than $150 million a year for the new fund.
Northam also will propose to delay an increase in the state minimum wage that the legislature approved this year by four months, to May 1, 2021.
The governor’s plan for skill games would boost thousands of restaurants and other retail businesses that had fought the proposed ban on electronic games they say have been an economic godsend. Such businesses now have shut down or sharply curtailed their service in response to the coronavirus pandemic that has radically changed daily life since the General Assembly adjourned March 12.
“Since they voted to ban the machines, clearly our restaurants have been hit hard,” Clark Mercer, the governor’s chief of staff, said in a media briefing on Sunday on Northam’s proposed actions on the budget and legislation the assembly adopted.
If the state had banned the machines on July 1, as planned, “it’s almost like a double hit right now for restaurants,” Mercer said.
The proposal will go to the General Assembly when it reconvenes on April 22 to consider the governor’s proposed amendments to the budget and legislation passed in the 65-day session.
The minimum wage legislation would raise it from $7.25 to $9 an hour on Jan. 1 and then to $11.25 in 2023, but Mercer said Sunday that the governor would seek to delay its enactment by four months until May 1, 2021.
Del. Jennifer Carroll Foy, D-Prince William, who plans to run for governor next year, faulted Northam’s proposed delay of the minimum wage increase.
“It is true that we are in a period of sacrifice,” she said in a statement. “However, it is fundamentally unfair for us to ask that sacrifice to fall predominantly on those who are keeping our commonwealth working at this time — grocery store workers, home health care workers, and hospital staff — who make minimum wage.”
Northam also proposed to delay enactment of legislation that would let local governments approve collective bargaining for schools and other public employees. The measure also would take effect on May 1, 2021.
The governor’s actions on legislation and the state budget reflect a new reality for policy and politics as Virginia attempts to weather the coronavirus pandemic and near paralysis of the state’s economy caused by the public health emergency.
Northam declared a state of emergency on March 12, the same day the General Assembly adopted a $135 billion two-year budget that includes about $2 billion in new spending that the governor has proposed to suspend until the twin crises abate and the legislature is able to convene later this year to consider a new revenue forecast.
Republicans in the House of Delegates, reduced to a minority for the first time in more than 20 years, said the governor had done too little to protect the state economy from legislation that they warn will hurt businesses and consumers.
“We are squarely in the middle of an unprecedented health and financial crisis,” House Minority Leader Todd Gilbert, R-Shenandoah, said in a statement on Sunday.
“The hundreds of thousands of Virginians who have filed for unemployment and the businesses that employed them are going to be digging out of this financial hole well past May 1, 2021,” Gilbert said. “The actions taken by the governor fail to provide long-term certainty for Virginia’s businesses and their employees.”
Richmond-area sales tax
Northam did not propose to delay increases in state gas and cigarette taxes approved by the legislature, but he wants to wait on enactment of a 0.7% increase in the sales tax for transportation projects in nine Richmond-area localities included in the Central Virginia Transportation Authority, which will be created July 1. He proposed to delay the regional sales tax increase until Oct. 1 for technical reasons.
The state gas tax will increase by 10 cents a gallon over the next two years and then be tied to the rate of inflation as part of a sweeping transportation funding bill that House Speaker Eileen Filler-Corn, D-Fairfax, and Senate Majority Leader Dick Saslaw, D-Fairfax, sponsored for Northam.
The legislation also will raise regional motor fuels taxes by 7.6 cents per gallon to add money for transportation revenues in the Richmond area and other parts of the state that were not included in regional taxes for Northern Virginia and Hampton Roads in 2013 and the Interstate 81 corridor a year ago.
The budget also still includes a provision to double the state tax on cigarettes from 30 cents to 60 cents a pack to generate money for health care programs.
The governor’s biggest Easter surprise was the one-year reprieve for electronic skill games, which have proliferated in restaurants, convenience stories and truck stops across Virginia. The premise is that they do not violate the state’s ban on games of chance because they require skill to win.
Northam had endorsed legislation, proposed by Del. Lamont Bagby, D-Henrico, to regulate and tax the machines, but the General Assembly instead decided to ban them because of their threat to games the Virginia Lottery operates in retail outlets to help fund K-12 public education.
The assembly also rejected efforts by Sen. Bill Stanley, R-Franklin County, and Del. Israel O’Quinn, R-Washington County, to regulate the machines instead of banning them and use the money to modernize public school facilities across the state.
Separately, Northam proposed an amendment to legislation that legalizes casino gambling in five cities, including Richmond, to reserve money from state taxes on casino revenues for school repairs and modernization.
Ultimately, the state expects to collect about $100 million a year in casino tax revenue, but not until 2024 because of the long lead time necessary to license and build them.
Northam already had signaled a plan to suspend more than $2 billion in new spending in the pending two-year budget, including compensation for state employees and teachers, until the state can effectively reforecast revenues in response to an economy paralyzed by the pandemic.
The plan would suspend almost $900 million in new spending in the first year of the budget, which would take effect July 1, and $1.1 billion in the second. It also would divert about $600 million in planned deposits to the state’s cash reserve fund to preserve financial liquidity in response to the current economic threat.
Secretary of Finance Aubrey Layne estimates the economic crisis will cost Virginia $1 billion in revenues in the current fiscal year, which ends June 30, and at least an additional $1 billion a year in the next two years.
The governor did not propose to cut spending in the budget or attempt to revise the state’s revenue forecast because economic conditions are too uncertain.
“Nobody can measure where we are right now,” Layne said in an interview.
Northam already has frozen state hiring and ordered the elimination of discretionary spending in this fiscal year, while directing executive branch agencies to look for savings in how they operate.
“The hiring freeze certainly will save us some money between now and the fiscal year,” Mercer said.
Northam is awaiting guidance from Congress about the state’s flexibility in spending its share of a $150 billion relief fund for state and local governments as part of the $2.2 trillion CARES Act stimulus package. It was adopted last month and signed by President Donald Trump.
Virginia’s estimated share of the relief fund is $3.3 billion — $1.8 billion for the state and $1.5 billion for local governments — but Congress restricted its use to make up for lost revenues in state and local budgets.