The administration of embattled Gov. Ralph Northam is working closely with Republican leaders in the General Assembly to settle a three-way battle over Virginia tax policy and produce a new state budget, despite the political firestorm that has engulfed the executive branch of government.
Secretary of Finance Aubrey Layne said Wednesday that he is working directly with Northam to assess the budget proposals now before the House of Delegates and Senate, and to seek a compromise on a tax impasse that already is affecting more than a half-million Virginia taxpayers.
Layne, the principal contact between the governor and legislative leaders, also has begun reassuring national bond rating agencies that Virginia’s budget process is moving forward despite an escalating scandal that began with a racist photo on Northam’s medical school yearbook page and now threatens his governorship.
“We are working toward a plan for normalcy of government,” Layne said on Wednesday.
Layne said Northam, who hasn’t appeared publicly since an ill-fated news conference on Saturday, has been accessible and informed as the administration prepares its annual letter for the budget conference committee next week to lay out the governor’s concerns and priorities.
“I expect he’ll be accessible as we work through the process,” he said.
Despite calls for Northam’s resignation by both Republican and Democratic leaders in the assembly, the chairmen of the assembly’s money committees say they expect no delay in producing a budget by the legislature’s scheduled adjournment on Feb. 23.
“The throngs of cameras notwithstanding, this has been a productive budget process so far, and I and our conferees will be committed to completing our work on time,” said Senate Majority Leader Tommy Norment, R-James City, also Senate Finance co-chairman.
House Appropriations Chairman Chris Jones, R-Suffolk, said he expects the House and Senate to approve their budgets as scheduled on Thursday afternoon and establish a conference committee next week to reconcile differences in their spending priorities by the end of the session.
Escalating scandals also threaten Lt. Gov. Justin Fairfax and Attorney General Mark Herring, elected with Northam in a Democratic sweep just 15 months ago, but Jones said, “It will have no impact on what we’re doing.”
Legislators say they are relying on Layne, a former Virginia Beach businessman and certified public accountant who previously served as secretary of transportation under Gov. Terry McAuliffe.
“He’s always been an honest broker,” Jones said.
Layne spoke Wednesday with Moody’s, one of three national bond rating agencies, which are critical to protecting Virginia’s AAA bond rating. He plans to talk soon with Standard & Poor’s and Fitch to assure them of the stability of the state budget as it moves through the legislative process.
The initial response was encouraging, Layne said. “The message was that political uncertainty in the short term is not a credit issue.”
The most immediate challenge is resolving an impasse over the normally routine process of conforming Virginia’s tax code with the Internal Revenue Code. Passage of the Tax Cuts and Jobs Act, signed by President Donald Trump more than 13 months ago, would inadvertently produce an estimated $1.2 billion in additional state income taxes that Republicans have called a “back-door tax increase” on middle-class taxpayers.
Northam’s proposed budget would use a portion of the windfall to refund the unused portion of a tax credit for lower-income working families, while either putting the rest of the money in reserve or spending it on priorities such as expanding access to broadband communications or improving water quality in the Chesapeake Bay watershed.
The House and Senate budget proposals eliminate the governor’s proposed earned income tax credit refund. Democrats have blocked emergency passage of tax conformity bills because the Republican measures would set aside all of the anticipated revenues for return to taxpayers in widely differing fashions.
Without conformity, Virginia’s tax department cannot process any of the more than 505,000 tax returns it had received by Wednesday morning, issue refunds or provide guidance to taxpayers and their accountants. Both chambers passed bills that, without emergency clauses, would not take effect until July 1, two months after the May 1 tax filing deadline.
“We’re trying to work toward a compromise,” Layne said.
The finance secretary acknowledged the scandal has made it difficult for Northam to negotiate with Democratic and Republican budget leaders, “just in terms of the governor’s political capital.”
The successive scandals involving Virginia’s top three leaders cast a pall over the Capitol as legislators tried to focus on the pending budget votes on Thursday. Sen. Ryan McDougle, R-Hanover, chairman of the Senate Republican Caucus, comforted a visibly distraught Sen. Louise Lucas, D-Portsmouth, a member of the Virginia Legislative Black Caucus, during a budget presentation by the Senate Finance Committee on Wednesday.
Even Northam’s friends don’t have high hopes for his political redemption.
The Rev. Jesse L. Jackson Sr., two-time Democratic presidential candidate and civil rights leader, said Wednesday that he has spoken with Northam twice and prayed with him during this political crisis.
“He really has lost the moral authority to lead,” Jackson said in an interview with the Richmond Times-Dispatch. “If he stays, every school he goes to speak to, there will be a protest.”
“He’s too weak to contest Republican opposition,” he added. “He’s a decent man today, but he’s too weakened to fight the opposition.”
House Speaker Kirk Cox, R-Colonial Heights, said the past seven days “have been tumultuous for our commonwealth” and “the revelations against and admissions by the leaders of the executive branch are disturbing.”
“These current controversies will be resolved in due course,” said Cox, a former high school government teacher. “In the meantime, we will continue our work on the budget and the hundreds of bills remaining before us.”