Virginia Gov. Ralph Northam signed his first budget into law late Thursday, which includes a plan approved by the Republican-controlled Legislature to join 33 other states and the District of Columbia that have expanded Medicaid for working poor people.

S&P Global Ratings revised its outlook on Virginia debt to stable from negative Friday, after reviewing the budget.

Moody's Investors Service said expansion of the health program will boost the state’s bottom line and allow 400,000 qualified Virginians to receive healthcare coverage, a credit positive for hospitals.

Virginia Gov. Ralph Northam at a bill signing on March 8, 2018.
“This budget is the culmination of five years of effort to bring our taxpayer dollars home from Washington and expand Medicaid,” said Virginia Gov. Ralph Northam. Virginia governor's office

The $115 billion two-year budget takes effect July 1. The spending plan is expected to bring reserves to nearly $1 billion by the end of the biennium. It includes a 2% pay increase for state employees. Teachers and support staff would get 3% raises effective July 1, 2019.

“This budget is the culmination of five years of effort to bring our taxpayer dollars home from Washington and expand Medicaid,” said Northam, a Democrat who is a pediatric neurologist. “As a doctor, I’m so proud of the significant step we’ve taken together to help Virginians get quality, affordable care.”

November's election reduced the GOP majority in the House of Delegates to 51-49 from 66-to-34, changing the political math for the Medicaid proposal.

"The outlook revision reflects the adoption of a structurally aligned 2018-2020 biennial budget, planned reserve fund deposits, and stronger projected revenues and economic indicators," said analyst Carol Spain.

S&P affirmed its AAA rating of Virginia general obligation debt, its AA-plus rating on the state's appropriation-backed debt, its AA rating on Virginia's moral obligation debt and affirmed its rating of Virginia College Building Authority educational facilities bonds that move in tandem with the state's GO rating.

"This demonstrates the fiscal health of the Commonwealth and affirms the work we have done over the course of the session to ensure our critical AAA bond rating remains intact," Northam said in a statement Friday.

The Medicaid is credit positive for hospitals in Virginia “because expansion of coverage directly correlates with a reduction of uninsured or self-pay patients that would typically result in bad debt and charity costs for hospitals,” said Moody’s analyst Beth Wexler. “Bad debt represents unpaid bills, while charity care represents charges foregone for services provided free of charge.”

Virginia’s budget also includes a provider assessment that will offset the state's costs of expanding Medicaid. The tax will go into effect Jan. 1, 2019 and is expected to raise about $306 million over the biennium, according to Moody’s. Expansion is expected to draw down $2 billion annually in new federal funds.

“In addition to the new revenues from the provider assessment, the state anticipates savings for healthcare programs based on the elimination of general fund dollars for programs for individuals who will become eligible for Medicaid under expansion,” said Moody’s analyst Pisei Chea. “Total savings for state programs are projected to be $101.3 million in fiscal 2019 and $269.7 million in fiscal 2020.”

Of the 11 states that comprise the Southeast region, only Kentucky, West Virginia and Virginia have opted to expand Medicaid. according to the Kaiser Family Foundation.

Virginia joins a small number of states expanding healthcare coverage this year, even though Congress has eliminated one of its major funding elements. The individual mandate under the Patient Protection and Affordable Care Act, a requirement that everyone has health insurance or be fined, is set to be repealed Jan. 1.

Virginia's new budget also authorizes $350 million to jump-start the Port of Virginia’s widening and dredging project at the Norfolk Harbor Channel and Elizabeth River.

Some $20 million from state revenues will be used for design of the project to deepen the Norfolk Harbor to 55 feet from 50 feet, and widen the ship channel to 1,300 feet from 1,000 feet. The remaining $330 million will come from bond financing.

The total project is estimated to cost $322.2 million, with half the cost the state’s share and the other half to be paid by the U.S. Army Corps of Engineers when the funds are authorized by Congress.

The project is expected to be completed by 2024.

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