WAYNESBORO — Sen. Emmett Hanger said Tuesday that he hopes the Virginia budget will be finalized by the end of this week.

Hanger, R-Mount Solon, said one of the sticking points is how to deal with an estimated $1.35 billion shortfall in revenues over the next two years. He said that while the state’s rainy day fund can cover part of the shortfall, the remaining half will have to come from spending reductions.

Hanger said the cuts in new initiatives likely will be “across the board.” They could include a reduction in funds slated for state parks, funding to help offset tuition increases in higher education, some homeless initiatives and others yet to be identified.

While Hanger said passing the budget is the first priority, he added that another question that must be resolved is how to deal with the question of Medicaid expansion, or more correctly, the private version of Medicaid expansion known as Marketplace Virginia.

“It could be done now or it could be done later, but we must have a clear path,” Hanger said of Medicaid expansion. While he said passing the state budget is the top priority, Medicaid expansion “is not something to be swept under the carpet.”

The resignation of a Democratic state senator on Monday helped to end the impasse between the Virginia Senate and House over the state budget and Medicaid expansion.

Democratic Sen. Phillip Puckett’s resignation over his daughter’s potential elevation to a judgeship gave the Republicans control of the Senate, and put approval of a budget on a fast track just weeks before a government shutdown. The Puckett resignation was the result of a Senate policy not allowing immediate family members of senators to be appointed judges.

Del. Steve Landes, R-Weyers Cave, a House budget conferee, said the state budget has always been the key issue.

“That is the most important thing,” Landes said of budget approval. The delegate said state employees might have been faced with working on an IOU system until a budget could be approved. And he said Virginia’s AAA bond rating could have been jeopardized without a budget.

“The bond agencies would have frowned on Virginia not having a budget within the fiscal year,” he said.

Del. Dickie Bell, R-Staunton, said state employees are aware of the implications of not having a budget on July 1. Bell said Virginia would have been faced with an IOU system or cutting core services such as public safety and education. “If I have to cut back on law enforcement and prison guards who guard dangerous people, I’m asking a lot,” he said.

Hanger said he wants to settle the Medicaid issue now. But Landes said the General Assembly can return to Richmond in a special session later this year to address the issue, or, he said, the Medicaid Innovation and Reform Commission can continue looking at reforms to the program.

Using Medicaid as “a political bargaining chip” for the budget was not wise, said Landes, who was critical of Gov. Terry McAuliffe, a Democrat, for demanding Medicaid expansion.

“There are larger ramifications than Medicaid, including the state bond rating, higher education, K-12 education and public safety,” Landes said.

The most recent developments are a tactical loss for McAuliffe, who put much political capital on the line in his push to tie Medicaid expansion to the budget, said Quentin Kidd, a Christopher Newport University political scientist and director of the Wason Center for Public Policy.

Kidd said the biggest remaining question is whether House Republicans are willing to compromise on the issue of Medicaid. “Are they motivated by not letting McAuliffe not have a big win in the first session? Can he get Medicaid expansion?” Kidd asked.

He said the governor has suffered a short-term defeat, but the question is whether it becomes long-term.

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