Kim McKay and David Reynolds, House Appropriations staff, and Joe Flores of the Virginia Municipal League briefed the committee on the budgetary scale of federal funding in Virginia.

McKay summarized state accounting work showing roughly one-third of state spending in fiscal 2024 runs through federal funds, concentrated in the secretariats for Health and Human Resources (HHR) and Education. "Medicaid dominates federal spending at the state level with $14,600,000,000 in expenditures," McKay said. She noted that federal funds in FY24 supporting education, veterans services and other programs are large and that some non‑general fund revenues (for example, federal pass-throughs and higher-education tuition) are constrained to specified uses.

McKay described budget language included in the Appropriations Act that directs the Department of Taxation to estimate impacts to the state general fund from federal tax law changes and requires General Assembly action if declines exceed $100 million; similar language applies to declines in federal grant support. She also noted bills moving through the legislature that would alter foreclosure stays for impacted homeowners and temporarily allow the revenue stabilization and reserve funds to exceed normal caps so the Commonwealth can set aside additional contingency resources.

Joe Flores, director of fiscal policy for the Virginia Municipal League, said local governments receive about $3 billion in federal pass-through funding (FY2023 data) and about $1.4 billion in direct federal aid. He said the share of federal funding varies by locality; two Virginia localities reported more than 30% of revenues from federal sources in FY2023, and 10 localities report more than 20% federal reliance. Flores stressed that gaps in federal guidance and frozen reimbursements are creating practical problems for small localities trying to complete projects.

Both state staff and VML recommended establishing baselines for federal grants (awards through Sept. 30, 2024) to compare against future changes, and requested that agencies and the committee prioritize more granular grant- and locality-level reporting so localities and the state can better model potential revenue shortfalls and program impacts.