Gov. Ralph Northam wants to use revenue from casino gaming to help localities struggling to fix or replace deteriorating public schools.

The legislature adjourned in March with little progress on how to address the problem of economically depressed communities lacking money for school construction. Through an amendment to legislation, Northam, who bemoaned “crumbling schools” in his inaugural address, is putting forward his first significant proposal to improve K-12 school buildings.

After decades of failed attempts to allow casinos to operate in Virginia, Northam is sending the legislation back to the General Assembly with a recommendation to earmark state tax revenue for school construction.

The General Assembly passed legislation to allow five economically distressed cities — including Bristol and Danville — to host casinos. S B 36 and H B 4 require local referendums so the public can give final approval to having casinos in their communities.

The legislature is scheduled to reconvene April 22 to consider Northam’s recommendations.

Virginia is poised to approve the legislation at an unlucky time. The coronavirus crisis has contributed to an economic downtown. Casino companies have been lobbying Congress for aid to come in the form of a comprehensive bailout package.

As Virginia moves forward with casinos, Finance Secretary Aubrey Layne acknowledged Saturday it will be tougher for casino companies to attract economic capital right now and the possibility construction times will be extended.

“It’ll be determined by when the economy gets back on track and financial markets open up, which we’re hoping will be relatively soon,” Layne said.

The casinos will be taxed at between 18% and 30%, depending on how much revenue they generate after payout.

The five casinos would bring in about $970 million in total revenue every year by 2025, according to a report from state auditors released last year. Layne estimates the state would receive about $114 million.

Currently, the legislation says that revenue would go into the general fund. Northam is suggesting to the legislature that money be earmarked for school construction.

The five cities would get a smaller percentage of the tax revenue, and the localities would get to use that money however they wish.

“Schools in rural and urban parts of Virginia are crumbling,” said Sen. Todd Pillion, R-Washington, who patroned a failed school modernization proposal this past session. “Our students and teachers deserve better and we owe them a long-term solution. This is a unique opportunity for our state to come together in a bipartisan fashion and create an equitable solution to a dire problem across Virginia.”

The state would still have to figure out a way to allocate the revenue to localities for school construction, but Clark Mercer, Northam’s chief of staff, said it would be based on need. Rural and urban districts tend to be the most cash-strapped and have the schools in the worst conditions.

“We believe this will generate a sufficient enough revenue stream to help those localities most in need,” Mercer said.

The General Assembly assigns localities to take on the responsibility for funding a majority of school construction needs.

School construction funding dried up during the last recession. Prior to 2009, a school construction grant fund had an annual budget of $28 million, offering districts an average of $202,000 a year. The state’s Literary Fund was also a source of aid, providing direct loans of up to $20 million at subsidized interest rates based on a locality’s ability to pay.

The post-recession years saw overall cuts to education spending, not just facilities. That funding hasn’t been restored.

Sen. Bill Stanley, R-Franklin County, tried to raise the alarm around the problem of crumbling schools starting two years ago. He’s introduced a few bills to help school districts build and repair schools, although fellow legislators pointed out none proposed a funding stream. He’s been openly critical about using casinos as engines of economic development.

Northam signed a bill last week from Jennifer McClellan, D-Richmond, that would establish the Commission on School Construction and Modernization, which will provide guidance to schools on school construction and upgrades as well as make funding recommendations to the General Assembly and governor.

Northam also signed several bills that legislators carried on behalf of localities that wanted the ability to raise their sales tax to put toward school construction.

With a coronavirus-fueled recession looming, the establishment of a new funding stream could be especially helpful to localities. The crisis will likely cripple revenue streams central to the budgets of many Virginia cities and counties — lodging, meals and sales taxes.

More help to local government budgets could be on the way if the legislature approves recommendations Northam is making to the General Assembly regarding the regulation of so-called skill games.

The legislature voted to ban electronic gaming machines that look like slot machines but claim to have an element of skill that could allow them to elude the state’s prohibition on gambling. The machines have rapidly proliferated across Virginia in convenience stores, restaurants and truck stops.

Northam is proposing changes to HB 881 and SB 971 to allow the machines to continue to operate until July 2021, and they’ll be taxed at a rate of 35%. The Virginia Alcoholic Beverage Control Authority would help in running a system to regulate them.

Carter Hutchinson, deputy policy director for the Northam administration, said 2% of the revenue would go to a problem gambling treatment fund, 2% to the system regulating the machines for the year and 12% would be remitted to localities each month based on where the machines generate revenue. And 84% will go to a newly established COVID-19 relief fund.

The biennium budget is undergoing a significant change because of the financial hit brought on by the coronavirus. Mercer said the budget will include a new relief fund to provide aid for small businesses, people seeking employment, homelessness and rent and mortgage issues, and nursing homes.

Because the state doesn’t know exactly how many machines are in circulation, it’s unknown how much revenue they’ll generate. In November, the Virginia Lottery counted 5,500 machines just in businesses that also sold lottery products. The lottery pointed to the machines as the reason for a decline in sales.

If the legislature approves Northam’s proposal, starting this July, the companies that operate these machines will have to report how many machines they have in Virginia and will not be able to add more into the market.

Business owners protested the legislature banning the gaming machines, saying they are an important source of revenue. Mercer said the coronavirus’ damage to small businesses factored into delaying the ban date.

“It would help out businesses to provide a revenue stream to get through difficult economic times,” Mercer said.