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State Funding Outlook for Locally-Administered Programs James J. Regimbal Jr. Fiscal Analytics, Ltd April, 2012.

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Presentation on theme: "State Funding Outlook for Locally-Administered Programs James J. Regimbal Jr. Fiscal Analytics, Ltd April, 2012."— Presentation transcript:

1 State Funding Outlook for Locally-Administered Programs James J. Regimbal Jr. Fiscal Analytics, Ltd April, 2012

2 Growth in State Tax Receipts Is Stabilizing 2

3 33 But Revenues Not Rebounding as Fast After Recession 3

4 4 Virginia Economy No Longer Outpacing U.S.? 4

5 5 Can Increasing Reliance on Non-General Fund Revenues Continue? 5 NGF* * Federal funds, higher education tuition & fees, other fees, unemployment insurance taxes, institutional revenue, etc

6 6 Source:, page 16.

7 7 State Aid is Falling For Localities 7 Source: APA Comparative Reports on Local Revenues and Expenditures, Fiscal Years 2000-2010

8 888 While Local Revenues Continue to Suffer 8 Source: 1990-2010, Auditor of Public Accounts FY 11 & 12 estimates from VML/VACO 2011 Fiscal Survey

9 999 FY 2013 Introduced Budget Change in GF Appropriations 9 FY 2013Change From FY 12 Legislative and Executive Dept's$95.7$0.1 Judicial Dept.$417.4$9.3 Compensation Board$608.1$9.6 Treasury Board GF Debt Service$624.0$51.8 Other Admin., Finance (w/o debt), & Tech$198.0-$7.1 Rainy Day Fund$132.7 Car Tax Reimbursement$950.0$0.0 Commerce and Trade$195.1$26.5 Agr., Nat. Res.$186.5$51.8 K-12 Direct Aid (incl. teacher retire)$5,132.3$219.5 Higher & Other Education$1,781.8$107.2 DMAS (Medicaid)$3,634.0$240.1 Other HHS$1,430.9$12.8 Public Safety (incl. Veterans /HS)$1,706.7$46.7 Transportation *$45.0-$91.2 Central Appr.$40.2-$21.5 Capital$0.0-$8.9 Total GF Expenditures$17,178.4$779.3 * Does not include $54 million in GF sales tax transferred to highway maintenance as NGF

10 10 Governor Proposed a Decline in State Assistance for Locally-Administered Programs As % of GF FY 2009 FY 2010 FY 2011 FY 2012 (i) FY 2013 (i) FY 2014 (i) GF Direct Aid to K-12$5,607.6$4,769.8$4,713.3$4,912.8$5,132.3$5,175.7 Health and Human Services$888.4$878.7$816.8$850.5$844.9$810.9 Public Safety$734.3$556.8$686.0$667.7$679.2$679.9 HB 599 (Aid-to-Police)$197.3$180.8$178.7$172.4 Constitutional Officers$155.3$142.2$144.2$143.8 Car Tax$950.0 Aid-to-Locality Reduction($50.0) ($60.0) ($50.0)($45.0) Total Local GF Aid$8,285.6$7,247.5$7,250.3$7,503.8$7,700.2$7,715.3 Total GF Appropriations$15,943.0$14,787.2$15,457.4$16,556.9$17,178.4$17,365.2 % Local GF Aid52.0%49.0%46.9%45.3%44.8%44.4%

11 11 Little New K-12 GF Spending in Introduced Budget Above FY 2012 Base* 11 FY 2013FY 2014 Update Teacher Retirement Contribution Rates$170.9$171.5 All Other Spending Proposals**$9.6$52.1 Net New K-12 Spending Above Chapter 890 Base$180.5$223.6 * FY 12 “Base” funding annualizes part-year and removes one-time funding, such as $87.7 mil. appropriated for supplemental support. ** Does not include $28 mil. per year in Executive Amendments, primarily K-3 class size and early reading initiative funding.

12 12 Introduced Budget 2012-14 K-12 Funding Added to List of Recent SOQ Reductions* Eliminate Non-personal Inflation Update – ($109.0) -Did not fund inflation in 2010-12 biennium either. Modify Federal Revenue Deduction Calculation for Federal Stimulus Funding – ($108.1) Eliminate Support Cost-of-Competing Adjustment – ($65.0) VPI: Use Kindergarten as a Proxy for 4 Year-olds – ($26.7) *Recent previous biennia reductions included: a funding cap on support positions, eliminating recognition of other SOQ support costs, increasing the federal deduct from 29% to 38% for support costs, changing funding assumptions for health care premiums, eliminating enrollment loss and support for construction, etc. (for further details see: 10/Public_Education_Update.pdf 10/Public_Education_Update.pdf

13 2012 General Assembly Recognized the Need to Help Localities General Assembly added $212 mil. to K-12 funding in 2012-14 above introduced budget. -$110 mil. in block grant assistance for inflation, retirement costs -$47.1 mil. to update K-3 class size program and $6.8 to correct career and technical education funding -$40 mil. to partially restore cost-of-competing in NoVa -$6.2 mil for early intervention reading assistance in 3rd grade Endorsed introduced budget ATL “clawback” reduction to $50 mil. in FY 13 and $45 mil. in FY 14. Rejected using GF for transportation. Provided localities the option of phasing in VRS rate increases. Added $42.3 mil. (total $87.6 mil.) for Water Quality Improvement Fund to upgrade 57 local and regional wastewater treatment plants. $7.0 mil added by GA to capitalize the Housing Trust Fund. 13

14 14 Other Issues In General Assembly of Local Concern Passed Eminent Domain Constitutional Amendment Defeated M&T Exemption for New Equipment Defeated Cap on BPOL Retirement System Changes -Mandatory local employee 5 for 5 (with optional phase-in 1 for 1 over 5 years). -Mandatory teacher 5 for 5 with optional phase-in over 5 years. -Optional phase-in of higher rates for local employees. -Also benefit changes for unvested state employees and hybrid plan for new state employees in 2014. Transportation Bill -Requires local comprehensive plan conformity for localities (budget removed requirement for cities/county maintained roads), carves out $500 mil. pot of money for discretionary CTB projects.

15 15 Includes GF, lottery profits, miscellaneous NGF, and state appropriated federal stimulus funds

16 16 State Six-Year GF Plan Indicates Little Future Relief in Store for Localities ($ Mil.)* 16 FY 2013FY 2018 FY 2013-18 % Growth K-12 Education $ 5,190.1 $ 6,041.916.4% Higher and Other Education 1,724.0 2,135.723.9% Medicaid 3,537.8 4,824.236.4% Other H&HS 1,802.0 1,852.52.8% Public Safety 1,697.1 1,748.33.0% Personal Property Tax Relief 950.0 0.0% Debt Service 624.0 653.34.7% Rainy Day Fund 132.7 99.4-25.1% Other Finance and Admin. 797.7 798.10.1% Judicial 417.4 422.41.2% Commerce & Trade 195.1 168.4-13.7% Nat Res., Ag, Forestry 186.5 133.7-28.3% All Other 198.9 602.8203.1% Total Appropriations $ 17,453.3 $ 20,430.717.1% Total GF Resources $ 17,466.3 $ 21,084.020.7% Balance Available $ 13.0 $ 653.3 * See

17 17 Reasons the State Is Restoring Little to Core Local-Aid Program Funding 1.Revenues not growing as fast as usual coming out of a recession (under 5% revenue growth expected in 2012-14). Tax changes reducing revenues. Concern over potential impact of federal deficit reductions. 2.Rainy Day Fund must be restored – Half of any GF revenue growth above prior 6-yr. avg. (2% now) goes to RDF. 3.VRS contribution rates for teachers and state employees are being significantly increased. 4.Medicaid spending will continue to grow faster than state revenues. 2014 impact of federal health care big unknown, but law as written would add up to 425,000 new Medicaid recipients. 5.Use of one-time revenues/savings/debt in recession have to be replaced with ongoing revenues just to keep current spending policies. -Debt only capital program will have long-term consequences. 6.Increasing efforts to use general funds for transportation.

18 18 General Fund Tax Changes Have More Than Neutralized 2004 Tax Increase Enacted/Amended2012-14 ($ Mil.) Age Subtraction (net of means testing)1994/2004($555) Subtraction for UI/Military/Gov't Empl1999($73) Historic Rehab Tax Credit1999($92) Coalfield Employment Tax Credits2000($89) Low Income Tax Relief2000, 2004, and 2007($377) Land Preservation Tax Credit2003($275) 2004 Tax Reforms*2004$1,780 Elim. 2.5% Sales Tax on Food2004($437) Shift Insurance Premiums and Recordation from GF to Transportation2009($340) Estate Tax Repeal2009($280) Other Tax Changes since 19991999-2011($182) Total($920) * Includes cigarette tax increase dedicated to Health Care Fund Sources: Senate Finance Committee Retreat, Revenue Outlook, Nov. 18, 2010 Summary of Amendments to the 2010-2012 Budget, Money Committee Staff. May 2010

19 19 Retirement Rates Will Rise 19 Notes: Employer rates only and do not include 5% member contribution. Over the last 10 years ending June 30, 2011 VRS annual average total fund investment return has been 5.7%. 2011 & 2012 VRS Board Cert. RatesFY 2011 6/25/2011- 3/24/2012 3/25/2012- 6/24/2012 FY 2012-14 VRS Board Cert. Rates * Conference Rates** State8.46%2.13%2.08%6.58%13.07%8.76% Teachers12.91%3.93%6.33% 16.77%11.66% * Assumes phase-in of 7.5% to 7% investment return, 2.5% COLA, and 30 year amortization ** Reflects 8.0% investment return

20 20 Health Care Has Trumped Education

21 21 K-12 Medicaid (DMAS)

22 22 Non-Recurring Recession Revenues No Longer Available State Appropriated Federal Stimulus Funding - $2.8 billion Reduced VRS state employee and teacher retirement/OPEB benefit contributions - $850 mil. Rainy Day Fund Withdrawals- $783 mil. Replaced Capital Outlay Cash With Debt - $350 mil. Accelerated Sales Tax for Dealers - $227 mil. Captured NGF balances and interest earnings - $113 mil. Tax Amnesty - $102 mil. Eliminated Sales Tax Dealer Discount for Electronic Filers - $98 mil.

23 23 Source: Senate Finance Committee Retreat, Nov. 2011

24 Governor’s Transportation Proposal Would Have Diverted Significant General Funds (HB 1248/SB 639) Phase-in additional 0.25% sales tax to transportation: $54 mil. in FY 13 increasing to $300+ mil. by FY 20. Dedicate one percent of general fund if growth is above five percent – potentially over $170 mil./yr. Increase dedication of GF surplus from 67% to 75% (FY 2011 surplus yielded $67 mil.). Create transportation improvement districts whereby projects are partially funded using growth in state general funds from that district. 24

25 25

26 Conclusion Are state policymakers beginning to recognize the fiscal condition of localities? -Defeated proposal to use GF to help solve transportation needs. -Defeated exempting new equipment for 3 years from M&T tax. -Restored some K-12 funding cuts contained in the introduced budget. -Endorsed introduced budget ATL “clawback” reduction. But… -Increased local costs by mandating VRS local employee 5 for 5, even if phased-in over five years. -Constitutional amendment on eminent domain potentially increases locality costs of providing services. It will take several biennia, even without another recession, for the state to restore funding to local government. Will leadership emerge to fix transportation funding crisis? Expect more pressure for local transportation funding. 26

27 27 Important to Keep a Mix of Local Revenues Source: Auditor of Public Accounts Comparative Report of Revenues and Expenditures 27 Note: BPOL is the Business, Professional and Occupational License Tax. M&T is the Machinery and Tools Tax

28 28 Most Local Government Expenditures are Mandated or Regulated by the State Source: Auditor of Public Accounts Comparative Report of Revenues and Expenditures

29 29

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