Presentation on theme: "State Budget Outlook 2015 VML Legislative Priorities"— Presentation transcript:
1 State Budget Outlook 2015 VML Legislative Priorities Regional suppersWytheville, Farmville, Newport news, Virginia beach, Alexandria, and HarrisonburgOctober-November, 2014
2 Economic Realities Confound Projections February revenue forecastInterim revenue forecast (August)Modest 1% revenue growth in FY14 over FY13 collectionsHealthy 5.2% revenue growth projected for FY15Revenue increase in FY16 projected to slip to 4.1%Actual FY14 revenues drop 1.6% compared to year earlierAugust (Interim) forecast for fiscal year drops to 2.7%August forecast for fiscal year 2016 skids down to 2.7%Another forecast will be developed for the December Budget Bill.Revenue collections averaged 2.2% growth from FY06 through FY14. That low growth includes the period FY11-FY13 when growth exceeded 5.0%.
3 State General Fund Rises/Falls on Two Major Revenues Over 80% of state revenues come from individual income taxes and the state’s sales and use tax.The hit in collections marks the first time Virginia revenues have fallen outside of a national recession.Here are key indicators:IndicatorFY14 ProjectionsFY14 ActualsWages & Salaries Growth2.6%1.1%Employment Growth1.0%0.4%Professional/Business Services(1.8%)Personal IncomeSales & Use(4.4%)(4.8%)Individual income tax rates haven’t increased since Governor Holton’s administration. This means revenue growth depends on economic growth.Growth of the general fund depends heavily on increases in personal income and job creation.FY14 marked by weak performance in public sector and federal contracting and professional and business services. These conditions hit hard NVA and Hampton Roads.Net new jobs equaled 14,600 in FY14, 21,900 in FY11 and 78,800 in FY06.
4 State Balances Budget in Two Parts: June Actions Tackle $1 State Balances Budget in Two Parts: June Actions Tackle $1.55 Billion ShortfallGovernor McAuliffe and General Assembly parsed the revenue shortfall as follows:$350.0 million in FY14$950.0 million in FY15$600.0 million in FY16Broad stroke plan taps $707.5 million from the “Rainy Day Fund”.Establishes an $842.5 million Appropriated Revenue Reserve, $480.0 million in FY15 and $362.5 million in FY16 through the Appropriation Act approved on June 23 (2014 Special Session I, Virginia Acts of Assembly, Chapter 2)The revenue reserve was pulled from new spending, representing 31% of the new spending proposed last December by former Gov. Bob McDonnell.It is somewhat ironic that before the GA passed this austerity budget in June many localities were concerned that the GA would not pass any budget prior to July 1. The difficulty in passing a budget in 2014 was eclipsed by the sudden, dramatic drop in revenue collections.FYI – General Assembly required special sessions to pass state budgets in 2004, 2006, 2008, and 2012.
5 Appropriated Revenue Reserve ITEMAMOUNT in MILLIONSHigher Education$183.9K-12 Public Education$166.6Health and Human Resources$80.1Commerce and Trade39.0Public Safety and Veteran Affairs27.0Compensation$168.3Additional Cash Balances and Revenue Adjustments$177.7TOTAL$842.6Authorization for the Appropriated Revenue Reserve is in Item 468 J. of the 2014 Appropriation Act (Chapter 2)The budget strategy employed in June followed a traditional practice to find other payors, e.g., college students to pay higher tuition, localities to pay more for K-12, and state employees to go another year without a salary increase.The budget still includes the commitment to repay VRS for actions taken by the state in the biennium as well as the commitment to fully fund the phase-in of VRS board-approved rates.The General Assembly tried to minimize direct impact of the cuts on local governments.
6 Cuts to local programs made in June… Proposed Line of Duty Act funding was eliminatedGovernor’s Opportunity Fund reduced to $ million each yearEnterprise Zone Grant Program (removed $2.0 million each year)Homelessness programs (removed new funding of $11.0 million for biennium)Virginia Tourism Authority (eliminated new funding of $1.4 million each year)Teacher salary increase ($100.9 million)Partial restoration of SOQ inflation update ($9.7 million)Partial restoration of NVA Cost of Competing Adjustment for support positions ($5.4 million)Career development programs for constitutional officers (eliminated new funding)Removed authorization allowing school divisions to participate in the state health insurance program1. The “bottom line” in June is that the General Assembly’s budget actions could have been harder on localities, but weren’t.
7 But these local programs were spared… SOQ re-benchmarkingPre-K “hold harmless” slots ($4.6 million)Year round school grants ($3.4 million)HB 599 local police department allocations kept at FY 2014 levelTraining for assistant commonwealth’s attorneys ($200,000)Instructional Specialists in schools not accredited ($3.6 million)Teach for America grants ($1.0 million)Water Quality Improvement Fund ($31.4 million in FY15)
8 May and June Revenues Force an August Reforecast Fiscal Year 2014 ended with a bigger thud than first thought.The anticipated $350.0 million revenue shortfall ballooned to $437.8 million, triggering the August (Interim) revenue reforecast.In a joint meeting of the General Assembly’s money committees, Gov. McAuliffe presented a new forecast reflecting the full impact of the FY14 shortfall along with projections of continued sluggish job and wage/salary growth.The assumed carry-forward balance in Chapter 2 of $128.6 million had shrunk to $40.1 million, resulting in a biennial budget shortfall of an additional $881.5 million.Total general fund collections fell 20.7 percent in May and another 2.6% in June. Up until that time, collections were on target to meet the FY14 forecast.The “culprits” for the decline in collections were (1) low rates in both job creation and personal income growth and (2) changes in taxpayer behavior regarding unearned income. In essence, investors cashed out in 2013 before federal tax rates increased. Virginia along with many other states seriously underestimated how this action in 2013 would affect revenue collections in 2014.
9 September Budget Strategies Closing the Budget Gap in Sept. with Spending Cuts – Both Real and ConceptualOverall strategy agreed to by the governor and General Assembly consists of two major pieces:Grabbing $267.7 million in agency unexpended balances, cash transfers, and reversionsSetting up four reversion clearing accounts to the tune of $614.4 millionSeptember Budget Strategies($s in millions)ActionFY 2015FY 2016Balances/Transfers/Other$139.7$78.0Reversion Accounts:State Agencies$92. 4$100.0Higher Education$45.0Aid to Localities$30.0Unspecified$50.0$272.0TOTAL$357.1$525.0First item consists of cash transfers and reversions of unexpended balances as well as a delay in the GF sales tax to HMOF. Also includes reversions of funds from the legislative and judicial branches and fund swaps between GF and NGF. Lastly, a higher education reserve is eliminated and debt service schedules are altered.For state agency reductions, governor can set targets and strategies subject to the General Provisions of the Appropriation Act. Those state targets and strategies have been released and can be found on DPB’s web site (http://dpb.virginia.gov/forms/ /Item471_10_2015_SavingsPlan.pdf)The unspecified amount in FY 15 is the result $50 million GF dollars that the GA transferred to the HMOF when it met in November
10 Local Government Impacts No apparent additional spending cuts affecting K-12 budget.State agency cuts could affect localities, depending on strategies approved by Gov. McAuliffe in FY 2016.Possible examples include funding reductions for planning district commissions and soil and water conservation districts, cut backs for school efficiency reviews and community mental health programs, and reductions in litter control grants.State agency reduction plans will be submitted to the General Assembly by mid-October and incorporated into Gov. McAuliffe’s budget amendments in December.The transfer of non-general fund dollars to the state general fund and the interception of general fund money going to agencies traditionally funded by non-general fund dollars will likely affect localities.1. Examples of state agency cuts affecting localities from 2009 introduced budget bill: cuts on PDC funding; Soil & Water Conservation Districts; Litter Control Grants; School Efficiency Reviews; Community Mental Health Programs to name but a few.
11 Local Government Impacts (Continued) “Local Aid to the Commonwealth” pops up again at $30.0 million each year.State budget office will release reduction targets to cities and counties sometime in November.Targets based on the amount of state financial assistance received for each city and county, but excludes from the calculation amounts tied to K-12 and the car tax relief program.Local governments will have the option to choose how the targets will be achieved.Strategies adopted by local elected officials will be shared with the legislature in late fall.As shown on slide #9, there are no details or information on how the $322.0 million reduction in FY16 will be achieved.The answers will be included in the governor’s December budget amendments.HB 5010 is the vehicle used for the September cuts, passing both chambers on the 18th.Past local aid to the commonwealth payments ranged from a $45.0 million to $60.0 million per year.It is important to realize that the “flexibility” the state provides has been restricted to choosing how the locality will meet its target. The program has never includes the abililty to adjust standards, requirements, processes, or timetables.The local aid to the commonwealth program does NOT include towns.
12 Time to Take ActionVML and VACo wrote to Gov. McAuliffe prior to the General Assembly’s return to Richmond in September.The letter made four critical points:Economic and budget situation today differs significantly from financial conditions before the Great Recession.Relying exclusively on spending cuts jeopardizes mandated public services. Public education must be the budget’s highest priority.It’s time to look at how services are delivered and to focus more on measurable results than on process. State must pay its fair share, if not, standards, requirements & deadlines should change.State tax credits, tax deductions, and tax relief programs must undergo the same scrutiny as spending programs.Localities should discuss these points with their delegates and senators.Letter will be posted on VML’s web site.Mandates Commission could be one means to bring these points to the attention of the McAuliffe Administration.Nearly 1/3 of VA’s public schools will not earn full accreditation in reading and science because of falling scores on state-mandated standardized tests.Not endorsing a general tax increase, but question if the 187 tax preferences identified by JLARC are serving public purpose – no information reported on 131 tax preferences ($11.3 billion); reporting of basic information on 36 preferences and evaluation of an additional 20 preferences ($1.2 billion); and no tax preference is evaluated on its effectiveness in achieving policy goals. The JLARC report is titled “Review of the Effectiveness of Virginia Tax Preferences” and was issued on November 14, 2011.
13 State Support for Local Programs is Declining Most state support for programs that localities are required to deliver on behalf of the state: education, social services, health, election administration, judicial administration, compensation board employees (etc.)Trend is not Likely to ChangeOver the last 10 years Medicaid grew by 97% and Debt Service leaped at 124%. K-12 and higher education increased by 12% and 15%, respectively.These are nominal and not inflation-adjusted figures.In all likelihood the percentage for the biennium will shrink after the 2015 General Assembly Session.For K-12 the percentages, which take into account both GF and Lottery Funds, are 35.6% in ; 32% in ; 31.9% in ; and 32.6% in
14 Education is the Driving Force in Local Budgets Two items have changed over time. First, the dollar amounts have gone up – 45% over a ten-year period. This includes all fund groups, including local, state and federal.The second item concerns who is paying. Part of the state’s budget reduction strategy has been to push expenses on to other payers like local governments and college students and their parents.Although much is said about K-12 at the General Assembly the fact is that state funding has not kept up with enrollment growth and inflation.
15 Now is the Time to ActTalk to legislators before the start of the 2015 session.The message should explain:Local taxing authority must be retained, particularly as state spending and the rate of spending decreases.State agencies should work in concert with localities to find ways to improve the efficiencies and effectiveness of programs without being overly prescriptive. Think results.An educated and trained workforce is critical for Virginia to compete economically with other states and nations. Funding public education is paramount.Both tax expenditures and budget spending need to be evaluated.1. VML Legislative Program was approved at the Annual Conference, and will be made available on VML’s web site and as a publication.
16 2015 VML Legislative Priorities Education FundingVML opposes changes that shift funding responsibility from the state to localities.VML opposes policies that lower state contributions but do nothing to address the cost of meeting the requirements of the Standards of Accreditation and Standards of Learning.VML also supports implementation of JLARC recommendations to promote 3rd grade reading performance.An example for 1. is the adoption of an artificial standard for funding support personnelAn example of 2 is changing funding formulas to artificially decrease the cost of a program, such as for the K-12 reduced class size, without making changes in accountability standards.As a footnote to education funding, state funding for the SOQ on a per-pupil basis is lower than it was in FY Despite lower funding, the State has raised standards to make it more difficult for students to pass Standards of Learning tests and for schools to meet accreditation standards.
17 4 most expensive unfunded SOQ standards Assistant principal for every 400 students - $70.6 millionReading specialist for every 1,000 students - $51.3 millionMath specialist for every 1,000 students - $35 millionReduce speech-related language pathologist caseload from 68 to 60 – $51.3 millionTotal = $208.2 millionSix unfunded SOQ standards. Here are the most costly:Provide full-time assistant principal for every 400 students in the school ($70.6 million)reading specialist for every 1,000 students in K-12 ($51.3 million)math specialist for every 1,000 students in K-8 ($35.0 million), andreduce speech-language pathologist caseload from 68 to 60 ($51.3 million).Source: VA Dept. of Education
18 2015 VML Legislative Priorities State Assistance to Local Law Enforcement (HB 599)Funding for police should be a shared responsibility of state and local government as it has long been for sheriffs’ departments.The state’s commitment to HB 599 has increasingly lagged in the past decade.Law enforcement is a core function of state and local government.If the General Assembly and Governor balance the budget strictly through spending cuts, expect a hit on HB 599 funding.We will respond, but we will be gathering information from you and we will have a short turn around time.Also, we will be asking you to contact your delegation.
19 2015 VML Legislative Priorities Transportation FundingThe transportation package adopted in 2013 is a first step to comprehensively address transportation needs.More dedicated revenue for transit operations and capital as well as passenger and freight rail is needed to keep pace with growing public needs and expectations.Additional resources for urban and secondary road construction are needed in light of actions taken by the state to halt allocations for these projects in the Six- Year Transportation Improvement Program.The November issue of Virginia Town & City will focus on transportation. Be sure to look at that issue.
20 2015 VML Legislative Priorities State and Local Government Fiscal RelationshipVML opposes:Restricting local taxing authority without granting alternative revenue authority with reliable, sustainable revenue sourcesConfiscating or redirecting local tax revenuesRequiring localities to bear expenses for costs of new state requirementsShifting traditional state funding responsibilities to local governmentsPiggybacking state fees, taxes or surcharges on local government servicesPlacing additional administrative burdens on local governmentsEnacting State budget cuts without specifying the programs to be affected by the cuts (such as the $30 million reduction in Aid to Localities)We can safely predict that one or more of these tactics will be attempted.Again, as in the case of HB 599 funding, we will be collecting information from you and will be asking you to contact your legislator.
21 2015 VML Legislative Priorities State and Local Government Fiscal Relationship (continued)VML asks the State to:Have a dialogue with local governments to examine state requirements and service expansions that can be suspended or modified to alleviate the financial burden on state and local taxpayers.Develop spending and revenue priorities that support economic development, public safety, education and other public goals. State tax credits, tax deductions and tax relief policies must receive the same scrutiny as spending programs as part of the prioritization process.Critique the Standards of Accreditation and Standards of Learning to determine which standards impose costs on local governments that are not recognized in state funding formulas.Re-examine those Standards of Quality that the Board of Education has adopted, but that the General Assembly has not funded. If funding is not available to pay for prevailing practices, the accountability standards should be adjusted so that local governments are not in the position of having to bear the entire burden of meeting these unfunded mandates.
22 2015 VML Legislative Priorities State and Local Government Fiscal Relationship (continued)VML asks the State to:Review ways to increase revenues to meet constitutional and statutory obligations to Virginia citizens after all other actions have been taken including eliminating unnecessary programs, achieving greater program efficiencies, and streamlining service delivery.Include local government representatives on any “blue ribbon” commission or other body established by the state that has as its purpose changes to local revenue authority or governance.”Critique the Standards of Accreditation and Standards of Learning to determine which standards impose costs on local governments that are not recognized in state funding formulas.Re-examine those Standards of Quality that the Board of Education has adopted, but that the General Assembly has not funded. If funding is not available to pay for prevailing practices, the accountability standards should be adjusted so that local governments are not in the position of having to bear the entire burden of meeting these unfunded mandates.
23 2015 VML Legislative Priorities Low Performing SchoolsVML supports repeal of the legislation establishing the Opportunity Educational Institution.Any approach to improving low-performing schools must include adequate state financial support.VML supports increased state funding for the Virginia Preschool Initiative, the K-3 reduced class size program, Early Reading Intervention program, increased state stipends for highly effective teachers in high-poverty schools, and other innovative programs.The state has consistently underfunded the state Standards of Quality and other state accountability programs. In the absence of increased state funding, VML opposes any efforts that would transfer to the state additional local funding that exceeds the required local share.
24 Other Legislative Positions First Day Introduction for Bills with Local Fiscal ImpactVML supports reinstituting the requirement for first day introduction of bills with a local fiscal impact.Local CollectionsVML supports repeal of language in the 2014 Appropriation Act that effectively bars local Treasurers from collecting delinquent fines and costs.Local Fines and FeesVML supports a budget amendment to end state confiscation of local fines, fees and forfeitures.For local fines and fees, at the very least, the General Assembly should reform the policies and procedures associated with the Commonwealth’s claims on these local dollars based on ideas introduced in the 2014 regular legislative session in the Senate. The proposals would have adjusted court procedures to promote efficiencies, narrowed the number of affected localities and reduced the dollar amounts taken by the state. The proposals were not included in the budget adopted in the special session.
25 Other Legislative Positions Water Quality FundingVML supports adequate funding for water quality improvements for sewage treatment plants, urban stormwater, combined sewer overflows, and sanitary sewer overflows required by federal and state legislation and regulation.Workers Compensation – Medical CostsVirginia should adopt Medicare-based fee schedules for setting medical provider fees in workers’ compensation cases, instead of the prevailing community rate standard now used. This will make providing workers’ compensation coverage more affordable and will adequately protect the financial interests of the medical providers of Virginia.
26 Other Legislative Positions Taxing, Licensing and Regulating Internet-based Businesses & ServicesIf the Commonwealth takes action to regulate private enterprises that emphasize the use of the Internet to either provide retail or facilitate lodging or ride-sharing services, state and local policies should (1) encourage a level playing field for competing services in the market place; (2) seek to preserve and/or replace local and state tax revenues; and (3) ensure safety and reliability for consumers.Transportation Networking CompaniesVML supports the continued option of local regulation of taxi companies.VML supports state regulation of ride-sharing companies as needed to ensure proper safety, liability, cleanliness, insurance coverage, local revenue, consideration of ADA access, and equitable service in communities.For taxing internet based services-local governments should be included in decision making
27 Other Legislative Positions Municipal Net MeteringVML supports (1) allowing local governments to aggregate the electric load of their governmental buildings, facilities, and other governmental operations for the purpose of net energy metering; and (2) raising the net-metering limit from 500 kilowatts to 2,000 kilowatts for non-residential customers.Hydraulic fracturing petroleum extractionThe process of hydraulic fracturing raises concerns about the potential pollution of groundwater, the depletion of water supplies and an increase in seismic activity in previously benign or inactive zones. The consequences potentially are costly and irreversible to local communities. VML supports a state regulatory program that addresses these concerns while protecting the authority of local governments to regulate this type of mining activity through its land use ordinances.What is net metering?• Install meter that measures 2-way flow of electricity for the purposes of crediting on-site renewable generation (i.e. solar panels).• Customers are charged only for the “net” power that they consume from the utility that has accumulated over a designated period;• Or If their renewable energy-generating systems make more electricity than is consumed, they may be credited or paid for the excess electricity contributed to the grid over that same period.Under current law a source of renewable generation on a municipal building can only serve the meter for that building. Municipal net metering would authorize local governments to aggregate the electric load of their governmental buildings, facilities, and any other governmental operations for the purpose of net energy metering from a single renewable energy generating facility (such as rooftop solar, wind turbine, or landfill gas).Why is this important? A large rooftop solar installation has the potential to meet the energy demands of multiple buildings. However, they aren’t cheap. Municipal net metering makes it more affordable.