State Budget Outlook
2015 VML Legislative Priorities
REGIONAL SUPPERS
W Y T H E V I L L E , FA R M V I L L E , N E W P O R T N E W S , V I R G I N I A B E A C H , A L E X A N D R I A , A N D H A R R I S O N B U R G
OC TOBER -NOVEMBER , 2014
Economic Realities Confound Projections
FEBRUARY REVENUE FORECAST
INTERIM REVENUE FORECAST (AUGUST)
1.
Modest 1% revenue growth in FY14 over
FY13 collections
1.
2.
Healthy 5.2% revenue growth projected for 2.
FY15
August (Interim) forecast for fiscal year
2015 drops to 2.7%
3.
Revenue increase in FY16 projected to slip
to 4.1%
August forecast for fiscal year 2016 skids
down to 2.7%
3.
Actual FY14 revenues drop 1.6% compared
to year earlier
2
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:
Indicator
FY14 Projections
FY14 Actuals
Wages & Salaries Growth
2.6%
1.1%
Employment Growth
1.0%
0.4%
Professional/Business Services
1.0%
(1.8%)
Personal Income
2.6%
1.1%
Sales & Use
(4.4%)
(4.8%)
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State Balances Budget in Two Parts:
June Actions Tackle $1.55 Billion Shortfall
 Governor McAuliffe and General Assembly parsed the revenue shortfall as follows:
$350.0 million in FY14
$950.0 million in FY15
$600.0 million in FY16
 Broad 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.
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Appropriated Revenue Reserve
ITEM
AMOUNT in MILLIONS
Higher Education
$183.9
K-12 Public Education
$166.6
Health and Human Resources
$80.1
Commerce and Trade
39.0
Public Safety and Veteran Affairs
27.0
Compensation
$168.3
Additional Cash Balances and Revenue Adjustments
$177.7
TOTAL
$842.6
5
Cuts to local programs made in June…
• 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
program
• Proposed Line of Duty Act funding was
eliminated
• Governor’s Opportunity Fund reduced to $10.0
million each year
• Enterprise 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)
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But these local programs were spared…
o SOQ re-benchmarking
o Pre-K “hold harmless” slots ($4.6 million)
o Year round school grants ($3.4 million)
o HB 599 local police department allocations kept at FY 2014 level
o Training for assistant commonwealth’s attorneys ($200,000)
o Instructional Specialists in schools not accredited ($3.6 million)
o Teach for America grants ($1.0 million)
o Water Quality Improvement Fund ($31.4 million in FY15)
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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.
8
Closing the Budget Gap in Sept. with Spending
Cuts – Both Real and Conceptual
 Overall strategy agreed to by the governor and General Assembly consists of two major pieces:
1. Grabbing $267.7 million in agency unexpended balances, cash transfers, and reversions
2. Setting up four reversion clearing accounts to the tune of $614.4 million
SEPTEMBER BUDGET STRATEGIES
($S IN MILLIONS)
Action
Balances/Transfers/Other
FY 2015
FY 2016
$139.7
$78.0
State Agencies
$92. 4
$100.0
Higher Education
$45.0
$45.0
Aid to Localities
$30.0
$30.0
Unspecified
$50.0
$272.0
$357.1
$525.0
Reversion Accounts:
TOTAL
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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.
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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.
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Time to Take Action
 VML and VACo wrote to Gov. McAuliffe prior to the General Assembly’s return to Richmond in
September.
 The letter made four critical points:
1. Economic and budget situation today differs significantly from financial conditions before the Great
Recession.
2. Relying exclusively on spending cuts jeopardizes mandated public services. Public education must be
the budget’s highest priority.
3. 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.
4. 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.
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State Support for Local Programs is Declining
Locals' Portion of State GF Budget
53%
52%
51%
50%
49%
48%
47%
46%
45%
44%
43%
52.2%
47.7%
2008-10 biennium
2010-12 biennium
46.5%
46.7%
2012-14 biennium
2014-16 biennium
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Education is the Driving Force in Local Budgets
Inflation-Adjusted State Per Pupil K-12 Funding
Reveals Even Larger Declines in State Aid
(2007 $ - All State Appropriated Funds)
$5,200
$5,000
$5,039
$4,868
$4,807
$4,720
$4,800
$4,600
$4,342
$4,400
$4,175
$4,200
$4,242
$4,250
2013
2014
$4,240
$4,083
$4,000
2007
2008
2009
2010
2011
2012
2015
2016
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Now is the Time to Act
1.
Talk to legislators before the start of the 2015 session.
2.
The message should explain:
1.
2.
3.
4.
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.
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2015 VML Legislative Priorities
Education Funding
1. VML opposes changes that shift funding responsibility from the state to
localities.
2. 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.
3. VML also supports implementation of JLARC recommendations to promote
3rd grade reading performance.
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4 most expensive unfunded SOQ standards
Assistant principal for every 400 students - $70.6 million
Reading specialist for every 1,000 students - $51.3 million
Math specialist for every 1,000 students - $35 million
Reduce speech-related language pathologist caseload from 68 to 60 – $51.3 million
Total = $208.2 million
Source: VA Dept. of Education
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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.
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2015 VML Legislative Priorities
Transportation Funding
The 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 SixYear Transportation Improvement Program.
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2015 VML Legislative Priorities
State and Local Government Fiscal Relationship
VML opposes:
Restricting local taxing authority without granting alternative revenue authority with reliable,
sustainable revenue sources
Confiscating or redirecting local tax revenues
Requiring localities to bear expenses for costs of new state requirements
Shifting traditional state funding responsibilities to local governments
Piggybacking state fees, taxes or surcharges on local government services
Placing additional administrative burdens on local governments
Enacting State budget cuts without specifying the programs to be affected by the cuts (such as the
$30 million reduction in Aid to Localities)
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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.
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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.”
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2015 VML Legislative Priorities
Low Performing Schools
VML 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.
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Other Legislative Positions
First Day Introduction for Bills with Local Fiscal Impact
VML supports reinstituting the requirement for first day introduction of bills with a local fiscal
impact.
Local Collections
VML supports repeal of language in the 2014 Appropriation Act that effectively bars local
Treasurers from collecting delinquent fines and costs.
Local Fines and Fees
VML supports a budget amendment to end state confiscation of local fines, fees and forfeitures.
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Other Legislative Positions
Water Quality Funding
VML 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 Costs
Virginia 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.
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Other Legislative Positions
Taxing, Licensing and Regulating Internet-based Businesses & Services
If 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 Companies
VML 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.
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Other Legislative Positions
Municipal Net Metering
VML 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 extraction
The 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.
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