A digest of news from the General Assembly of interest to local governments
March 23, 2012
Budget | Education | Eminent Domain | Environment | Finance/Taxes | FOIA |
Human Services | Land Use | Local Authority | Personnel | Public Safety |
Retirement/Benefits | Transportation | Miscellaneous
Budget
Progress: Senate Finance Committee OKs budget
package
Compromise signals favorable Senate vote Monday
The Senate Finance Committee approved a bi-partisan series of amendments on
Thursday designed to drive the stalled state budget to a House-Senate conference
committee sometime next week.
The amendment package can be found on the Senate Finance Committee’s
website (http://bit.ly/GJAzc8). To fully understand the Senate Finance Committee’s
recommendations, this amendment package must be read along with the amendments
approved by the committee during the regular session (http://bit.ly/xP6eX1). Thursday’s
amendment package, in essence, alters the budget stance taken by the Senate Finance
Committee in February.
A copy of the budget amendments that integrates yesterday’s committee action
and earlier committee actions will be made available Monday on the LIS system.
The items covered below focus on the most important changes agreed to by the
committee. A table that summarizes and compares the House and Senate Finance
Committee’s positions on budget issues of importance to VML members is also included.
Retirement Rates
The Senate Finance Committee approved language eliminating the introduced
budget position establishing an 8 percent investment return rate. This would mean the 7
percent return rate used by the VRS board of trustees would be used to set retirement
rates. (Item 468 #8s)
Fines and Fees
The Senate Finance Committee kept its amendment that takes $3.6 million a year
in local fines and puts them in the Literary Fund. (Item 139 #5s). The attached chart
(http://bit.ly/GL1Jwj) shows the data used by the Senate Finance Committee in
developing this budget amendment. Localities highlighted in yellow would be affected
by this amendment in the coming biennium.
Education
The Senate Finance Committee made some additional changes to its education
budget, including these points:
 Revises the estimate of additional sales tax revenue from SB 597 (Amazon.com).
The Senate now expects $5.45 million in additional sales tax revenues for
education to be collected in FY14. This amount is reduced by basic aid, resulting
in a budgeted increase of $2.4 million in sales tax distribution for schools in
FY14. (Item 139#4s)
 Appropriates $22.5 million in each year to assist school divisions with the
payment of the increased teacher retirement rates in the introduced budget.
Funding is based on the distribution of SOQ funding. The budget adopted by the
Senate Finance Committee in February had a distribution of $45 million in FY13
only. A spreadsheet in the amendment shows distribution by school division.
(Item 139 #6s)
 Appropriates $30.5 million in FY13 and $25.4 million in FY14 to provide onetime funding in recognition of the adverse impact of the mortgage crisis on local
property tax revenue and to assist with costs related to inflation and the Virginia
Preschool Initiative. A spreadsheet in the amendment shows distribution by
school division. (Item 472.10 #1s)
 Makes a contingent appropriation of $18.5 million in FY14 for the cost of
competing adjustment for support positions. This amount, when combined with
the $30.1 million in FY13 and $12.1 million in FY14 included in the earlier
version of the Senate budget, restores funding for the cost of competing
adjustment for support personnel included in the introduced budget. Funding is
contingent on general fund revenues in FY13 exceeding the official estimate. This
makes the cost-of-competing third in line to receive surplus revenues. Deposits to
the rainy day fund and to the Water Quality Improvement Fund would be made
first. (Item 472.110 #2s)
Transportation: Concessions for Hampton Roads, Northern Va.
Three separate amendments adopted by the Senate Finance Committee are aimed
at reducing toll collections in Hampton Roads and Northern Virginia. The first directs
VDOT to negotiate with a newly established private tolling authority on postponing
collection of new tunnel tolls in South Hampton Roads until Jan. 1, 2014. Collection of
tolls from both the downtown and midtown tunnels in Portsmouth and Norfolk is
scheduled to begin later this year with one-way fees as much as $1.84 during rush hours.
Under the current agreement with Elizabeth River Crossings, a private tolling authority,
tolls are to be imposed for a period of three to four years before work starts on a new
Midtown tunnel, or to improve the existing tunnels and extend the Martin Luther King
Freeway. A second related amendment was also adopted to authorize an additional $400
million bond issuance to be backed by future federal allocations to Virginia for road
construction. Last year the General Assembly authorized $1.1 billion in so-called
GARVEE bonds as part of the governor’s plan to issue nearly $3 billion in new debt for
road construction. This issuance would provide potential funds to offset future tolls to be
collected by Elizabeth River Crossings. Each $100 million pumped into the project has
the potential of reducing the tolls by 10 cents.
A third amendment allows for an additional $300 million in bond authority to
offset projected toll increases on the Dulles Toll Road necessary to fund Phase 2 of the
Dulles Metrorail expansion. This additional bond authority would increase Virginia’s
tax-supported debt and is likely to be opposed by House Republicans who oppose issuing
more tax-supported debt.
Transportation: Long-range planning, use of surplus
The remaining amendments address the governor’s transportation bill that the
General Assembly adopted on the last day of the regular session. The first exempts all
cities, towns and the counties of Arlington and Henrico from the bill’s requirement to
submit comprehensive plan updates to VDOT for a consistency review with the state’s
Six-Year Plan. Under this requirement, plans that are found inconsistent may result in
the Commonwealth Transportation Board reallocating funds previously allocated to the
non-conforming project.
The second amendment removes the ability of the governor to allocate up to 100
percent of year-end general fund surpluses to transportation. Under current statute he is
limited to allocating 67 percent of the year-end surplus. This is important because
additional general fund dollars for transportation come at the expense of funding the
state’s commitment to education and public safety.
As part of the committee debate on the transportation budget amendments, Sen.
John Watkins and Sen. Frank Wagner expressed their frustration with the state’s inability
to keep up with Virginia’s transportation infrastructure needs. They pointed out the need
for strong executive branch leadership to forge a sustainable, reliable funding package. It
was apparent to most observers in Thursday’s committee meeting that the senators are
tiring of fiscal sleights-of-hand to meet the state’s challenges.
Overview of key local items in House, Senate budgets
VML budget amendments
Restore a 3.96 percent inflation
factor in each year to support
health insurance premiums,
utilities, and gasoline costs for
local school divisions - $54.1
million in each year
Exclude federal stimulus
dollars from DOE’s rebenchmarking calculations $54 million in each year
Increase 599 funding to carry
out the original intent on how
the program is to be funded$5.7 million in FY13
Allow localities to require Plan
1 employees to pay the 5
House
Restores $53 million in
FY13 and $53.1 million in
FY14
Senate
Provides $30.5 million in
FY13 and $25.4 million in
FY14 for costs related to
inflation and Preschool
Initiative
VML amendment not funded
VML amendment not
funded
VML amendment not funded
VML amendment not
funded. Language only
reinforcing the annexation
moratorium
Local employees must pay
the 5 percent member
Language amendment
included
percent member retirement
contribution
Address administrative issues
with Line of Duty Act by
allowing localities to
determine eligibility and pay
benefits directly
Language amendment
included to allow localities
that opt out to determine
eligibility and pay benefits.
Deletes governor’s executive
amendment to create a
working group to study the
Line of Duty Act.
Restore special education
wrap-around funding to the
Comprehensive Services Act
for At-Risk Youth & Families
funding pool - $11.5 million in
each year
Add training funds for CSA
and language directing use of
funds - $50,000 in each year
Local payments to the state
(Aid to Localities reduction).
The governor proposed
funding to bring the Aid to
Localities reduction down to
$50 million in FY13 and $45
million in FY14.
Not restored.
Other amendments of note
VRS teacher retirement
contribution rates
contribution under SB 497,
passed in the Regular
Session, and must give an
off-setting salary increase.
School employee
contributions may be
phased in over five years.
Creates a working group of
administration officials and
legislators to study the Line
of Duty Act and to study
the heart/lung presumption
for DMV employees, with
study due by Oct. 2012.
Introduced budget included
a working group made up
of administrative officials,
with report due by July,
2012.
Restores $5.4 million in the
first year and requests a
report on the effectiveness
of this program
VML amendment not funded
VML amendment not
funded
Proposes an additional $22.5
million in each year, to bring
the local payments to the
state down to $27.5 million
in FY13 and $22.5 million in
FY14.
Accepts the governor’s
amendment. The budget
adopted by the Senate
committee in February
included restoration of up to
$50 million in FY13, which
would eliminate the local
payment for next year only.
However, the committee
plan now proposes to use
that money to pay for K-12
inflation and Preschool
Initiative.
Sets teacher retirement rate
to be charged school
divisions at 10.23 percent.
Provides $45 million in
FY13 for additional
assistance for teacher
Salary increases
Local retirement rates
Literary Fund
Provides $30 million a year
in state funding to pay an
additional contribution of
1.43 percent. This amount is
the repayment of the
unfunded liability for teacher
retirement that was not paid
in the current biennium.
Establishes a reserve of
$42.2 million for a 2 percent
salary increase for state
employees, constitutional
officers and their employees,
effective July 1, 2013,
contingent on revenues. Of
the $42.2 million, $9 million
is for the constitutional
officers and employees’
salary increases. No salary
increase for other statefunded local employees
included.
retirement.
A 2 percent salary increase
for state employees and
state-supported local
employees, effective June
25, 2013 for state
employees and July 1, 2013
for state-supported
personnel, at a cost of $58.8
million; of that $18.3
million is for the increase
for state-supported local
employees. A 3 percent
bonus for state employees,
effective December 2012
contingent on availability of
general fund revenues.
Requires local retirement
Eliminates use of 8 percent
rates to be based on the same investment return rate in
assumptions as those used by determination of state
the General Assembly, for a
retirement contribution
projected one-time savings to rates in support of the VRS
localities of $70 million.
assumptions.
Not addressed.
Puts $3.6 million in each
year from local fines in the
Literary Fund. In localities
collecting more than 30
percent of local fines and
fees from local ordinances,
one-half of the excess over
30 percent shall be
transferred to the Literary
Fund to be used for teacher
retirement, with
corresponding reduction in
state general fund support.
Retirement / Benefits
Local governments ask governor to amend
retirement bill
Local governments continue to seek relief from the bill that requires local
employees to pay the mandatory 5 percent employee VRS contribution and requires
employers to give a 5 percent salary increase in return.
SB 497 will cost local governments tens of millions of dollars. Its effects have
riled local governments who are in the middle of adopting budgets for next year.
VML joined with three other associations earlier this week in asking Gov. Bob
McDonnell to consider the following amendments:



Place a re-enactment clause on the legislation so that the entire bill can be
reconsidered in the 2013 session.
Failing that, give (but not require) local employers the authority to require all
local employees to pay the 5 percent member contribution.
Remove the requirement in the current version of the bill that requires local
employers to give their employees a 5 percent salary increase.
Retirement misconceptions explored
The debate swirling around SB 497 has included a number of misconceptions that
have been repeated in discussions by legislators and in media accounts.
Myth 1: SB 497 will improve the system’s funding
Fact: The “5 for 5” swap does not help the fiscal health of VRS. The fiscal
impact statement for this bill states: “There will be no impact on the VRS trust fund from
this bill, because it causes a change to the source of funds, not the amount of such funds.”
In fact, the bill will increase the unfunded liabilities of local plans.
Myth 2: Local retirement plans are putting the state at-risk
Fact: The liabilities of local retirement plans are assigned to local governments,
not the state. The reason the state plans are at-risk is that the state has not funded the rates
certified by the VRS actuary for most of the last two decades. Local governments, on the
other hand, are required to fund the certified rates.
Myth 3: Local retirement plans are not well funded
Fact 1: More than 88 percent of the 579 locally-funded VRS plans are better
funded than the state employee fund. The numbers jump to 92 percent better funded
when comparing local funded status to state police and teachers.
Fact 2: Another way of looking at this issue is by comparing the amount of
unfunded liability to the number of employees covered by the plan. Here are the results
for the state employees, teachers and local plans:
Unfunded liability per active employee
over 30-year amortization period
Employee group
Unfunded
liability
Number of
active
Unfunded liability
per active employee
employees
over 30-year
amortization period
$2,637
$2,874
$1,277
State employees
$6 billion
75,820
Teachers
$12.6 billion
146,152
Local political
$4 billion
104,385
subdivisions (579)
Sources: VRS valuation reports, 2011; SFC Pension Reform Conference Proposal
handout
Myth 4: Localities are just looking at the short term
Fact: SB 497 makes no difference in either the long term or the short term in how
much money is put into VRS.
The state has looked at long-term solutions. VML has not opposed those bills.
Long-term proposals for dealing with VRS were supposedly put into place two years ago
with a decrease of benefits for employees hired after July 1, 2010. Another bill that has
passed the General Assembly this year, SB 498, makes further changes to the benefit
structure for Plan 2 employees and for Plan 1 employees who are not vested (do not have
5 years of service). The bill further creates a hybrid retirement plan for employees hired
after January 1, 2014.
Again, the issue of who pays the 5 percent member contribution, particularly
when coupled with a mandatory salary increase, is a separate issue from the pension
reform efforts contemplated under SB 498.
Staff contact: Mary Jo Fields, mfields@vml.org.