Legislative Newsletter No. 15— August 24, 2004

Budget, Revenue and Finance Issues

Governor Warner has told state budget writers that strong revenue collections during the fourth quarter of FY 2004, driven in part by consumer confidence, were responsible for a $324 million state surplus at the end of June. It was the strongest quarter in some 15 years and the second strongest in 20 years. Sales tax collections during the April-June period surged ahead at the fastest pace since 1985, growing more than 15% over the previous year and twice as fast as income tax collections during the quarter. Corporate income tax collections were the second largest in history, while recordation taxes were $41 million above the forecasted amount. As noted in last month's newsletter, most of the surplus already is earmarked for existing, high priority commitments, including required deposits into the revenue stabilization fund. The governor noted in his remarks that his budget proposals this past year included new money for transportation, but that the final compromise did not include any. Transportation funding likely will be a big issue during the 2005 General Assembly. Governor Warner also announced that a $100 increase in the personal exemption for persons filing a Virginia tax return, slated to take effect January 1, 2006, will be implemented one year earlier, on January 1, 2005, as was authorized by the revenue package the legislature approved at this spring's special session.
As for the coming months, administration officials have noted a "soft patch" in economic forecasts based on a stall in job growth this summer (following an increase in the spring). As a result, officials will be watching employment and income figures, as well as the stock market, which is off this year after gains in 2003, in preparing revised revenue forecasts and amendments to the current budget to be considered in the next legislative session.

A joint subcommittee examining impacts of collecting remote sales taxes on the state's economy held its first meeting last week. The group is charged with determining the amount of revenue that would be generated (for the state, localities and the transportation fund) and the impact on small businesses if taxes on remote sales were collected. For the past several years, there has been an ongoing national study and discussion of the sales and use tax, known as the Steamlined Sales Tax Project, which has an eye toward simplifying taxation of interstate sales. Essentially, this simplification revolves around participation in a multi-state agreement to have out-of-state vendors remit tax on remote sales. At last week's meeting, members received an update on the project, including that 21 states have enacted all or part of the streamlined sales tax agreement that was approved by participating states in late 2002. The Northern Virginia Technology Council expressed its concerns about Virginia changing its laws to comply with the agreement, especially the possible impacts on small businesses. A representative of the National Retail Federation endorsed the agreement, saying it would level the playing field for everyone selling goods. The subcommittee has not set a date for a future meeting.

Growth and Economic Development Study Underway

The Commission on Growth and Economic Development, which has had various tasks since its formation in 2001, will focus its efforts in three areas this year. The workgroup of legislators and stakeholders established last year to examine adequate public facilities will continue its work. After months of brainstorming and review of several drafts of legislation, that workgroup could not reach consensus on a bill to be considered this past session. This year's efforts will concentrate on impact fee provisions for educational facilities. The full commission will consider other impact fee issues and proffer zoning. Senator John Watkins said that the "pinch of transportation" being felt now would drive some of the group's discussions, as the state (as noted above) did not include new revenue for transportation projects when it approved the 2004-2006 budget.
Several commission members said they wanted to know more about the local proffer system. Thus, the next meeting of the panel likely will include a review of current law regarding proffers and impact fees and comment from local governments about the process.

Affordable Housing Panel Sets Workplan

A workgroup examining regulatory and financial obstacles to affordable housing has begun its work. The panel of legislators and local government, housing and building industry representatives offered specific issues it wants to examine over the next 15 months. It will report its findings and recommendations to the full Housing Study Commission, which has been charged with examining various housing issues and developing a statewide housing policy.
Based on discussion by the members, it is likely that their study will cover a host of issues, including the delivery of housing, housing choice and prices, funding for infrastructure needed to support housing, Section 8 funds, the Virginia Housing Partnership Fund and various issues related to land use, comprehensive plans and the processes used by local governments in approving rezonings and plats so that housing can be constructed. On this latter point, it is likely that developers who are complaining about the process and local planning staff who must review requests and plans will be brought to the workgroup to explain their perspective. That could happen at the workgroup's next meeting in the fall.

Comments Sought on Recycling Initiatives

A subcommittee of the Virginia Recycling Markets Development Council (VRMDC) is seeking comment from local governments on ways the VRMDC, the private sector, or state agencies can assist localities in meeting the state's recycling mandate. It particularly is interested in feedback about 1) identifying markets for recyclables, 2) eliminating barriers to getting recyclable materials to market and 3) recycling equipment needs. The subcommittee especially wants to hear from local governments having difficulty meeting the 25% recycling rate. Public comment will be taken at a meeting of the subcommittee on Tuesday, September 7 in Roanoke. Written comments also can be submitted (prior to September 7) to G. Stephen Coe at the Department of Environmental Quality, 629 E. Main St., Richmond, VA 23219.
During the 2004 General Assembly, the duties of the VRMDC were revised to focus more on assisting local governments and regional authorities in meeting state recycling mandates and identifying markets for recycled or recovered materials they collect or generate.