Legislative Newsletter No. 16— November 24, 2004

State Budget Issues

State revenues for the remainder of the biennium could total $800 million to $1 billion more than projected when the 2004-2006 spending plan was approved this past spring. Revenue growth is expected to be about 8% in FY05 and about 6% in FY06 (revised revenue projections will be part of Governor Warner's proposed amendments to the budget to be released on December 17).
Though dollars available for spending will be on the rise, legislators are being advised on several fronts to use caution. Governor Warner has urged spending restraint so that budget gaps don't arise in the next biennium. The General Assembly's money committees also have heard strong messages from their chairmen to use the excess dollars for one-time expenses and to honor past commitments. At a recent retreat of the House Appropriations Committee, Chairman Vince Callahan stated his top three priorities were ending the accelerated sales tax gimmick adopted several years ago, putting money toward capital projects that were coming in over budget and assisting localities with upgrading wastewater treatment facilities with additional funding to the Water Quality Improvement Fund. Likewise, Senator John Chichester charged his colleagues who gathered last week to work on the unfinished business of previous years, such as the accelerated sales tax issue, the elimination of the state sales tax on food, and of course, transportation (see related story below). There was little discussion at both retreats about the $270 million elimination of car tax reimbursements in FY06. However, both money committee staffs reported the shortfall as a state obligation in the 2006-2008 biennial budget.
Other needs and desires will compete for the excess funding. About $200 million is expected to be needed for additional Medicaid costs. Some legislators want to use the surplus to borrow money for transportation needs left out of the budget this past year. Also, there will be pressure to provide additional employee compensation in a year in which House of Delegates members face election. Legislators also are looking ahead to the next biennial budget, to be crafted in 2006, which will require deposits to the "rainy day" fund, operating dollars for two new prisons coming on line, and likely another big re-calculation of education costs.

Transportation Issues Draw Attention

Governor Warner is expected to unveil his transportation initiative as early as next week. It's one that likely will emphasize public-private partnerships and greater reliance on rail and transit systems, but no new taxes. He has suggested he will base his modest program on one-time revenues and tax collections from the growing economy.
Meanwhile, staff for the Senate Finance Committee has painted a less-than-rosy picture about the transportation challenges facing state policymakers. The report notes that the state has added only seven percent capacity to lane miles of highway since 1986, the year of a special legislative session on transportation, while demands have soared because of surges in vehicle miles traveled and the number of licensed drivers and registered vehicles (transit ridership also increased during the period). It states that the gasoline tax, currently at 17.5 cents/gallon and unchanged in nearly 20 years, is really worth about 10.5 cents/gallon today. State dollars spent on road maintenance, about $445 million in 1986, now total $1.3 billion and are expected to increase by 16% in the current Six Year Improvement Plan, while the construction budget is projected to shrink by 29%.
The report suggests various strategies for managing transportation capacity, including continuing the reforms underway at VDOT, developing stronger partnerships between VDOT and localities (in this category the report mentions providing more local governments with the option to assess impact fees to address development costs), using technology wisely and better land use planning. In developing new capacity, the report suggests a closer look at projects under the Public-Private Transportation Act and utilization of transit and rail.

Environmental Issues Draw Discussion

Several environmental issues are positioning themselves for discussion during the coming General Assembly session. The Chesapeake Bay Foundation is proposing that local governments collect a new "flush" tax to help finance clean up of the Bay and polluted rivers and streams in Virginia. It is endorsing this user fee on households and industries that use sewage treatment and septic systems, to be collected by local governments, then turned over to the state for deposit into the Water Quality Improvement Fund. The group proposed a fee of $52/year per household and $1,200/year per industrial facility.
Late last month, the Chesapeake Bay Watershed Blue Ribbon Finance Panel, headed by former Governor Baliles, released a multi-year plan to clean up the Bay. It recommends that the state form an authority to administer state and federal funds aimed at reducing pollutants coming from treatment plants and agricultural and urban runoff. The panel also endorsed state surcharge programs throughout the Bay watershed, as noted above.

Growth and Economic Development Commission Meets

The Commission on Growth and Economic Development, and its subcommittee examining "adequate public facilities," met earlier this month. The subcommittee, composed of legislators and representatives from local government and homebuilding, real estate and environmental interests, met for the first time this year to continue efforts to devise legislation authorizing localities to adopt adequate public facilities ordinances that would require provision of facilities such as schools and roads when the impacts of development occur. The workgroup's focus previously had narrowed to discussion of school infrastructure and revenues available to pay for new or expanded school buildings. A couple of hours of discussion at this meeting yielded little progress on devising language for an ordinance, and prospects for agreement at this point look slim. Members asked that information about housing costs, where homes are being built and who is buying them in high growth areas be provided. The panel also will examine revenue streams that might be utilized for school facility needs, including local income taxes, meals taxes and proffers and transfer taxes.
The full commission also met to hear from local government representatives about how proffer systems work. Three localities showcased their systems for determining, collecting and expending cash proffers. All three noted that schools and roads are the major costs items impacted by new development and on which proffered dollars are spent. The Commission likely will hold its final meeting of the interim in late November or early December.

Coming Up

**For questions or additional information, please contact David Blount, TJPD Legislative Liaison, at 979-7310, x350 or .