Legislative Newsletter No. 17— December 20, 2004

2005 General Assembly Calendar

January 12 — 2005 General Assembly convenes; bill pre-filing ends
January 21 — All bills and resolutions to be submitted
February 6 — House and Senate versions of the budget released
February 8 — "Crossover" day of bills

State Budget

Governor Warner submitted proposed amendments to the 2004-2006 state budget to the General Assembly money committees the end of last week, State revenues for the remainder of the biennium are expected to total just over $900 million more than projected when the biennial spending plan was approved this past spring. As a result, the proposed budget assumes revised revenue growth rates of 8.2% for the remainder of FY05 and 4.3% in FY06.
The Governor's amendments emphasize one-time spending as opposed to ongoing spending (a big chunk of this goes to transportation; see article below), boosts contributions to the state's "rainy day" fund by nearly $230 million, and contains no new tax-supported debt. He also proposes to complete the planned reduction in the sales tax on food next July, rather than phasing out the 1½ cents of the tax over the next three years. This will reduce state revenues by nearly $100 million.
The amendments do not reinstate car tax reimbursement funding in FY06 for spring billers. The projected shortfall, however, has been lowered from $270 million to about $229 million. On this issue, the budget also 1) includes $24 million in one-time transitional funding to localities for bills for 2005 and earlier that normally would be paid after July 1, 2006; 2) uses calendar year 2004 as the base year for distribution, rather than CY05; 3) provides the option for localities to show the dollar amount of car tax relief, rather than multiple tax rates; and 4) provides a statement of legislative intent regarding payment of spring billers with the typical closeout period applied under modified accrual accounting methods (by August 15 of each fiscal year). Please note that the proposed budget language does not list payment schedules; these are to be outlined in correspondence from the Secretary of Finance to the governor.
The budget recommends 3% salary increases for state employees, state-supported local employees, higher education faculty and public school teachers, effective December 1, 2005. The legislature previously had set aside nearly $27 million for salary increases in the second year. The amount for teacher salaries represents the state share of a 3% increase, but the funding is not intended as a mandate to increase salaries. The budget for public education includes a number of technical adjustments, but also provides additional lottery profits to school divisions ($35.2 million), an additional $20 million for the interest rate subsidy program for school construction loans, and funds a state payment of 5 cents per breakfast for the school breakfast program (this will enable receipt of additional federal funding).

Following are some other significant budget items proposed by the governor of interest to local governments. Look for additional information forthcoming from VACo and VML:

• No changes were made to the HB 599 law enforcement funding program for the current fiscal year, but the amount to be distributed is increased by $4.2 million in FY06.
• Funds for the Water Quality Improvement Fund for point and nonpoint source pollution reduction are increased by $32.4 million.
• The proposal recommends $700,000 for technical and financial assistance to localities to develop water supply plans.
• A proposed survey of Virginia residents about their perceptions of and demand for park and natural area resources, to be included in the 2007 Virginia Outdoors Plan, will cost $80,000.
• The budget provides over $450,000 to accelerate implementation of the Secretary of Agriculture and Forestry to January 1. The governor named former delegate Bob Bloxom to that position last week.
• The budget proposes nearly $1.4 million to improve access to dental services for underserved citizens lacking financial means to pay for dental care. Another $5.9 million is provided for a 10% increase in reimbursement rates for dental services under Medicaid and FAMIS.
• Funding of $500,000 is provided for additional mental health services for children and adolescents with serious emotional disturbances. The services address the needs of children and adolescents who qualify but who are not mandated for services under the Comprehensive Services Act (no additional dollars were included for CSA).
• Nearly $750,000 is provided to fund a lifetime benefit for individuals covered under the Medicaid waiver program that transition from facilities to communities. These funds are matched with federal dollars and this benefit would take effect next September.
• The budget adds general fund support for increasing Temporary Assistance for Needy Families (TANF) and Virginia Initiative for Employment not Welfare (VIEW) childcare caseloads. The general fund will supplant existing TANF being spent on at risk childcare, allowing the Department of Social Services to match the additional general funds with federal dollars and free TANF dollars at a two-to-one rate.
• The budget proposes an increase of about $370,000 in FY06 for the pre- and post-incarceration professional services (PAPIS) program that provides guidance and other resources for re-entry into the local community by incarcerated adult offenders.
• The proposed spending plan establishes a federally funded hazard mitigation planning coordinator position responsible for managing all mitigation planning activities statewide.
• The budget provides $2.1 million (general and non-general funds) to begin implementation of the revised juvenile correctional center utilization plan. Juvenile offenders will be shifted within the system to meet federal regulations, maximize facilities and minimize costs.

As is typical, the legislature will hold public hearings on the proposed budget prior to the January start of the session. The closest one to our region will be held on Tuesday, January 4 at Germanna Community College's (Fredericksburg area campus) beginning at 12 noon. A hearing also will be held Monday, January 17, beginning at 1 p.m., in the General Assembly Building.

Governor Releases Transportation Proposal

Governor Warner unveiled his transportation initiative on December 9, and transportation funding is expected to be a primary focus of the upcoming session, as various legislators also will be presenting their own funding packages. The governor's plan totals nearly $825 million, much of which will be one-time funding from the general fund (about $374 million), with about $450 million from additional state and federal transportation revenues that Virginia will receive in the current budget cycle.
The package proposes to use the dollars as follows: 1) to eliminate deficits on projects completed as of this past June; 2) to inject $147 million into the six-year plan; 3) to establish a revolving loan fund for PPTA projects; 4) to provide $23.2 million to rail projects (using the three percent tax on rental vehicles); 4) to provide $80 million for strengthening local partnerships by encouraging local oversight of their own projects; 5) to provide $97 million for maintenance needs; and 6) to fund four transit projects (rail cars for Metro and Va. Railway Express, Va. Beach bus rapid transit and statewide bus purchases).
Concerning the local partnerships initiative, the budget proposes that the state funds replace federal funds, and that the freed-up federal dollars remain in the locality and be used to advance another project. Localities would identify construction projects that are funded from federal funds allocated through the state allocation formulas and submit them to the state, which would consider the requests on a first-come, first-served basis. A Local Partnership Team would be set up by VDOT to provide technical assistance and training to localities for this initiative.

Growth Commission Completes Run

The Commission on Growth and Economic Development held what likely was its last meeting in early December, adjourning without making recommendations, but encouraging stakeholders to continue to meet and examine ways to offset the costs of school infrastructure brought on by new developments. Specifically, the workgroup that has been meeting to examine adequate public facilities ordinances (APFO) now is discussing how authority for service districts (15.2-2403 of the Code) might be expanded to include school facility improvements. Such districts could be created by the developers of large residential projects to pay for schools that would be needed to serve the students the housing would generate. Homebuyers would then fund the repayment of some school capital costs. A bill could appear this coming session, but is not likely to be approved. Recall that this subcommittee, composed of legislators and representatives from local government and homebuilding, real estate and environmental interests, has worked the past two years to devise legislation to help localities offset the costs of facilities such as schools and roads when the impacts of development occur.
Also at the recent meeting, the Commission's co-chair, Del. Frank Hall, expressed concern about local collection of proffers "upfront" (prior to approval to build) and escalation clauses that can increase the amount of a pledged proffer when it actually is paid at a later date, and suggested there likely would be legislation to address these concerns.
The Commission was established in 2001 to examine a variety of issues, from local infrastructure and challenges facing inner cities, to brownfields and open space preservation issues. The following year, its work was extended for an additional two years, and then at the 2004 session, the work of the group was extended for an additional year, primarily to allow the workgroup to continue its examination of APFO and also to study conditional (proffered) zoning.

JLARC Spending Reports

The Code of Virginia requires the Joint Legislative Audit and Review Commission (JLARC) to annually review and report on overall state spending as well as state dollars provided to localities for public education. JLARC staff recently made these reports to senior legislators. The state spending report noted that 23% inflation, state population growth of 12%, agency workload and service population increases and policy choices were primary drivers behind state spending increases over the past decade (FY1995-FY2004). The largest spending growth occurred in Medicaid ($1.7 billion), Standards of Quality (SOQ) funding ($931 million) and car tax relief ($892 million). In all, 20 core programs accounted for just over 80% of the budget growth.
The SOQ report noted that total SOQ state spending in FY2004 was $3.66 billion. Of this amount, $1.6 billion was sent to 10 school divisions that educate nearly half of the state's 1.2 million public school students. JLARC also received a biennial status report on the Virginia Retirement System, whose market value the end of September stood at just under $40 billion. Investment returns were up 14% this past year, but have fallen short of the assumed return of 8% in the fiscal year to date, as well as the three-year and five-year return periods.

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