Legislative Newsletter July 29, 2005

State Budget and Revenues

Virginia ended the fiscal year on June 30 with a surplus of more than $544 million, most of which, by law, must be deposited into the state's "rainy day" fund. Nearly $437 million will go to the fund, bringing its balance to more than $1.1 billion. Another $54 million is headed to the Water Quality Improvement Fund to upgrade wastewater treatment plants, while the Transportation Trust Fund will receive about $26 million. Governor Warner also plans to earmark about $25 million to assist localities that could be affected by the looming military base realignments.

State revenue collections in FY05 exceeded the previous year’s total by over 14%. Virginia was one of 42 states to experience revenue growth in FY05 that exceeded forecasts. The governor will brief the General Assembly money committees on the official year-end forecast at a joint meeting on August 29.

VRS Estimates Higher Contribution Rates

The Virginia Retirement System is estimating that higher teacher contribution rates will be required for FY07 and FY08. According to information presented recently by VRS officials, teacher retirement rates could reach 12.82% for the two-year period (not including the five percent employee contribution paid by most employers). This rate includes a retirement contribution rate of 10.83%, a health insurance credit rate of .59% and a group life insurance rate of 1.40% (rates for the current fiscal year are 6.62%, .55% and no life insurance contribution, for a total of 7.17%). Among the factors contributing to the expected higher rates include the downturn in the stock market several years ago (VRS utilizes a rolling five-year period to recognize its gains and losses) and a lowering of the projected investment return rate from 8% to 7.5%.

Typically, local governments pay about 60% of teacher retirement costs. In recent years, the General Assembly has set the budgeted contribution rates lower than the board certified rates. For example, the VRS Board had certified an 8.1% teacher retirement rate and .59% health insurance credit for FY06. Rates for employees of individual political subdivisions will be set this fall.

State Costs Estimated for Water Cleanup

State environmental officials have estimated the cost to the state government for cleaning up the Chesapeake Bay and other polluted waterways across Virginia to be $2.34 billion using current cost-sharing methods. The money would be spent to assist localities improve sewage plants and to help farmers prevent fertilizer runoff and fence cattle out of streams, among other things. Previously, officials had estimated total clean-up costs at $12.5 billion in federal, state and local funds, as well as dollars from sewer customers, factories and farmers. Of the $2.34 billion state cost, about one-half billion in state funds is estimated to be needed for the state share of sewage plant upgrades (the state currently funds about 50% of such plants’ capital costs), $580 million for the agriculture initiatives, and another $660 million for best management practices on non-agricultural lands. About $600 million would be needed for cleaning up rivers and streams outside the bay watershed.

Agricultural activities typically contribute the largest amount of pollutants to waterways, and officials say better agricultural practices and improved waste treatment provide the most pollution reduction for the fewest dollars. The Chesapeake Bay Commission also has identified several other cost-effective strategies that they say could result in significant progress in cleaning up the bay and its tributaries.

The HJR 640 joint subcommittee, which received these latest reports at a July 20 meeting, has been charged with examining Virginia’s polluted waterways and studying options for a long-term funding source to clean them up. Its next meeting is in late September.

Land Conservation Tax Credit Hearing to be Held

A General Assembly panel reviewing the state’s land conservation tax credit program will hold a public hearing next month to hear from interested parties about open space preservation efforts. The 1999 Land Conservation Incentives Act is of interest to local governments because it encourages land preservation by allowing an income tax credit of 50% of the fair market value for land conveyed to a public or private conservation agency. Members of the House and Senate Finance committees composing the group have learned that conservation easements and land preservation credits have helped the state make significant progress toward a 20% land conservation goal under the Chesapeake Bay 2000 agreement and have provided economic benefits as well. Donations nearly doubled between 2000 and 2004. The study committee meets Monday, August 29 at 12 noon in the General Assembly Building, with the public hearing to begin at 12:45 p.m.

General Assembly Contact Numbers for David Blount, TJPDC Legislative Liaison

804-644-3702 (phone)

804-783-8226 (fax)

979-7310 x350 (Charlottesville voicemail)

(Richmond email)