Legislative Newsletter - September 24, 2007

Number 12

Legislators Mull State Revenue Picture

State policymakers continue to mull ways to deal with a $600 million-plus revenue shortfall in the current fiscal year. Administration officials last week said that a small number of state employee layoffs are possible, and continued to suggest use of the state’s “rainy day” fund to help close the budget gap. Legislative leaders, however, are resisting such calls, saying money should be taken from the fund only during a recession and that state revenues are still going up (revenue collections grew 3.4 percent in August compared to the same month a year ago).

Last month, the governor directed state agencies to reduce their operating budgets by five percent, cutbacks expected to be known by the first part of October. However, when exempted programs, the largest being Standards of Quality education programs, are backed out, the amount of the general fund budget from which reductions can occur is just under $6 billion (about 16 percent of the total state budget). Aid to localities makes up about one-fourth of that amount, so it is very possible that local governments could see some reductions in state support. Secretary of Finance Jody Wagner also told money committee members last week that the budget to be introduced by Governor Kaine in December for FY09 and FY10 could propose more cuts, including to items exempted during the current reductions, to address an anticipated $1 billion shortfall over the next two years.

State Education Funding Group Releases Preliminary Report

A special subcommittee examining what drives the state’s share of education issued its preliminary report recently. The two-person subcommittee held just one meeting, in late August. Its report concluded that, given the importance and magnitude of the state’s education funding system, this review should be a “multiyear, essentially on-going endeavor.” The report notes some possible “guiding principles” to include 1) simplifying the SOQ funding formula methodology and to consolidate multiple programs, 2) ensuring that state programs are supporting policy goals for public education, and 3) examining efficiencies and cost savings that focus on real savings to school divisions rather than shifting costs from one level to another. The panel’s next meeting will be held following the November elections and will focus on incentive programs, including school division use of state at-risk add-on funding. It plans to then resume work following the 2008 General Assembly session. This summer, the Board of Education was informed that the preliminary price tag for updating state education costs through the biennial rebenchmarking process was estimated at $1.1 billion, a figure that will go higher once additional date becomes available this fall.

Telecommunications Taxes Update

Officials from the state Department of Taxation met recently with local government and telecommunications industry representatives to discuss ongoing issues related to the 2006 communications tax restructuring legislation. The Department recently learned that some reporting errors by a pair of large communications providers resulted in undercollection of about $1.2 million per month in communications sales taxes. As a result, officials predict that monthly distributions to localities from the Communications Tax Trust Fund soon will begin to exceed the average monthly amount those localities received in FY 2006 from the local taxes and fees repealed by the 2006 legislation. In addition, payment of the delinquent amounts from the two discovered errors will result in a one time addition to the monthly distributions localities will receive in October or November of the current year.

Local officials have been concerned because distributions from the statewide collections initially had a very sluggish start. They now are continuing to grow, with the average monthly amount distributed to localities for July being about $36.6 million, or about 2.5 percent less than the 2006 monthly average; distributions earlier this year were running nearly 10% less. The restructuring law revised the taxation of communication services with the assurance that local governments would receive from the new statewide taxes and fees, an amount that was at least equal to what had been collected in 2006 from local taxes being repealed.

Housing Commission Workgroup Reviews Affordable Units Provisions

A workgroup of the Virginia Housing Commission has received a report on possible changes to existing Code provisions governing the adoption of local affordable dwelling unit ordinances. HB 2010 and SB 955 as approved by the 2007 session made numerous changes to the affordable housing law, but did not address issues on which developers, builders and local governments could not agree at the time. Advocates for the building industry recently presented some of those unresolved issues to the Commission’s Housing Affordability workgroup. These included how to provide dollars for local housing funds, how to make allowance for developers/builders to provide cash in lieu of affordable units, and at what level (administrative or zoning) should such units be considered. While especially wanting to see this last question resolved, the legislator chairing the workgroup said he doubts it could be resolved anytime soon, and suggested that wholesale changes to the affordable dwelling units law not be brought forward this coming session. Another legislator on the panel also stated that waiting until the 2009 session would give everyone a chance to see how localities responded to the changes made this past year.

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)