Legislative Newsletter - March 20, 2008

Number 8

Delayed approval for the State Budget

       Once again, the legislature staggered into overtime to reconcile differences over House and Senate versions of both the current fiscal year (FY08) and the next two-year state budget (FY09 and FY10). Late last Monday, budget negotiators signaled that they had reached a tentative agreement on major items, with detailed work to proceed on smaller items. This set the stage for budget votes and adjournment on Thursday, five days past the scheduled adjournment. The legislature returns to Richmond on April 23 for its annual reconvened session, at which time it will consider amendments and vetoes recommended by Governor Kaine.

The compromise budget for FY09/10 includes a $100 million reduction in aid to localities over the two years. This would be on top of reductions made by the governor last October and that were carried forwarded in the budget he introduced in December. Under the adopted amendment, the Department of Planning and Budget (DPB) will provide each locality with an estimate of the general fund payments it will receive from the state. Localities then would choose, by August 30, whether to achieve their reductions from a single program, a percentage reduction in all state payments received, or reimburse the state and forego any reductions. More information on this could be forthcoming from DPB next week.

Following are highlights of approved provisions of the FY09/10 state budget. Additional details will be forthcoming from VACo and VML:

TJPD Action Items:

Comprehensive Services Act:

       The budget adds $159 million in additional general funds, as proposed in the introduced budget, for reimbursement to localities under the Comprehensive Services Act (CSA). The budget modifies the local share of funding for community and residential services provided through CSA on a phased-in basis. The local share of funding for community-based services is lowered by 50% beginning in July, as an incentive for localities to provide services to children who can be appropriately cared for in the community. Correspondingly, the local share for residential services increases by 15% beginning January 1, and by 25% beginning July 1, 2009, after the first $200,000 in annual residential care expenditures. Budget language requires the Secretary of Health and Human Resources to establish a work group to examine the impact of the match rate changes on local and state administration of the program, reporting requirements, service development and delivery, quality assurance, utilization management, and care coordination to ensure that children continue to receive appropriate and cost-effective services. Localities also will be required to review their caseloads for individuals who can be served in the community and to transition those cases to the community for services. The plan also retains just over $275,000 as provided in the introduced plan for purchase and maintenance of a data tool for the CSA Office to track outcome data for children served through CSA.

       The budget also stipulates that effective July 1, CSA pool funds shall not be spent for any service that can be funded through Medicaid for Medicaid-eligible children and youth. The budget also changes maintenance payments made to CSA foster family homes by just over $500,000 in the second year. The introduced budget included funding for a 15% increase the first year and a 10% hike the second year. This amendment reduces the second year increase to 8%.

       Finally, language in both the current and next biennial budgets requires the State Executive Council to report on children beginning to receive CSA services as a result of the adoption of highly publicized guidelines on foster care services that took effect last December.

Public Education:

       The compromise budget updates its share of funding for the Standards of Quality (SOQ) by around $1 billion, while rejecting a pair of methodology changes that would have reduced the state’s rebenchmarking costs by around $140 million. This includes changes that 1) proposed to recalculate teacher and other SOQ-funded positions costs by recognizing only state, and not also local, costs, and 2) would increase the federal revenue deduction, which results in a savings to the state but an increase in required local costs. As an alternative, budget language directs the Joint Subcommittee on Elementary and Secondary Education Funding, which is expanded from two to eight members, to study the state’s use of the prevailing salary and cost approaches to funding the SOQ and to review the “federal revenue deduct” methodology.

       The budget did alter the existing inflationary cap for non-personal and health insurance costs for teachers and other SOQ funded positions. The change costs local governments nearly $21 million the next two years by giving full credit for the first three percent of inflation and 50% of inflation increases between three and seven percent. Currently, full credit is given for the first five percent of inflation, and 35% of any inflation increase above five percent.

       The budget provides $77.6 million in the second year for the state share of a two percent salary increase for SOQ-funded instructional and support positions, effective July 1, 2009. For more than 15 years, any state-provided teacher salary increases were provided in November or December, thus reducing state fiscal year costs, so having the funding available at the start of the fiscal year is a positive step. Budget language specifies that the annual teacher salary survey shall also include information on starting salaries and average salaries by school.

       The budget provides an additional $10 million the first year and $5 million the second year (for total of $30 million first year and $20 million the second year) from the general fund for Literary Fund interest rate subsidy grants to school divisions. This should leverage up to $120 million in new school construction loans. However, as has been the custom, money also is seized from the Literary Fund to pay state costs for teacher retirement. The budget captures an additional $35 million over the two years for a total of nearly $300 million for the biennium.

       The budget maintains the Virginia Preschool Initiative program for free lunch “at-risk” four year old students. Funding is provided to increase the state share of the per pupil amount from $5,700 to $6,000 and to provide a second year composite index cap of .50 to encourage localities to increase student participation. The budget removes $2.1 million proposed in FY10 for data coordinators, while providing permissive language allowing for certain, additional at-risk funding to be used to provide data coordinators for unaccredited schools or those not meeting “adequate yearly progress” under the No Child Left Behind Act.

       Finally, as a result of state VRS savings for SOQ funded positions in the amount of about $93 million, localities also should realize savings due to lower contribution rates.

Transportation:

       The conferees saved approximately $180 million by converting a previously approved general fund transfer (as part of the $500 million general fund transfer approved in last year’s transportation package) for transportation projects to debt. The general funds were from a projected surplus that never materialized due to the economic downturn.  The governor had proposed diverting the $180 million until 2010.

        The approved budget contains a number of language amendments in the transportation area. One provides that new transportation funding authorized last year be used to supplement, not supplant, local general fund dollars budgeted for transportation. A pair of amendments seek to get localities more involved in road building and maintenance. One would enlist additional local governments in the administration of highway construction projects, directing the Commonwealth Transportation Board to solicit additional projects ready to go to construction for participation in the local partnership program. Another authorizes counties to make improvements to non-interstate state system roads within its jurisdiction with local funds.

        Other amendments remove a proposed $10 increase on driver's licenses proposed in the introduced budget and provide, upon issuance of a resolution by a local governing body, that a property has been designated for school construction, VDOT shall reduce the speed limit on adjacent primary and secondary roadways to 35 miles per hour or less.

Other Budget Items Affecting Local Governments:

In the health and human services area:

       The approved budget includes both state dollars and federal Medicaid funds each year to increase services provided under the mental retardation waiver program by phasing a total of 600 slots over the next biennium. Nearly $42 million is included in the budget to expand mental health services, including $5.8 million to add 40 children’s mental health clinicians (one per community services board (CSB)).

       Approved amendments supplant portions of state general fund appropriations for the Comprehensive Health Investment Project (CHIP), the Healthy Families, and community action agencies with federal Temporary Assistance to Needy Families (TANF) funds.  A language amendment also places a moratorium on funding for new community action agencies or expanded service areas by existing agencies unless approved by the state.

       A language amendment requires the state to develop standardized reporting mechanisms for CSBs related to emergency mental health services, crisis stabilization, mandatory outpatient treatment, and outpatient mental health services. Other language amendments would restrict the Board of Health from redistricting regional emergency medical services councils to serve different geographical areas than are currently served by the councils and require the state Department of Social Services to work with smaller localities (less than 20,000 in population) to examine and identify efficiencies or general fund cost savings as a result of consolidating social services programs and/or administrative operations.

In the public safety area:

        The FY09/10 budget retains the amount of HB599 funding included in the introduced budget ($205 million/year); that is the same (reduced) levels for both years as the October-adjusted FY08 amount. The Senate had sought to increase the amount, while the House proposed diverting part of the funding for other uses. The budget restores, in the first year only, language that exempts a handful of jails (including the Central Virginia Regional Jail) where federal capital costs exceed the state’s capital contribution from state-funded personnel cost recovery.

       The compromise reduces jail per diem payments in the next biennium by 20%. An additional $12 million is added in the current fiscal year to fund the payments, but this revised FY08 amount is capped going forward into the next two years. The plan also eliminates new funding proposed in the introduced budget for an increased state portion for providing LEOS coverage for deputy sheriffs, as required by last year’s General Assembly and slated to take effect this July. The introduced budget proposed an additional $6 million over the two years.

        A language amendment requires an annual report on jail construction and renovation projects approved during the previous year by the Board of Corrections. Other language amendments direct the Compensation Board, in conjunction with several other entities, to review the operational capacity and staffing needs of each local and regional jail and also to provide an annual report on the number and diagnoses of inmates with mental illnesses in local and regional jails. It also is to conduct a feasibility study of developing an annual operating cost report for Commonwealth's Attorneys, Treasurers, and Commissioners of the Revenue, using a reporting format similar to that provided in the annual jail cost report.

In the natural resources/environment area:

       The budget includes $30 million the first year from bond funds for purchase of land for open space and historic property preservation, including at least $5 million that must be spent for Civil War battlefield preservation. Another $20 million is included for the newly-established Natural Resources Commitment Fund to implement agricultural best management practices.

       The spending plan includes $600,000 each year for grants and loans to localities and private entities for improving the safety of dams that need renovation or repair and another $30 million in bonds to repair dams owned by soil and water conservation districts and state parks.

OTHER:

• The budget provides funding of $43 million for a two percent salary increase for state-supported local employees in both years of the biennium, effective December 1.

• The budget captures the remaining alcoholic beverage control profits and wine taxes (just over $1 million) that otherwise would have been distributed to towns. The introduced budget captured the majority of the revenue for these distributions, just less than $8 million, by eliminating the distributions for cities and counties.

• The compromise authorizes a net withdrawal of nearly $297 million in the current fiscal year. The introduced budget proposed a $423 million withdrawal, the maximum allowed.

OTHER LANGUAGE AMENDMENTS:

• Budget language directs the Joint Legislative Audit and Review Commission (JLARC) to examine the quality, cost and value of the services provided to state agencies and public bodies by the Virginia Information Technologies Agency (VITA).

• The Secretary of Health and Human Resources and the Board of Social Services are to develop a plan to allow for portability of auxiliary grants to pay for housing of consumers who receive case management services from a community services board or behavioral health authority and who are found eligible for or are currently receiving auxiliary grants.

Legislation update

       There were some interesting twists in events following the House Rules Committee action on February 28 to carry over the proffer/impact fee bill, SB 768 for the year. A substitute to HB 111, which was on the Senate floor for final approval, was proposed. The substitute added an enactment clause to prohibit local adoption of new impact fee ordinances between July 1, 2008 and July 1, 2009. This had been part of a “gentlemen’s agreement” among the various stakeholders discussing particulars of the bill. Only a few localities are looking at adopting such ordinances at this time. The substitute won easy approval in the Senate, but when the bill was returned to the floor of the House for acceptance of the substitute, the Speaker of the House ruled the substitute was not germane to the original intent of the bill, supposedly killing the bill for the year. The following day, the bill showed up on the Senate calendar again, only to have the Lieutenant Governor rule that the bill was not properly before the Senate. It is expected the Speaker will write a letter to the major stakeholders requesting that they continue to discuss the bill and it may request that localities not amend their proffer guidelines during that time.

       During the session’s final week, changes to current payday lending statutes were approved. HB 12 and SB 588 revise the Payday Loan Act to provide, among other things, that payday lenders can charge, on any payday loan, an annual interest rate of 36%, a loan fee of no more than 20%, and a $5 verification fee. The bills also require the State Corporation Commission to oversee establishment of an Internet-accessible database, and require lenders to query it before making any loan to determine whether the loan is permissible. A lender is prohibited from making a loan to someone if it would cause the borrower to have more than one payday loan outstanding at a time, and from making a payday loan on the same day that the person has paid a previous payday loan.

       Other legislation of interest on which there was final action during the session’s last week includes the following:

       HB 854 and SB 131 allow a local governing body, school board, or other local government agency to meet electronically without a quorum physically assembled at one location, when the Governor has declared a state of emergency and the purpose of the meeting is to address the emergency.

       HB 885 allows local governing bodies, by ordinance, to prohibit bus engine idling for more than 15 minutes when a bus is parked, left unattended, or is stopped for any reason other than traffic, maintenance or loading or unloading a disabled passenger.

         HB 1335 and SB 511 establish the Virginia Natural Resources Commitment Fund as a

subfund of the Water Quality Improvement Fund to support agricultural best management practices (see above), with a portion of the dollars to be funneled to areas outside the Chesapeake Bay watershed and also to soil and water conservation districts.

       HB 1480 and SB 673 require a locality 1) to allow a deputy sheriff injured in the line of duty to use accrued vacation, compensatory and sick leave to supplement his workers' compensation allowance, so as to receive 100% of his regular compensation; and 2) to continue to pay any employer's share of health insurance coverage for the injured deputy as long as the deputy continues to be employed.

       SB 1 repeals the so-called abusive driver fees on certain driving offenses and provides for refunds of fees paid under previous charges (see “Special Session on Transportation Possible” below for more information).

       SB 116 imposes service charges of $5 for any registration renewal carried out in DMV customer service centers, if the transaction is one that can be conducted electronically or by mail or telephone. The bill offers a discount on multiyear registrations and those conducted over the Internet, and allows a driver's license to be issued for up to eight years.

       SB 477 requires the Office of Farmland Preservation to include incentives that recognize and encourage cities and counties participating in use value taxation as part of the purchase of development rights (PDR) program policies, procedures, and guidelines, while also providing that local PDR programs would be required to make a one dollar match for each one dollar in grants awarded by the office.

Bills of Specific Local Interest

HB 883 and SB 268 are Section 1 (uncodified acts) to allow the City of Charlottesville to adopt provisions in its zoning ordinance that would provide, in rezoning or special permit cases, for the construction of affordable units or for the payment of cash in lieu of units. Both passed the legislature unanimously. HB 883 already has been signed by the governor.

HB 991, which permits the severance and transfer of development rights from a sending property without requiring those rights to be immediately affixed to a receiving property. The uncodified act provides such authority only to Albemarle County, expires in 2012 and does not become effective unless or until the county adopts an ordinance implementing the bill’s provisions. It has been signed by the governor.

Special Session on Transportation Possible

       The governor may call legislators into special session this spring to address the late February Virginia Supreme Court decision that nullified provisions of last year’s transportation reform package authorizing regional transportation authorities to impose an array of taxes to fund transportation projects. Some legislators already are saying they want to discuss additional statewide initiatives at that time as well, while others simply want to address the Court decision.

       The Commonwealth Transportation Board (CTB) is reducing spending on the state six-year plan by over $1 billion, due to various factors, including a slumping economy, rising costs and the continued transfer of construction funds to support road maintenance. Secondary road funding will be reduced by approximately 45% in FY 2009 and transit funding will be reduced on average by 10%. Another contributing factor is repeal of the abusive driver fees enacted as part of last year’s transportation package. Those fees were expected to generate $60 million a year, and since they are programmed into the current six-year plan, the repeal leaves a $300 million hole. VDOT also will transfer more than $280 million in state construction dollars, plus additional federal funding, to support maintenance activities in the current year.  

** Thanks for your interest, assistance and efforts during the General Assembly session.

**Look for a detailed summary of General Assembly action to be distributed following the reconvened session.

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)