Legislative Newsletter - November 24, 2009

Number 15

State Budget Scenario Continues to Worsen

    The House Appropriations and Senate Finance Committees held separate retreats last week to receive grim news from their respective staffs and outside speakers about the state of the economy, slumping revenues and gloomy budget scenarios for the rest of the current fiscal year and the next biennium.
    The House Appropriations Committee (HAC) and Senate Finance Committee (SFC) staffs predict an additional downward reduction of FY10 state revenues, resulting in roughly a $250 million budget gap for the remainder of the current fiscal year. This is on top of the $1.35 billion that Governor Kaine trimmed from the FY10 spending plan in early September. Since the start of the current two-year state budget, about $7 billion has been removed from the general fund revenue stream; almost $3 billion in FY09 and $4 billion for the fiscal year that began this past July. This year’s state general fund budget is only slightly higher than the FY05 version.
    Looking forward, the state budget situation worsens in the next biennium. While both staffs predict positive revenue growth over the next two years (3.3% to 3.8% in FY11 and 5.3% to 5.6% in FY12), plugging the budget holes will be more difficult. The staffs estimate a shortfall of $2.6 billion to $3.5 billion for the FY11/FY12 state budget.  One-time money to close the budget gap is gone, federal stimulus dollars will be drying up before the economy recovers, and major budget drivers, such as Medicaid costs, are growing and will linger. The biggest chunk of the FY11/FY12 budget gap is driven by Medicaid; the Medicaid shortfall includes about $1 billion in increased costs and about $800 million to replace federal stimulus money used this year to operate the program. Additional reductions in state aid to localities are likely in the next biennium, since about one-half of the state budget is for direct aid to localities for public education and other mandated programs and services.
    Governor Kaine will release his proposed spending plans on December 18, roughly one month before he leaves office. He’ll suggest amendments to the current fiscal year spending plan, while also proposing an “austere” budget for the next biennium. The General Assembly money committees will hold public hearings on the proposals in early January. The closest ones to our area will be held on Thursday, January 7 in the Grafton-Stovall Theater at James Madison University, and on Monday, January 11 in the General Assembly Building in Richmond. Both hearings begin at 12 noon.

Education Funding Panel

    The Joint Subcommittee on Elementary and Secondary Education Funding met for the final time recently and accepted its final report. The panel is composed of senior members from the House Appropriations and Senate Finance Committees. A handful of challenging issues were addressed in some way by the report: 1) The report acknowledged the financial burden of the triennial census of school age children on school divisions, which bear the costs, and recommended the state look at alternatives to the census prior to the next scheduled counting in 2011; 2) the report recognized it is unlikely there will be sufficient revenue in the next biennium to modify the FY10 budget provision that capped state funding for school division support personnel; 3) the report made no recommendation to alter the current federal revenue deduction policy; and 4) the report cited the need for more comprehensive study of concerns statewide after examining several “local composite index” bills considered during the 2009 session.
    The panel heard a pair of reports from the Department of Education (DOE). One focused on policy directions for the Standards of Quality (SOQ), including both changes in the SOQ to be sought in the 2010 session and issues the Board of Education (BOE) would like to study in greater detail. The BOE has not endorsed the cap on state funding for school support personnel that was included in the FY10 state budget (and that is likely to be continued in the next biennial budget); likewise, the Board wants to more closely examine the feasibility of converting prevailing costs for each major category of support services into ratios.
    A second report focused on administrative burdens on school divisions and the DOE. As a result of looking at data collection and nearly 100 reports in particular, the BOE will consolidate 14 reports next year, and is proposing to eliminate another eight reports. Twenty reports have already been consolidated. It also was noted that the BOE has reduced the number of regulations within its purview from 70 to 59 over the past four years, and is looking at streamlining, consolidating, or updating into one regulation, another 18 regulations.
    In 2006, budget language directed the DOE to convene a state technical workgroup to study K-12 education cost drivers and trends. A year later, the budget established this legislative study committee.

Six-Year Program Reductions Detailed

    Nearly 200 road projects are proposed to be reduced or eliminated by state transportation officials, who must slash $850 million from road-building operations over the next six years due to continuing declines in transportation revenues. Commonwealth Transportation Board members were warned last month of the coming reductions; last week, a list about 190 proposed reductions worth $403 million through 2015 was released (eight projects were in our region). This includes cuts to 113 secondary road projects totaling $156 million, and 57 urban road projects worth $46 million. Only a handful of interstate and primary road projects totaling $180 million were downsized.

    Secretary of Transportation Pierce Homer called the road program a "skinny" one that directs money previously dedicated to local roads toward primary and interstate needs, while funneling federal dollars into maintenance costs and reduced transit operations. Recall that the CTB reduced the six-year program by about $1.5 billion this past summer; it will vote on the latest revisions next month.

Land Use Study Gears Back Up

    It has been nearly four months since work groups of the Joint Subcommittee Studying Development and Land Use Tools met to discuss possible changes to the current urban development areas (UDA) statutes, talks that produced little progress. The full subcommittee has focused its sporadic efforts this year on these UDA provisions and on crafting impact fee legislation. At its next meeting to be held Friday, December 4, the subcommittee is scheduled to hear from recognized impact fee experts, including Dr. Chris Nelson, who is widely known for his research, publications and practice on impact fees. Look for a report on this meeting in the December newsletter.

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)