Legislative Newsletter - December 22, 2009

Number 16

2010 General Assembly Calendar

January 13                   2010 General Assembly convenes; bill pre-filing ends

January 22                   All bills and resolutions to be submitted

February 16                 “Crossover” day of bills

State Budget Released; Reductions to Localities are Big and Numerous

     Governor Kaine submitted proposed amendments to the current fiscal year state budget and his recommended 2010-2012 state budget to the General Assembly money committees last Friday. As expected, the plans do not paint a very pretty picture for localities, with many state programs carried out at the local level facing steep reductions in state funding. Lawmakers now have their say in shaping the spending plan, with a compromise budget to be produced by House and Senate leaders due the second week in March. The Kaine proposal carries forward into the next biennium nearly all the reductions made in September to address the FY10 budget gap. His plan projects state revenues to fall 2.7% for the remainder of FY10, and for revenue to grow 3.8% in FY11 and 5.1% in FY12. The proposed budget for FY11 and FY12 addresses a gap of $4 billion between available revenues and expenditures.

     Key components of the next biennial budget, to be explained in further detail below, include significant reductions in the public safety arena, hundreds of millions of dollars less for public education, shifting more responsibility for funding constitutional offices to local governments, changing state retirement provisions to save dollars for the state, and ending state payments for the Personal Property Tax Relief Act (the “car tax”).

     First, here is a look at proposed changes to the state budget for the current fiscal year:

FY10 Proposals

     Public education amendments are numerous. The plan adds an additional $150 million in federal stimulus funds (to the $69 million announced in September) for the state’s share of basic aid. It eliminates state funding of $79.6 million for the purchase of textbooks as a one-time action in FY 2010; language encourages localities and school divisions to use local savings from the three month fringe benefit premium holiday (announced in September) to purchase textbooks and instructional materials. Basic aid increases due to the decreased sales tax estimates, with the net change in state funding being a reduction of $37.7 million in FY10. The proposal removes the use of nonpersonal inflation factors used to develop the current budget during the 2007 rebenchmarking updates for FY 2010 (saves the state $61.3 million). Another $17 million is transferred from the Literary Fund to pay for teacher retirement, for a total transfer of $195 million in FY10.

     In addition, the FY10 proposal supplants general fund support for sheriffs' offices with over $109 million in federal stimulus funding. It implements a five percent reduction to local and regional jail per diem payments for housing local and state responsible inmates (saves the state $3.6 million). HB 599 funding to localities with police departments is reduced based on the December general fund revenue forecast ($2.8 million reduction).

     The plan eliminates the remaining 100 Mental Retardation (MR) waiver slots that were planned to be released on January 1, capturing $3.1 million in state savings. The Governor's September plan already took savings from 100 of those slots. The proposed budget provides $80 million for additional Medicaid expenditures, which are expected to increase by 15.4% in FY10.

     In the transportation area, the FY 10 plan suspends funding for financial assistance for planning, access roads, and special projects, with funding to resume in FY 2011 and FY 2012.

Additional ABC profits of $5.2 million are transferred to the general fund, rather than being shared with localities (a historic practice that has eroded over the past several years).

FY11 and FY12 Proposals

     As previously stated, the proposed FY11/FY12 budget closes a projected $4 billion gap between revenues and expenditures. Highlights of the various actions, many of them reductions to important programs also funded by local governments, are listed below by budget area:

     Direct aid to public education would drop nearly $400 million under the proposed spending plan ($290 million in FY11 and $103 million in FY12). Changes in other education programs drive that figure even higher. The budget includes $104.4 million to “rebenchmark” or update state costs of the Standards of Quality (SOQ). In addition, projected increases in enrollment of more than 18,000 students will cost the state over $39 million. The update of the local composite index (LCI) of ability-to-pay is delayed until FY 2012; when released last month, the LCI for nearly 100 localities increased (meaning less state funding will be provided). The budget continues the cap on state funding of support personnel that was included in FY10. The Department of Education this past summer estimated that including the cap on the number of educational support staff would save the state an estimated $754 million over two years

     The proposal provides $89.6 million for increased retirement costs, funding a change in the contribution rate from 8.81% to 10.49% (which is lower than the rate recommended by VRS). The retirement age for teachers, as well as local employees, is increased to 55. Localities and school divisions have the option to require employee contribution to VRS (1% in FY11 and 2% in FY12) similar to the budget proposal for state employees. The retired teacher health care credit and group life rates from are increased slightly, costing $1.7 million over the two years. The budget substitutes $126.4 million in State Fiscal Stabilization Fund dollars for general fund dollars in the area of K-12 education.

     The proposal implements a number of SOQ policy changes, including eliminating payments for accrued annual and sick leave for terminated employees and contract buy-outs, and excluding capital expenditures, miscellaneous expenditures and expenditures for certain programs from the SOQ, saving the state $174 million. It eliminates the use of nonpersonal inflation factors used to calculate SOQ costs, saving the state $4.7 million each year.

The proposal also proposes the following:

* It reduces health care premium support to reflect actual participation in the health insurance program (about 66% participation), saving the state approximately $135 million each year.

* It transfers from the Literary Fund to pay for teacher retirement a total about $263 million.

* It eliminates the interest rate subsidy program for the 2010-2012 biennium.

* It eliminates funding for the Virginia Public School Authority (VPSA) Technology Grant Program for both years of the biennium (nearly $60 million each year).

* A language amendment eliminates language that requires localities to provide funding equal to or greater than that provided in the year on which the SOQ rebenchmarking was based.

     In the health and human services arena, the biggest budget driver is the backfill of the Medicaid program due to loss of federal stimulus matching funds (beginning in January, 2011, enhanced Medicaid match disappears and is made up with state dollars), as $1.19 billion in state funding is included to offset the loss of the federal dollars. Overall funding for the Comprehensive Services Act is reduced $79.5 million. Budget language eliminates a provision that would hold the first $200,000 of a locality's residential cost at the match rate in place in FY 2007 (saves the state $800,000 each year). Another CSA language change would include a requirement that a standard service glossary be developed and that the tracking and reporting of child outcomes use a new assessment tool.

     In the social services area, state support for local departments of social services operations is reduced by one percent, or $2.3 million each year. State funding for chore and companion services provided by local departments of social services is reduced by 10%, or $700,000 each year, and Temporary Assistance for Needy Families (TANF) spending on non-mandated programs drops $21.5 million over the two years. The budget does appropriate $7.5 million each year in federal dollars that are matched with local funds to support local staff and operations above that required by the state.

     State funding to Community Services Boards takes a five percent hit ($12.2 million each year). It reduces funding for indigent care services paid to the VCU and UVA academic health centers by just over $15 million over the two years.

     The budget captures savings from the elimination of 200 Mental Retardation (MR) waiver slots and delays implementation of a requirement to add 400 MR waiver per year in order to work toward to elimination of the waiting list for waivers.

     On the environmental front, the proposed spending plan provides general and non-general fund dollars of $14.1 million each year for nonpoint source pollution reduction strategies to improve water quality in the Chesapeake Bay and Southern Rivers. The non-general funds ($9.1 million each year) are to be generated by an additional $10 recordation fee.

     The proposal removes funding in the Water Quality Improvement Fund. Cash balances in the fund be spend in the current fiscal year, while expenditures will be made from authorized bond funds ($55.7 million each year) in FY 2011 and FY 2012.

     The plan also reduces the following:

* Operational support by 10% ($195,000 each year) for the Virginia Outdoors Foundation.

* Funding to assist localities with purchase of development rights programs for farmland preservation ($100,000 each year).

* Operating support for local soil and water conservation districts by 10% ($587,000 each year).

* Funding of $225,000 each year for litter control grants to localities.

* Funding of $20,000 in water supply planning grants to localities.

* Funding for state and local partnerships of $70,000 each year to identify and assess historic resources (cost share program).

     In the area of public safety, Compensation Board-funded programs and services are especially hard hit. The proposed spending plan eliminates state support for retirement and life insurance premiums to constitutional offices, saving the over $29 million each year. The plan eliminates state aid for local office operations for the commissioners of the revenue (saves state $9 million each year); treasurers ($8.4 million); directors of finance ($5.1 million), proposing to fund only the salary of the top official only. Budget language allows all counties and cities to establish offices of finances that would assume the duties of the offices of treasures and commissioners of revenue. Commonwealth Attorney offices will see a five percent across the board reduction ($2.5 million each year); Circuit Court Clerks offices are reduced by $4.75 million. The proposed budget suspends funding for Career Development Programs for constitutional offices ($5.7 million each year).

     The plan establishes lower per diem rates paid to localities for housing local and state responsible inmates. The local responsible per diem rate was lowered to $4 per day and state responsible per diem rate was increased to $12 per day (thus reducing funding to localities by $38.8 million over the two years).

     It reduces HB599 funding for localities with police departments by $41 million the first year and $48 million the second year, to be partially offset by non general funds from a one-half percent fee on property and casualty premiums to be deposited into a Public Safety Fund (which also will help support local court security deputies). The proposal also adjusts the ratio for funding local law enforcement deputies from 1:1,500 to 1:2,000 (deputies to local population), saving the state $25 million over the two years.

     The proposal spending plan proposes a $0.18 increase for each line assessed an E-911 fee (current fee is $0.75 per line), with funding generated targeted to supplant general funds supporting Line of Duty benefits.

            Other reductions in public safety include the following:

* Implements a five percent reduction in Virginia Juvenile Community Crime Control Act (VJCCCA) funding for detention and locally-operated court service units ($2.5 million each year).

* Reduces grants for court appointed special advocate programs by $218,000 each year.

* Reduces grant awards for offender re-entry and transition services programs by $371,000 each year.

* Reduces grant awards for school resource officer training by $465,000 each year.

* Reduces funding for victim-witness grants by $465,000 each year.

* Reduces support costs in court service units statewide by $180,000 each year.

* Eliminates funding for payments to localities in lieu of taxes for prisons by $1.4 million each year.

     In the area of transportation, the proposal reduces the VDOT’s maximum employment level by 850 positions to a total of 7,500 positions (in compliance with the current budget), and reduces non-general fund appropriations to align with expected revenues ($504 million less over the two years). Nongeneral fund appropriations aligned with expected revenues for the Department of Rail and Public Transportation are $405 million less over the two years.

The Kaine budget proposal includes other important items as well:

     The plan proposes ending state payments to localities for the Personal Property Tax Relief Act, payments which presently are capped at $950 million per year. Accompanying legislation to be submitted at the request of Governor Kaine will propose a 1% income tax surcharge (phased-in over the two years, one-half percent each year), with all of the estimated $1.6 to $2 billion being sent back to localities that commit to eliminating the “car tax” on qualifying personal vehicles. Distribution would be based on the current reimbursement methodology. The governor called the program, which was enacted in the late 1990’s, poor state policy; House of Delegates leaders have called the proposal “dead on arrival” at the General Assembly.

Other reductions include the following:

* Reduces funding for all planning district commissions by 15% ($319,000).

* Recovers the costs associated with the value use taxation program from localities. The department contracts with Virginia Tech to develop use value assessment estimates for local Commissioners of Revenue to consider when arriving at assessment values for agricultural real property ($105,000 each year).

* Reduces general fund support by 15% each year for the Louisa Resource Council.

Finally, the plan seizes all of the projected transfer of $44.9 million in FY 2011 and $45.4 million in FY 2012 to the general fund for net ABC profits; and reserves $40 million in FY12 for an anticipated mandatory FY13 deposit to the Rainy Day Fund.

     REMINDER: The General Assembly money committees will hold public hearings on the Kaine 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. You are encouraged to attend and express the impacts of budget reductions on your locality.

** Look for additional information and more details about the budget proposal forthcoming from the VACo and VML staffs.

Land Use Study Panel Work Continues

     The joint subcommittee studying development and land use tools met earlier this month to continue its discussion of impact fees. Three speakers, who have worked extensively with local governments on impact fee systems, briefed the panel on impact fee laws and implementation in other states. Some of the most significant points raised by the speakers included the following:

→Impact fees should be permissive, not prohibitive or limited with regard to eligible facilities

→No other states cap impact fees in their laws

→Many local governments do not charge the full amount of improvement costs

→Local governments need the flexibility to decide on impact fee waivers and exemptions

→Localities with impact fees are more able to attract economic development

→State law should not include an impact fee formula, but steps showing what you have to consider

     Possible changes to the existing urban development area (UDA) statutes were not discussed, though the group’s chairman said he thought a UDA bill was “close” to being ready to be discussed by the committee. Various statewide stakeholder groups have been meeting to try to iron out differences on several outstanding issues discussed in previous public workgroup meetings. These include the separate tiers of population and the density requirements for each (e.g. those under 50,000 population would have different requirements than those 50,000 to 100,000, etc.); how to measures density (across the UDA or by project); and whether any prescribed density in the law would be a floor or a ceiling. The committee will meet again January 12, at which time it could consider potential impact fee and UDA legislation, as well as a resolution that would continue the work of the group for an additional year.  

VDOT Proposes Changes to Traffic Impact Analysis Regulations

     The Virginia Department of Transportation (VDOT) is proposing modifications to its traffic impact analysis regulations, which were adopted two years ago following state legislation that required such provisions for development proposals affecting the state highway network. The proposed changes are designed to allow more flexibility by giving local governments the option to conduct a single analysis for all parcels that are part of a small area plan for an urban development area (UDA) or transit oriented development, at the comprehensive plan stage of the development process. This analysis can then be used for the required traffic impact statement for any parcel at the rezoning stage. In addition, the proposal incorporates applicable provisions of the state’s secondary street acceptance requirements and access management regulations into the regulations. A public comment period on the proposal will be open until January 20, with the new provisions scheduled to take effect in early February.

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)