Transcript Document

K-12 Education Funding Decisions
in the 2010-12 Biennium
Virginia Association of Counties
Prepared by
James J. Regimbal, Jr.
Fiscal Analytics, Ltd.
November 2009
1
2009 Fiscal Condition Survey Revealed a
Deteriorating Local Financial Condition
Better
About
able
the same
Meet its financial needs for FY 2010 as compared to FY 2009?
2.3%
29.0%
68.7%
Address its financial needs for FY 2011 as compared to FY 2010?
1.5%
22.3%
76.2%


Less able
Biggest local concerns for FY 2011:
Expiration of the federal stimulus and its impact on the state's
ability to maintain funding for localities and school districts.
Continued erosion of real and personal property values that will
place significant upward pressure on tax rates.
Many localities have reserves. 74 of 106 localities responding
reported reserves greater than 10 percent of FY 2010 spending.
2
Local Revenues Are Declining
(Number of Localities Responding)
Real Property Assessments (106)
Personal Property Assessments (92)
2008 Growth
2009 Growth
6.6%
2.5%
1.6%
-3.7%
FY 09
Budgeted FY 09 Actual
Growth
Growth
Real Property Tax Revenues (115)
General Fund Revenues (104)
N/A
2.2%
4.5%
1.1%
FY 10
Budgeted
Growth
0.5%
-2.9%
3
Virginia Local General Fund Revenue
Annual Growth Rate*
12%
10%
8%
6%
4%
2%
0%
-2%
-4%
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Fiscal Year
* APA Comparative Report FY 1990 to FY 2008; VML/VACO survey results extrapolated for FY 2009 and FY 2010
4
Federal K-12 Stimulus Funding Prevented Layoffs
and Education Program Reductions in FY 10
Impact of Federal K-12 Stimulus Funding on Localities
140
120
100
80
Yes
No
60
40
20
0
Prevent or mitigate layoffs in Prevent or mitigate education Allow expansion of education
the schools
program cuts
programs
5
Future Spending Pressures
Number of Localities
Education
48
Capital outlay/ infrastructure
40
Personnel compensation
38
Personnel benefits
33
Public safety
26
Debt servicing
19
CSA
11
Unfunded mandates
9
VRS
6
Transportation
3
Other
32
6
Education Funding is Greatest Concern
• Commonwealth has already reduced FY10 K-12 general funds by almost
$800 million – partially offset by federal stimulus funding.
• Expect additional K-12 cuts.
K-12 is 35 percent of GF and 70 percent of local aid.
• State and local revenue problems will be compounded when federal K-12
stimulus funding ends – beginning in FY11.
• Localities are holding Virginia’s public education system together to meet
SOA and SOL standards by spending $3 billion more per year than
required to match state $.
In total, localities spend 82 percent more than required by state.
This excess pays for 22 percent of all K-12 spending.
• Without state and/or local tax increases, major policy changes will be
required to align K-12 spending levels with revenues, even with only
minimal re-benchmarking costs ($138 mil. for biennium).
Restoring “support cost” funding would require an additional $754
million in the next biennium.
7
State Budget Summary
(Setting the Stage for January)
• On August 19, Governor announced a $300 mil. FY 09 GF revenue shortfall
and an additional $1.2 billion GF revenue shortfall for FY 10.
• On September 8, Governor announced $1.35 bil. budget reduction plan.
Only for FY 10 - does not solve 2010-12 budget problems.
• Expect an even tougher 2010-12 budget due to a weakened state balance
sheet (e.g. Rainy Day fund drawdown), lack of new debt capacity, expiring
federal stimulus $, and a weak economic recovery.
• Medicaid and other HHS cost pressures will continue, putting additional
strain on the 2010-12 state budget. Medicaid growth could consume all
additional 2010-12 biennium GF revenues.
• State aid to localities will continue to be reduced in the 2010-12 biennium.
• Falling real estate and car values, sales taxes, business taxes will make it
difficult for localities to continue backfilling declining state support.
8
GF Revenues Not Expected to
Exceed FY 06 until FY 12
$ 16 , 0 0 0
$ 15 , 7 6 7
$ 15 , 5 6 6
$ 15 , 3 8 9
$ 15 , 5 0 0
$ 15 , 0 0 0
$ 14 , 8 3 4
$ 14 , 6 18
$ 14 , 5 0 0
$ 14 , 3 15
$ 14 , 0 7 9
$ 14 , 0 0 0
$ 13 , 5 0 0
$ 13 , 0 0 0
2006
2007
2008
2009
2 0 10
2 0 11
2 0 12
9
Dismal 1st Quarter FY 2010 GF Revenues
Growth
% of GF
Forecast %
% Thru 1st Q
66.1%
-1.8%
-5.6%
Withholding
66.2%
2.1%
-2.3%
Estimated Payments
13.7%
-16.8%
-23.4%
Refunds
-13.8%
-1.2%
18.6%
Sales Taxes
20.5%
-0.4%
-5.9%
Corporate Income Taxes
4.7%
2.2%
-7.9%
All Other
8.6%
-5.3%
-16.4%
100.0%
-1.6%
-7.4%
Individual Income Taxes
Total GF Revenues
10
FY 2010 GF State Aid Cuts to Localities
Major Categories of State Aid to Localities
FY 2010 GF Appropriations
% of State
Original GF
Appropriation
K-12 Direct Education Aid
Current GF
Aid to
Appropriation % Change
Localities
% of GF
$5,930,513,050
$5,148,221,622
-13.2%
71.0%
34.3%
Car Tax
$950,000,000
$950,000,000
0.0%
13.1%
6.3%
Compensation Board
$666,153,186
$600,400,897
-9.9%
8.3%
4.0%
Comprehensive Services Act
$323,640,564
$279,208,772
-13.7%
3.8%
1.9%
Community Service Boards
$256,463,596
$227,360,416
-11.3%
3.1%
1.5%
HB 599
$205,001,876
$183,623,320
-10.4%
2.5%
1.2%
DJJ Juvenile Confinement/Treatment
$50,787,956
$48,266,904
-5.0%
0.7%
0.3%
Recordation Tax Distribution
$40,000,000
$40,000,000
0.0%
0.6%
0.3%
Public Library Aid
$17,378,628
$16,509,697
-5.0%
0.2%
0.1%
($50,000,000)
($50,000,000)
-0.7%
-0.3%
"Flexible" State Aid Reduction
11
Budget Actions Largely Shielded Localities
Summary of Governor's September 2009 Budget Plan
FY 2010
General Fund Revenue Shortfall
($1,350.5)
Rainy Day Fund Withdrawal
$283.0
Other One-Actions:
$524.6
Agency Pledged Balances
$140.2
Sale of Corrections Facilities
$25.0
Fire Programs Fund Balance
$26.0
Federal Stimulus Waiver for Higher Education
$91.5
VRS Employer Retirement Rate Suspension (incl. NGF)
$104.1
VRS non-Retirement Benefit Rate Suspension (incl. NGF)
$30.9
Medicaid Additional Federal Stimulus Match Rate
$97.0
Additional Lottery Profits for K-12
$9.9
12
Summary of Governor's September 2009
Proposed Budget Actions (continued)
Local Aid GF Reductions:
$256.9
K-12 Sales Tax
$37.6
Literary Fund Supplant for Teacher Retirement
$55.0
Supplant With FY 11 Federal K-12 Stimulus Waiver
$68.9
Constitutional Officers
$30.4
Aid to Police Departments (HB 599)
$13.7
Other (CSA, CSB, VJCCCA)
$51.3
Operating Budget Reductions:
Net Higher Education Reductions
$288.7
$105.3
Close Corrections Facilities
$11.6
One Day Employee Furlough
$16.3
Indigent Care Funding
$7.0
Mental Health Treatment Centers
$6.3
Economic Development/Tourism
$3.1
Other Agency Reductions (incl. deferred expenses)
Total Actions
$139.1
$1,353.2
13
Major "One Times" More Than Half of Strategies
to Close $5.5 Bil. 2008-10 Budget Gap
GF Millions $
Rainy Day Fund Withdrawal
$773
Sales Tax Acceleration/LPC Adjust/Tax Amnesty
$186
Bonded Debt for GF Capital
$355
Delay 4th Q VRS Retirement/Benefit Payments*
$135
State Employee Furlough*
$16
Sell Prison/Transfer Fire Programs Fund to GF
$51
Enhanced ARRA SFSF Medicaid Match
$1,059
ARRA SFSF - Flexible Funds
$219
ARRA SFSF - Education
$652
Total Major "One-time" Budget Strategies
* Includes NGF agency transfer to GF
$3,446
14
Medicaid Expenditure Forecast
($ Mil. at 7% utilization growth)
FY 2010
FY 2011
FY 2012
$2,273
$2,817
$3,427
$304
$301
$298
Federal*
$3,759
$3,661
$3,528
Total Medicaid @ 7% Growth
$6,336
$6,779
$7,254
Medicaid GF as Percent of Total GF
15.7%
18.8%
21.8%
$685
$367
$0
GF
Special Rev
ARRA Stimulus Funding *
* Assumes FMAP remains at 61.59% thru CY 2010 than returns to 50% in CY 2011
15
Significant Additional General Funds
Will be Necessary to Maintain Current
Services When Federal Stimulus Ends
ARRA Stimulus Funding ($ Mil.)
FY 10
FY 11
FY 11 GF
ARRA*
ARRA*
Backfill
ARRA
Backfill
Medicaid **
$720
$360
$360
$0
$720
K-12 Public Education
$434
$296
$138
$0
$434
Higher Education
$219
$36
$183
$0
$219
$23
$0
$23
$0
$23
$109
$0
$109
$0
$109
$1,505
$692
$813
$0
$1,505
Sheriffs (Bryne Justice)
SFSF General
Total
FY 12 FY 12 GF
*Federal ARRA stimulus funds used by Virginia to offset general fund cuts
** DMAS forecast presented to Senate Finance Committee 10/22/09
16
General Fund Tax Changes Over Last 10
Have Neutralized 2004 Tax Increase
FY Implemented
2008-10 ($ Mil.)
Car Tax Relief
1999
($1,900)
Historic Rehab Tax Credit
1999
($92)
2000 and 2007
($125)
Land Preservation Tax Credit
2003
($300)
2004 Tax Reforms
2005
$1,600
Add'l Reduced Sales Tax on Food
2006
($381)
Recordation Taxes for Transportation
2009
($352)
Estate Tax Repeal
2009
($311)
Low Income Tax Relief
Shift Insurance Premiums and
Total
($1,861)
17
New Debt Capacity Is Limited…
If Virginia Wants to Keep its AAA Rating
Total Debt Service as % of "Blended" Revenue
Prior to the August 19 Revenue Revisions
6.0%
5% Debt Capacity Advisory Committee Policy
5.0%
4.0%
3.0%
2.0%
1.0%
0.0%
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Total Debt Service as a Percent of Revenue
Source: Evelyn R. Whitley, Director of Debt Management Presentation to Joint Subcommittee on Public Safety, May 21, 2009.
18
Preliminary K-12 Re-benchmarking of
$138 Million Reflects the Recession*
•
Major Inputs that Decreased Cost
Compared to 2008-2010:
– Funded Instructional
Salaries
– Funded Support Salaries
– Special Education Child
Counts
– Statewide Average SOL
Failure Rate
– Inflation Factors
– Health Care Premium
– Textbook Expenditures
•
Major Inputs that Increased Cost
Compared to 2008-2010:
– Enrollment Projections
– Free Lunch Eligibility
– Federal Revenue Deduct
Per Pupil Amount
– Pupil Transportation
* Re-benchmarking was about $800 million for the 2008-10 biennium
Source: July 22, 2009 DOE Presentation
19
2010-12 Budget Outlook
2010-12 GF budget FA outlook assumes FY 2010 current services
appropriations with four exceptions:
1)
A seven percent utilization growth rate in Medicaid funding.
2)
Rebenchmarking increases in public education funding
(Did not restore support position funding; July preliminary: $60
mil. FY 2011; $79 mil. in FY 2012)
3)
Planned GF debt service cost increases
4)
General funds necessary to offset loss of federal stimulus funding
20
GF Budget Outlook ($ Millions)
FY 2011
FY 2012
$14,618
$15,389
$329
$339
$14,947
$15,728
K-12 Direct Aid (incl. rebenchmarking)
$5,346
$5,661
Higher & Other Education
$1,805
$1,842
Medicaid (7% annual growth)
$2,817
$3,427
Other HHS
$1,566
$1,566
Public Safety
$1,710
$1,710
Car Tax
$950
$950
Planned GF Debt Service
$600
$630
$1,645
$1,645
Total Expenditures
$16,439
$17,430
Projected Budget Gap
($1,492)
($1,702)
Aug. 19 Revenue Forecast (3.8%, 5.3%)
Transfers
Total Est. GF Available
Current Service Appropriations:
All Other **
** All Other includes Legislative, Executive, Judicial, Admin, Finance, Commerce & Trade,
Nat. Res., Capital, Central Appropriations
21
State and Local Revenue Shortfalls Make It
Likely K-12 Policies Will be Altered
• There are seven key components to the SOQ funding formula:
Number of students
Staffing ratios for teachers and other funded positions
Salaries of teachers and other funded positions
Fringe benefit rates
Standard and prevailing support costs
Inflation factors
Prevailing federal revenues related to support costs
 Approximately 79 percent of SOQ funding is for salaries and benefits
 FY10 state budget reduced support cost funding by $341 mil. -increasing to $376 mil. in FY 11 - not likely to be restored in 2010-12.
22
Other Policy Alternatives
• Seek local government/school district efficiencies (e.g.
merge HR, finance, transportation maintenance, IT,
procurement, other operations functions).
• Reduce mandates (e.g., limit SOL testing to minimum
NCLB amount required, change class size mandates
depending on at-risk student concentration)
• Include car tax reimbursements as part of any “flexible”
state aid reduction base.
• Revisit tobacco taxes, sales tax dealer discount, prior tax
reductions, and other income and sales tax policies.
• Increase local option tax authority.
• Hope for new federal aid initiatives for Medicaid and
education!
23
Sources of Funds for K-12 Expenditures
(Projected FY 09 to FY 12)
$8,000,000,000
Local
$7,000,000,000
$6,000,000,000
State
$5,000,000,000
$4,000,000,000
$3,000,000,000
$2,000,000,000
Federal
Charges for Services
$1,000,000,000
$0
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
24