Slide 1

Transcript Slide 1

Virginia’s GF Budget Outlook

James J. Regimbal Jr.

Fiscal Analytics, Ltd.

July 2011

The Economy is Slowly Recovering

• Virginia employment is strengthening, but still below its 2008 peak. Unemployment still high at 6.3%, but 3% below national average.

• Tax receipts recovering after 2 years of negative revenue growth, and second year of revenues exceeding forecast (FY 11 by $311 mil.) but revenues still only a little above 5 years ago.

Revenue forecasts for FY 12 should also be increased.

• State appropriations will finally grow again, but first priority in the 2012-14 budget will be filling recession-caused holes, i.e., Rainy Day and VRS trust funds.

Where will restoring state aid for locally-delivered programs be on the priority list?

Virginia Employment

4 000 000 3 980 000 3 960 000 3 940 000 3 920 000 3 900 000 3 880 000 3 860 000 June 07 June 08 June 09 June 10

U.S. and Virginia Unemployment

June 11 12,0% 10,0% 8,0% 6,0% 4,0% 2,0% 0,0% June 07 June 08 June 09 June 10 June 11 VA U.S.

10,0 8,0 % 6,0 G r o w t h 4,0 2,0 0,0 (2,0)

State Tax Receipts Are Recovering

Growth in Individual Income Tax Withholding 12 Mo. Moving Avg (% Growth)

$16 000

Will FY 2012 Revenues Exceed FY 2008 Peak?

General Fund Revenues (FY $ Mil.)

$15 500 $15 000 surplus Re-forecast $14 500 $14 000 $13 500 $13 000 $12 500 2005 2006 2007 2008 2009 2010 2011 2012 * Individual income and sales taxes make up 86% of GF. Does not include GF transfers and balances.

Higher FY 2011 Revenue Base Means FY 2012 Could Also be Significantly Higher than Currently Forecast Individual Income Tax: Withholding Tax Dues/ Estimated Payments Refunds Sales Tax Corporate Income Wills, Suits, Deeds

Total FY 2011 Surplus FY 11 Forecast Variance ($ mil.) % Above Forecast

$60.2 110.2 27.2 43.5 55.6 18.0

$ 311.0

0.7% 5.8% 1.4% 1.4% 6.9% 6.2%

2.1%

Revenues Now Available for Additional Local Aid in 2010-12 Biennium

Proposed Allocation of $311 Million Revenue Surplus

Rainy Day Fund Water Quality Fund Transportation Share of Accelerated Sales Tax Unemployment Trust Fund Interest on Fed. BRAC Obligation Supplemental Sheriff Office Funding Tornado Relief

Subtotal

Remaining Surplus Plus Additional Agency Savings and Balances

Additional VRS Contributions Elimination of $60 Mil. ATL Reduction Mil. $ 146.6 32.2 23.0 8.9 7.5 7.4 4.3

229.9

81.1

? 60.0 Traditional, but not required until FY 13 Required per §10.1-2128 Code of VA Discretionary per Item 3-5.08

Required Contingency per Item 115.E.2

Required Contingency per Item 96.20. J.5

Required Contingency per Item 67.20. P Governor Proposed Governor Proposed (amt. unknown) VML/VACO Proposed

Little to No Growth in

Local

Likely For FY 2012 Revenues 12,0% 10,0% 8,0% 6,0% 4,0% 2,0% 0,0% -2,0% -4,0% 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 est.

Fiscal Year 107 localities responding to VML/VACO survey FY2010 to budgeted FY2011: -1.2%

Local Government Reduced Employees

Average Monthly Government Employment in VA

Fiscal Year 2007 2008 2009 2010 2011 Local 370,067 377,008 382,300 369,858 371,083 State 153,175 153,217 153,517 154,242 156,217 Federal 156,308 157,367 163,142 171,108 173,525

Source: VEC Current Employment Statistics (CES); Compiled by Fiscal Analytics, Ltd.

State Aid For Locally-Delivered Programs Was Not a Priority in the 2011 Session

• Out of $615 million in additional biennial GF revenues, locally-delivered programs received an increase of about $78 million, or only about 13 percent of the additional funding. Other major priorities were: $90.0 million for Higher Education $94.2 million for Medicaid $67.0 million for Mental Health $64.0 million for Rainy Day Reserve $32.7 million for Transportation $55.3 million for VITA $41.7 million for VRS $23.6 million for Economic Development 10

2011 Session Change in State Aid to Locals

Sheriffs' Funding Jail Per Diems New Jail Staff Enterprise Zones Industrial Sites Brownfields Direct Aid to Public Ed WQIF - Urban Stormwater Soil & Water Districts Aid to Local Police (HB 599) CSA Community MH Services Auxiliary Grants Local DSS Support

Grand Totals FY 11

$8.3

6.1 (26.0) 5.1 (1.0) (0.5) -

-$8.0

FY 12

$14.3

1.3 3.5 3.0 1.0 48.7 1.0 12.4 (3.9) 1.9 (0.5) 2.9

$85.6

Total

$22.6

6.1 1.3 3.5 3.0 1.0 22.7 5.1 1.0 12.4 (4.9) 1.9 (1.0) 2.9

$77.6

GF Appropriations to Localities Decreased by $1 Billion From FY 2009-11

GF Direct Aid to K-12 Health and Human Services

CSA Community MH/MR Services Local Social Services Staff Community Health Programs Welfare Services and Programs

Public Safety

Local Sheriffs Offices Local Police Depts HB 599 Local/Regional Jail Per diem Assistance for Juvenile Justice

Constitutional Officers Car Tax FY 2009 $5,607.6 $888.4

$299.7 $249.4 $117.4 $117.6 $104.3

$734.3

$406.1 $197.3 $80.1 $50.8

$155.3 $950.0 FY 2010 $4,769.8 $878.7

$279.2 $256.5 $117.4 $116.9 $108.7

$556.8

$257.1 $180.8 $68.1 $50.8

$142.2 $950.0 FY 2011 $4,713.3 $816.8

$271.2 $230.1 $114.4 $106.1 $95.0

$686.0

$408.2 $178.7 $53.7 $45.4

$144.2 $950.0 FY 2012 $4,951.8 $850.5

$270.1 $269.0 $114.3 $109.3 $87.8

$667.7

$399.2 $172.4 $49.9 $46.2

$143.8 $950.0 Aid-to-Locality Reduction Total Local GF Aid Total GF Appropriations ($50.0) $8,285.6 $15,943.0 ($50.0) $7,247.5 $14,787.2 ($60.0) $7,250.3 $15,457.4 ($60.0) $7,503.8 $16,556.9

…And Direct Aid to Localities For K-12 Is Falling Below 30 Percent of the State GF

Direct Aid to K-12 Health and Human Services Aid FY 2009 35.2% 5.6% FY 2010 32.3% 5.9% FY 2011 FY 2012 30.5% 5.3% 29.9% 5.1% Public Safety Aid Car Tax Constitutional Officers Aid-to-Locality Reduction Total Local GF Aid 4.6% 6.0% 1.0% -0.3% 52.0% 3.8% 6.4% 1.0% -0.3% 49.0% 4.4% 6.1% 0.9% -0.4% 46.9% 4.0% 5.7% 0.9% -0.4% 45.3%

5 reasons the state will have difficulty restoring cuts in core programs

Payments to the Rainy Day Fund ($200-300 mil. per year) – Constitutional change will increase the number of years deposits have to be made.

VRS contributions for teachers and state employees will have to be restored to actuarially sound levels. Medicaid spending continues to grow faster than state revenues.

Debt service payments will increase.

One-time revenues and savings in this biennium have to be replaced.

State Teachers SPORS VaLORS Judges

2010-12 VRS Employer Rates Will Rise Sharply in Future Biennia

2011 & 2012 VRS Board Certified Rates

8.46% 12.91% 25.56% 15.93% 46.79%

FY 2011

2.13% 3.93% 7.76% 5.12% 28.81%

6/25/2011 3/24/2012

2.08% 6.33% 7.73% 5.07% 28.65%

3/25/2011 6/24/2012

6.58% 6.33% 21.16% 13.09% 42.58% Not including 5% member contribution Actual rates assume 8% investment return Source: VRS Presentation to JLARC, July 11, 2011 16

VRS Funded Status of Teachers and State Employees

120% 100% 80% 60% 40% 20% 0% 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Source: VRS Presentation to JLARC, July 11, 2011 Teachers State Employees 17

Total DMAS Medicaid Expenditures in Virginia (Actual Avg Growth Rate 1999-2010 = 10%)

8000 7000 6000 5000

$ Mil.

4000 3000 2000 1000 0 1999 2000 2001 2002 2003 2004 2005 2006

Fiscal Year

2007 2008 2009 2010 2011 2012 2013 Official Consensus Forecast DMAS forecasted - does not include Medicaid expenditures for CHIP, MH&MR facilities and CSA 18

40,0% 35,0% 30,0% 25,0% 20,0% 15,0% 10,0% 5,0% 0,0%

Medicaid and State K-12 Aid Funding Levels are Converging

Percent of Total GF Appropriations

K-12 Direct Aid DMAS (Medicaid) FY 2009 FY 2010 FY2011 FY 2012 19

Localities Should Plan On Tough Budgets for Foreseeable Future

• • • • Local revenues are not growing.

Real estate will be the last to recover from recession.

Federal relief efforts are ending. VRS teacher rates will rise.

Meaningful increases in state aid for locally provided services will be hard to come by for rest of this and at least the next biennium.

K-12 re-benchmarking will likely be negligible,

unless federal stimulus funds are included

, with the base year data from FY 2010.

However, hard to justify $60 million ATL reduction with $311 mil. FY 2011 revenue surplus.

Temporary Funding Policies Helped Mitigate State K-12 Funding Reductions

FY 2010 FY 2011 FY 2012 One-time Federal ARRA Stimulus One-time Federal "EduJobs" Funding Estimated Value of One-time Local VRS Teacher Savings * $584.2

$122.9

$249.5

$346.1

$281.2

* FY 12 local savings reduced by approx. $83 mil. if Governor’s 2% VRS rate increase is adopted

Recent Policy Changes Reduce K-12 Funding

• • • • • • • Established a funding cap of 1 support position per 4 instructional positions.

Enacted a federal revenue deduct of 38% to eliminate so-called double-counting of funding for support positions.

Adopted additional support function reductions.

Include $0 in division LWA for non-personnel support Extend school bus replacement cycle from 12 to 15 years Eliminate staff travel, leases/rentals, and facilities from recognized non personnel support funding Changed funding for health care premiums to reflect actual participation rates (but not actual premiums paid).

Eliminated annual/sick leave payments for personnel who terminate employment, capital outlay replacement and a “miscellaneous” category.

Eliminated non-personnel inflation increases.

Supplanted GF with lottery funds for savings such as: Transfers remedial summer school, ESL, and 2/3 of textbook funding to lottery.

Eliminates enrollment loss and add’l support for construction and operating costs.

Limits participation in the K-3 Class Size Reduction Program to schools with free lunch higher than 30 percent.