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State Budget Outlook
for the 2010-12 Biennium
Prepared by
James J. Regimbal, Jr.
Fiscal Analytics, Ltd.
February 2010
1
Budgeted General Fund Revenues
in FY 2012 Less Than FY 2007 ($ mil.)
$16,000
$15,500
$15,000
-9.2%
SFC Forecast
$14,500
-2.7%
$14,000
$13,500
$13,000
$12,500
2005
2006
2007
2008
2009
2010
2011
2012
2
General Fund Resources ($ mil.)
FY 2009
FY 2010
FY 2011
FY 2012
(actual)
(Introduced)
(Introduced)
(Introduced)
Individual Income Tax
$9,481.1
$8,947.3
$9,543.4
$10,081.6
Sales Tax
$2,903.4
$3,021.9
$2,890.2
$2,986.0
Other GF Revenues
$1,930.6
$1,952.6
$2,017.8
$2,113.8
Total GF Revenues
$14,315.1
$13,921.8
$14,451.4
$15,181.4
% Growth
-2.7%
3.8%
Transfers
$406.9
$547.9
Balances
$593.4
($96.9)
Rainy Day Fund
$490.0
$292.9
$0.0
$0.0
$15,805.4
$14,665.7
$14,883.9
$15,586.7
Total GF Resources
% Growth
-7.2%
$406.7
5.1%
$25.7
1.5%
$405.8
($0.5)
4.7%
3
Reduced State GF Forecast Still Contingent
on Second Half Job Growth
Growth
% of GF
Forecast %
% Thru Dec.
64.3%
-5.6%
-5.9%
Withholding
65.8%
0.2%
-2.3%
Estimated Payments
13.0%
-21.5%
-18.6%
Refunds
14.5%
2.6%
24.1%
21.7%
4.1%
-3.4%
5.1%
8.8%
33.7%
100.0%
-2.7%
-4.4%
Individual Income Taxes
Sales Taxes
Corporate Income Taxes
Total GF Revenues
4
Significant Additional General Funds Are
Necessary to Maintain Current Services
When Federal Stimulus Ends
ARRA Stimulus Funding ($ Mil.)
FY 10
FY 11
FY 11 GF
ARRA*
ARRA*
Backfill
ARRA
Backfill
Medicaid **
$720
$360
$360
$0
$720
K-12 Public Education
$586
$126
$460
$0
$586
Higher Education
$219
$36
$183
$0
$219
$23
$0
$23
$0
$23
$109
$0
$109
$0
$109
$1,657
$522
$1,135
$0
$1,657
Sheriffs (Bryne Justice)
SFSF General
Total
FY 12 FY 12 GF
*Federal ARRA stimulus funds used by Virginia to offset general fund cuts
** DMAS forecast presented to Senate Finance Committee 10/22/09
Note: Section 1739 of H.R. 3692 (The Affordable Health Care for America Act) extended FMAP
increase for 2 quarters
5
FY 2010 State General Fund Appropriations
All Other
9%
Debt Service
3%
Car Tax
Direct Aid to K-12
Reimbursement
34%
6%
Public Safety
11%
Other Health and
Human Services
11%
Higher Education
12%
DMAS Medicaid
15%
6
Virginia General Fund Appropriations ($ mil.)
Legislative Dept
FY 2010
FY 2010
FY 2011
FY 2012
(Original)
(Introduced)
(Introduced)
(Introduced)
$69.1
$68.3
$69.3
$69.3
$406.5
$407.3
$404.0
$403.5
$32.3
$25.1
$26.6
$26.6
Comp Board
$666.2
$473.0
$513.3
$502.8
Treasury Board (Debt)
$529.4
$479.4
$566.2
$614.0
$0.0
$0.0
$0.0
$40.0
Admin., Finance & Technology
$234.8
$211.4
$184.3
$208.1
Commerce and Trade, Ag
$178.7
$151.0
$179.0
$182.7
$5,930.5
$4,769.8
$5,030.1
$5,216.8
$1,772.5
$1,753.3
$1,597.8
Judicial Dept.
Executive Offices
Rainy Day Payment
Direct Aid to K-12 *
Higher & Other Education
$2,060.8
DMAS Medicaid
$2,672.1
$2,293.1
$2,832.2
$3,426.9
Other Health & Human Serv.
$1,723.4
$1,541.6
$1,529.0
$1,522.3
$111.9
$107.7
$94.7
$94.3
$1,828.2
$1,686.5
$1,637.8
$1,627.8
$950.0
$950.0
$0.0
$0.0
Natural Resources
Public Safety
Car Tax
Other (Transp.,Central Appr., Ind.
Ag., Non-S)
Subtotal GF Operating Expenses
Capital
Total GF Appropriations ($ mil.)
$94.8
($137.5)
($13.1)
$83.3
$17,488.7
$14,799.2
$14,806.6
$15,616.0
$100.3
$0.8
$39.2
$0.0
$17,589.0
$14,800.0
$14,845.8
$15,616.0
7
Total Medicaid Expenditures in Virginia*
(Actual Avg Growth Rate 1999-2009 = 9%)
8000
7000
6000
5000
$ Mil. 4000
3000
2000
1000
0
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Fiscal Year
* DMAS forecasted - does not include Medicaid expenditures for MH&MR facilities and CSA = $361mil. in FY 2008
8
Medicaid Expenditures by Identifiable Eligibility Category
2500
2000
1500
$ mil.
1000
500
0
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Fiscal Year
Blind/Disabled
Aged
Low Income Children
Low Inc. Pregnant Women
Source: Virginia Department of Medical Assistance Services
Low Inc. Caretaker Adults
9
Virginia Already Spends Significantly
Less on MedicaidMedicaid
Than Other States
Enrollment
% of
Medicaid Expenditures -
Population - 2006
Per Capita FY 07
United States
20%
$1,061
Virginia
11%
$639
Colorado
12%
$605
Georgia
19%
$736
Indiana
16%
$808
Maryland
14%
$967
Massachussetts
19%
$1,592
North Carolina
19%
$1,087
Tennessee
25%
$1,159
Washington
19%
$898
Wisconsin
18%
$882
Source: Kaiser Family Foundation, State Health Facts.Org
10
Introduced Budget Cut Anticipated
2010-12 Medicaid Spending by $419 mil.
• Reduced provider reimbursements and eliminated inflation
increases ($229 mil.).
• Reduced Medicaid eligibility ($82 mil.).
• Eliminated services and implemented a provider assessment to
generate additional federal funding ($70 mil.)
General Fund Medicaid Reductions Also Lose the Additional
50% Federal Match.
11
Education Funding is Greatest Local Concern
•
Commonwealth has already reduced FY10 K-12 general funds by $1.2 billion -partially offset by $568 mil. in federal stimulus and other non-general funding.
•
Expect additional K-12 cuts in 2010-12. Spending is about 79 percent salaries and
benefits.
K-12 is 34 percent of GF and 71 percent of local aid.
A proportional cut to $950 mil. budget shortfall would be $300 mil./yr.
•
Localities already holding public education system together to meet SOA and SOL
standards by spending $3 billion or 82% more per year than required to match
state $. Local excess is 22 percent of total K-12 spending in state.
•
Introduced budget endorsed last year’s decision to reduce state support position
funding by one-third ($376 mil. in FY 11).
•
Additional introduced 2010-12 K-12 Policy Changes
Reduce health care premium support based on participation - $134.2 mil/yr
Eliminate leave policy and other miscellaneous costs from SOQ - $86 mil/yr
Eliminate nonpersonal cost inflation adjustment
Eliminate VPSA technology grant program - $59 mil./yr
Delay new Local Composite Index ($29 mil.)
12
State Aid for Locally-Delivered Programs
Major Categories of State Aid to Localities
General Funds (Except Where Noted)
Biennium %
FY 09 Actual
Introduced FY 10
Introduced FY 11
Introduced FY 12
Change
$6,307,483,275
$6,029,476,884
$5,723,722,110
$5,796,792,914
-6.6%
Car Tax
$950,000,000
$950,000,000
$0
$0
n/a
Compensation Board **
$648,725,578
$605,758,057
$513,276,014
$502,817,324
-19.0%
Comprehensive Services Act
$299,717,687
$279,208,772
$274,234,333
$278,000,867
-4.6%
Community Service Boards
$236,957,432
$227,360,416
$232,250,268
$232,150,268
0.0%
HB 599 ***
$197,295,927
$180,824,184
$156,421,039
$149,734,178
-19.0%
DJJ Juvenile Confinement/Treatment
$50,787,956
$48,266,904
$47,899,994
$47,899,994
-3.3%
Recordation Tax Distribution
$40,000,000
$40,000,000
$28,000,000
$52,000,000
0.0%
Public Library Aid
$17,278,628
$16,509,697
$15,640,765
$15,640,765
-7.4%
-$50,000,000
-$50,000,000
$0
$0
n/a
Total Major Categories
$8,698,246,483
$8,327,404,914
$6,991,444,523
$7,075,036,310
-17.4%
Total Major Categories (not incl. car tax)
$7,748,246,483
$7,377,404,914
$6,991,444,523
$7,075,036,310
-7.0%
K-12 Direct Education Aid *
"Flexible" State Aid Reduction
* Includes lottery, federal stimulus, and literary funds for teacher retirement
** Includes $109 mil. in federal stimulus funds in FY 10
*** Does not include proposed Public Safety Fund $
13
Virginia First Cities FY 2011 State Funding Cuts in Introduced Budget *
K-12 Education **
Est. Per
Cents
Undo LCI
Aid to Police
Compensation
Total Local
Penny RE
Increase
Delay
HB 599
Board ***
Cuts
Tax ****
Needed
(1,904,308)
(1,255,254)
(477,117)
($400,893)
(4,037,573)
$490,718
(13,515,861)
(4,487,996)
(1,546,433)
($2,118,983)
(21,669,273)
$1,126,505
(406,732)
(90,053)
(310,253)
($802,507)
(1,609,546)
$318,555
5.1
Hopewell C
(1,284,752)
(111,285)
(300,352)
($283,819)
(1,980,208)
$133,000
14.9
Lynchburg C
(5,468,537)
(1,744,519)
(694,766)
($737,175)
(8,644,996)
$445,176
19.4
Martinsville C
(1,900,058)
(5,092)
(199,498)
($546,808)
(2,651,457)
$63,507
41.8
Newport News C
(17,818,393)
(4,653,892)
(2,072,383)
($2,092,828)
(26,637,496)
$1,298,255
20.5
Norfolk C
(21,167,564)
(8,941,063)
(2,649,116)
($5,147,475)
(37,905,218)
$1,775,230
21.4
Petersburg C
(3,778,966)
(728,893)
(479,386)
($937,958)
(5,925,203)
$151,436
39.1
Portsmouth C
(9,095,337)
(3,855,777)
(1,371,773)
($2,169,432)
(16,492,319)
$647,099
25.5
(13,739,064)
(11,172,537)
(3,293,681)
($4,446,290)
(32,651,572)
$1,890,642
17.3
Roanoke C
(9,933,552)
(1,417,437)
(1,265,747)
($2,005,863)
(14,622,598)
$630,746
23.2
Staunton C
(2,581,313)
(297,398)
(203,540)
($298,705)
(3,380,955)
$179,685
18.8
($192,681)
($390,152)
(1,423,713)
$338,732
4.2
Charlottesville C
Hampton C
Harrisonburg C
Richmond C
Winchester C
($1,521,171)
680,292
VFC Total
($104,115,607) ($38,080,904)
($15,056,726)
State Total
($566,232,441)
($40,756,331)
($116,681,123)
(694,509,309)
36.9%
19.2%
25.9%
VFC % of State
29,160,586
18.4%
($22,378,889) ($179,632,125)
$9,489,285
$97,371,825
8.2
19.2
18.9
7.1
9.7%
* Since Chapter 781 2009 Session for FY 2010 to FY 2011 Introduced Budget
** includes federal stimulus funding
*** Does not include regional jails and jail per diem cuts
**** Based on FY 2009 data
14
Filling the Car Tax “Hole” Makes It Likely
State K-12 Funding Will be Reduced Further
• 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
15
“Standards of Quality” Already Push Localities to
Pay $3 Bil. More for Education Than Required
• State does not pay for all Board of Education approved
standards.
• The state methodology (LWA) overemphasizes the generally
lower values in the more numerous/smaller school divisions in
calculating prevailing costs for teacher and support positions.
• FY ‘08 base year for 2010-12 re-benchmarking does not
reflect real-time salary costs: No state teacher compensation
supplements since FY 2008.
• Most localities go beyond state mandates, especially for at-risk
student funding, including lowering class sizes to help meet
SOL and SOA requirements.
16
Likely Examples of School Division
Budget Reductions
•
•
•
•
•
•
•
•
Larger class sizes with fewer teachers.
Administrative, security, and technical support staff reductions.
Other pay and benefit reductions for remaining employees.
Reductions in summer school, pre-school and tutoring
programs.
Reducing and charging for sports and other extra-curricular
programs.
Fewer special education, alternative ed. and other specialty
programs (e.g.,gifted and AP offering reductions).
Elimination of teacher training programs.
Increase in “no transportation” zones and policies.
17
Deteriorating Local Financial Condition
Virginia Localities General Fund Revenue
Annual Growth Rate*
12%
10%
8%
6%
4%
2%
0%
-2%
-4%
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Fiscal Year
* APA Comparative Report FY 1990 to FY 2008; VML/VACO survey results extrapolated for FY 2009 and FY 2010
18
General Fund Tax Changes Over Last 10 Yrs
Have Neutralized 2004 Tax Increase
FY Implemented
2008-10 ($ 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
($280)
Low Income Tax Relief
Shift Insurance Premiums and
Total
($1,830)
19
New Debt Capacity Is Limited…
If Virginia Wants to Keep its AAA Rating
Total Debt Service
as a Percent of "Blended" Revenues
6.00%
5% Debt Advisory Capacity Limit
5.00%
4.00%
3.00%
2.00%
1.00%
2018
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
0.00%
Total Debt Service as a Percent of Revenue
Source: Debt Capacity Advisory Committee, Dec. 19, 2009 http://www.trs.virginia.gov/Documents/Debt/DCAC/DCAC2009.pdf
20
Expect Wide Ranging Actions to Close
Remaining $2 Bil. State Budget Shortfall
All options are on the table, including:
• Further state agency consolidations and employee layoffs.
• Increase the unfunded liability of VRS by reducing state contributions.
• Further employee pay and benefit reductions (including increases in
employee contributions to VRS and health insurance).
• Additional cuts to public education and other aid for locally-delivered
services.
• Additional cuts to health & human service aid to individuals.
• Find additional one-time revenues, including more debt, asset sales,
and privatization initiatives.
• Shift service costs to localities and health providers, raise college
tuition, and increase service fees and transportation tolls.
• Hope for additional federal assistance.
21
Major Policy Changes Proposed for
2010 - 2015 Six-Year VDOT Program
• $5.5 billion in reductions since the spring of 2008.
• Construction blueprint now primarily a federal match program that
eliminates state formula distributions for unpaved roads, primary,
secondary and urban systems.
• Surface Transportation Program federal formula funding will no longer
be distributed by locality in FY 11: CTB to do the programming.
• If all federal funds are to be matched, adequate maintenance funding
particularly for secondary roads no longer available.
• First $492 mil. tranche of $3.18 bil. in authorized HB 3202 (2007) debt
delayed from summer 2007 until summer 2010 due to insufficient
insurance premiums – current FRAN debt has first call. Now expected
to take until 2028 to let full HB 3202 authority.
Over last 10 years, debt service has increased from 3% to 7% of
total transportation expenditures.
22