Today, Virginia Governor Tim Kaine unveiled the 2010 caboose budget and 2010-2012 biennial budget that he will submit for consideration by the 2010 General Assembly. It includes major cuts to transportation, education, public safety, local government support and State employees.
“We have to make significant and painful cuts, but we need to make them in a way that preserves the core services that Virginians depend on. I am mindful of the fact that, at the very time revenues decline, our citizens have the greatest need for services,” Kaine said in his presentation to the General Assembly’s Joint Money Committees. “So, while we have made tough cut decisions that will be painful to virtually every governmental priority, we maintain the safety net that must be protected during these difficult times.
“The budget I deliver to you will preserve our Triple A bond rating. It makes the hard decisions and avoids easy gimmicks that can paper over fiscal challenges.
“The budget reflects the need to preserve Virginia’s status as an economic and educational leader while we climb out of this national recession. If adopted, it will provide the resources that the Commonwealth needs in the future to tackle tough challenges and maintain our edge over other states and regions of the world with whom we compete every day,” Kaine said.
Since 1970, there have been 29 years in which general fund revenue growth on a year over year basis met or exceeded six percent. In 17 of those years, growth met or exceeded 10%. The revenue forecast projects a revenue decline of 2.7% in FY 2010. This represents the first time in recorded budget history when the Commonwealth has experienced revenue declines in two successive years.
While the FY 2011 and FY 2012 projections offer some hope with projected revenue growth of 3.8% and 5.1% respectively””and FY 2012 projects the best growth rate since FY 2006″”this growth will be off a much lower base, resulting in less additional revenue than experienced in past economic rebounds.
“With this revenue forecast, the budgetary challenge is daunting,” Kaine said. “If we just take the expense line items in the FY 2010 budget, already adjusted downward after $7 billion in budget cuts, and project them forward with no increase and then add only items that are absolutely mandated in the new biennium””debt service payments, economic development contracts, increases in the state’s Medicaid rolls””the budget gap in the upcoming biennium exceeds $4 billion. A significant part of that gap is created by the end of federal stimulus dollars in 2011.”
Due to the American Recovery and Reinvestment Act of 2009, Virginia has created many jobs, weatherized 1260 homes, broken ground on critical highway projects, contracted for repair or replacement of 119 bridges and made investments in a new energy economy with $5 billion in ARRA funds.
The budget reduces funding for administrative and support personnel in schools and central offices by applying a funding ratio for these positions. “Nothing in our schools is as important as teachers, and a ratio for support staff is not only consistent with a ratio for teachers and instructional staff that already exists””it will help protect our core priority, the classroom,” Kaine said.
The budget amends the practice of funding localities for health insurance based on the total number of school personnel without regard to whether insurance is actually provided to individuals. “This budget proposes to provide funds to localities for employee health insurance only for the actual number of employees insured through the locality,” Kaine said.
The budget proposes delaying the scheduled change in the composite index of local ability to pay for one year, until FY 2012. “Without this action, 97 school divisions would see increases in the share of education costs paid by their local governments and they would face greater losses of state revenue in the first year of the biennium,” Kaine said. “The net effect of my proposed changes is significant. For the first time, the total line item for SOQ [Standards Of Quality] funding will be lower in the upcoming biennial budget than it was in the last budget. This is a tough decision to make, but the need to keep this budget in balance requires that we do so.”
Virginia’s higher education has been shielded from many cuts in FY 2011 thanks to federal stimulus dollars. However, later in the biennium, higher education will face difficult reductions. “As a stark consequence of sharply contracting revenues in recent years, the budget provides fewer general fund dollars to higher education in FY 2012 than were provided in FY 2006. At the same time, resource needs have grown, with an 11% increase in enrollment in our higher educational institutions since that time.
“We have protected financial aid from all cuts and proposed that two-year schools received smaller reductions than our four year universities. But, we should not kid ourselves. Without some significant infusion of new revenue, tuition costs will likely rise in this biennium,” Kaine said.
The Virginia State Police will postpone two new trooper schools in the next biennium. This is “a cost-saving strategy that meets our mandate for balancing the budget but will make it more difficult to fill vacancies as current troopers retire or leave the service,” Kaine said.
Local sheriffs’ departments with law enforcement responsibility and police departments””largely protected from budget cuts last year””will face reduced state payments approaching 20%.
“These cuts may require layoffs at the local level to keep local budgets in balance. Cuts to local Commonwealth’s Attorneys offices exceed 16%, while Circuit Court clerks face similar percentage reductions,” Kaine said.
The Department of Corrections, now Virginia’s single largest state agency, has already closed large facilities in Botetourt, Southampton and Brunswick as well as many smaller facilities. “At this point, additional closures would not be consistent with our public safety needs. But, we will continue to explore options””including contracting with other states to house some of their inmates””to manage our own inmate population while reducing costs,” Kaine said.
Northern Virginia’s Transportation needs are unlikely to be met over the next two years unless the Legislature proposes additional revenue sources. Kaine’s proposed budget includes significant cuts to the already strapped agency.
Virginia’s transportation budget is supported mostly by non-general fund revenue. These sources have been impacted by a contracting economy and declining gas tax and automobile sales tax revenues.
“My budget reflects the continuing downward changes in the revenue forecast for transportation,” Kaine said. “VDOT is in the process of reducing agency employment to 7500 employees, down from a workforce that previously totaled more than 10,600.”
The Commonwealth Transportation Board continues to revise its plan to balance proposed construction and maintenance expenditures against projected revenues. Given the Commonwealth’s mandated prioritizing of maintenance of current infrastructure above other resource needs, there is very little revenue for new construction included in the CTB’s current Six Year Plan. “Thanks to the support of the President and Congress, we are undertaking a number of critical infrastructure projects through Recovery Act funding. But, those funds will dry up in 2011 and the ongoing road needs of Virginia face an uncertain future due to the unwillingness of state leadership, public and private, to support additional transportation investments,” Kaine said.
Local Government Funding
As expected, funding for local governments will be cut. “Support for local governments is the biggest single spending item in the state budget and there is no way to make budget proposals of this magnitude without having a direct impact on localities,” Kaine said. “I am mindful of the fact that local governments have revenue issues of their own as they rely on property taxes based on declining property values.”
The budget includes one additional reform in the area of local finance. Given that the Commissioners of Revenue and Treasurers have the primary function of working in the area of local tax administration, the budget proposes that funding responsibility for these offices””other than the salary of the Constitutional officer””should rest completely with local government.
“This change to the current structure will enable local governments to have sole responsibility for planning and funding the fiscal side of local government operations,” Kaine said. “Language in my budget also encourages localities to consolidate functions and look for opportunities for savings. State agencies are directed to work with local governments to implement these new strategies, which should be aimed at creating greater efficiencies at the local level and encouraging regional solutions where possible.”
Car Tax Relief
Kaine proposed eliminating car tax relief to local governments, an annual savings of $950 million.
“Taking $950 million in state funds off the top every year to subsidize local tax collections has hampered the state’s ability to invest in key priorities and weakened our ability to maintain structural balance in our budget,” Kaine said. “We should be using the $950 million annual car tax payment to advance our higher education investments and other core priorities.
“The car tax is particularly objectionable because it requires citizens to write a large check once or twice a year. The right way to eliminate this tax is to give local governments a better revenue source in exchange. We should impose a 1% income tax surcharge in Virginia and give 100% of the revenue to local governments in exchange for their agreement to completely eliminate the property tax on all personal cars, trucks and motorcycles,” Kaine said. “This will diversify local revenues in a way that will help cities and counties manage through some of the painful cuts we have announced here. It will create an additional base of state revenue that can be used to prudentially expand our ability to issue state-backed debt. And, it will show the citizens that we can keep a promise by getting rid of the car tax once and for all.”
As Recovery Act dollars cease to be available beginning in early FY 2011, health care for low-income Virginians will be affected. Medicaid expenditures are projected to increase $778 million in response to rising caseloads and costs corresponding to the continued weak economy.
“In an effort to control these rising costs, this budget significantly limits services to individuals and reimbursements to health care providers by imposing reductions of $419 million,” Kaine said. “This budget calls for the temporary freezing of a number of waiver programs: Intellectual Disabilities, Developmental Disability, Day Support, Elderly and Disabled and Alzheimer’s waivers. The human consequence is that many people will remain on waiting lists until these programs can be reopened.”
Medicaid services that have been reduced or eliminated in FY 2012, include: physical, occupational and speech therapy, and there will be lower caps on the hours of respite care provided for the needy.
Meanwhile, many health care providers will see freezes and reductions in state payments for providing services to Medicaid patients. “The painful reality of this budget will impact non-state partners that currently provide important health care safety net services, such as the free clinics and the Virginia Health Care Foundation. We have worked to make these cuts manageable, but they cannot be completely spared,” Kaine said.
There have been 1651 layoffs of state employees since 2007. This budget continues the trend of shrinking the state workforce by proposing an additional 664 layoffs and the elimination of 1879 vacant positions. The agencies most impacted are the Department of Transportation, the Department of Behavioral Health and Development Services, the Department of Corrections, the Department of Juvenile Justice and the University of Virginia.
“My budget includes no pay increase for state employees in either FY 2011 or FY 2012. I have not, however, proposed any additional furlough days beyond the single day previously announced for May 2010,” Kaine said.
The budget includes one significant change to state employee compensation that brings the Commonwealth more in line with other major employers and other states across the country that offer a guaranteed retirement benefit to their employees.
“Beginning in FY 2011, all state employees will be required to pay one percent of salary as their share of the total contributions required for membership in the Virginia Retirement System defined benefit retirement program. This rate will increase to two percent of employee salary in FY 2012. The state will pay the remainder of the employee share as well as continue to pay the entire employer share. Local governments and school boards will have the option to require their employees to contribute at the same rate as state employees,” Kaine said. “At the same time, the retirement age for newly hired state and local employees will be increased from age 50 to age 55.
“We must also acknowledge that these changes impose additional burdens on governmental employees who have been doing more work with fewer people and seeing their take home pay reduced through increasing health care premiums and pension contributions,” Kaine said.
The 2010 General Assembly Session will open on January 13, 2010. Newly elected Governor Bob McDonnell will have his own budget proposals, which the legislature will debate along with Kaine’s.