Category Archives: Budgets

Localities Are Re-Writing Budgets. So Should the State.

by James A. Bacon

It is obvious to some people that COVID-19’s body blow to the economy will have a devastating impact on state/local government finances. Old Dominion University professors Ron Carlee and Robert McNab have estimated that local governments in Hampton Roads are losing at least $16 million a month in local taxes, while local governments across the state are losing $60 million monthly or more. And the blood-letting is getting worse.

Hotel occupancy and revenues were only 80% of normal levels in early March. By the end of the month, the estimate, revenues were running only 20%. Sales, business-license, hotel & motel, restaurant & food taxes comprise a “vulnerable” category of local government revenue amounting to $637 million in Hampton Roads and $2.9 billion statewide.

Unlike the federal government, the professors write, state and local governments must balance their budgets (unless, I might add, they engage in hidden deficit spending like running up unfunded pension liabilities and falling behind in building and infrastructure maintenance). “It’s not time to panic,” they write in the Richmond Times-Dispatch, “it’s time to prepare.”

Some local governments are acting proactively. Fairfax County and Chesterfield County are among those slashing budgets — including next year’s — in anticipation of declining revenues. Remarkably, Chesterfield is anticipating a decline in revenue sources funneled through the state even though Governor Northam and General Assembly budget writers have yet to re-work the budget passed earlier this year before the full dimensions of the COVID-19 crisis were apparent. Continue reading

New Budget Woes

By Dick Hall-Sizemore

The outlook for the state budget gets grimmer.

The most immediate concern is the budget for the current year. The state collects about a third of its fiscal year revenue in the last quarter (April-June). Income tax filings and payments are usually due May 1.  (This year the payments can be delayed until June 1 without penalty.) The COVID-19 crisis probably will not affect that revenue stream; it is based on calendar year 2019 income. But, the prolonged crisis will affect sales tax receipts, current withholding  tax receipts, and, possibly, non-withholding estimated payments. There will be some savings—state travel has been drastically curtailed and the filling of vacant positions can be put on hold, for example—but it is not known to what extent these actions will counteract the loss of revenue. Continue reading

Is It the Death Knell For Dominion’s Pipeline?

By Peter Galuszka

For more than a decade, hydraulic fracturing drilling for natural gas and oil has transformed the American energy picture, leading to big revivals in such energy fields such as Marcellus in West Virginia and Pennsylvania and the Bakken field in the Dakotas.

It has prompted Dominion Energy and its utility partners to push forward with an $8 billion or so Atlantic Coast Pipeline that will take Marcellus gas through Virginia all the way to South Carolina. The project, tied up in court fights, has been enormously divisive as property owners have protested the utilities’ strong arm methods of securing rights of way.

But now there’s clear evidence that the fracking boom is over, and that has huge implications for the ACL project. The reason? Oil and gas prices have dropped thanks to a perfect storm of issues. There’s the coronavirus pandemic tanking the U.S. economy, bitter energy wars between Russia and Saudi Arabia, and the fact that fracking gas and oil rigs are enormously expensive and wells can produce for only a short period.

The Hill reported last week: “Oil sank to $23 (a barrel) from a high of $53 in mid-February, far below the break even point that producers need to drill new wells to maintain supply, and with volumes rapidly diminishing at existing wells.”

The newspaper points out that a fracking well can cost more than $10 million while a traditional well is only $2 million. As price pressure mounts, the number of wells nationally has plummeted from 790 to 772 in one week.  At the Bakken field, reports The Washington Post, producers are cutting costs.

The situation has clear implications for the ACL project which was conceived at the height of the Marcellus boom. Dominion claimed that the gas would be badly needed in coming years while others claimed there isn’t enough demand. Continue reading

Help for the State Budget

In answer to some calls on this blog for immediate adjustments to the state budget, my response was: Don’t panic.  There is a process already in place to deal with such a situation. Now, there is even less reason to panic. It is reported that the Commonwealth will receive at least $1.5 billion from the federal rescue package that will soon be enacted.

Just as the Obama stimulus package (along with shortchanging the state pension system) helped Bob McDonnell balance the budget in the middle of the financial crisis without a tax increase, this new rescue or stimulus package should help Governor Northam weather the economic storm caused by the coronavirus. Continue reading

COVID-19 Economic Impact Estimates

by James A. Bacon

Thanks to its high share of federal government employment and a high percentage of jobs that can be performed remotely, Virginia is somewhat less vulnerable to job losses from COVID-19-related shutdowns of large sectors of the economy than other states, said Stephen Moret, CEO of the Virginia Economic Development Partnership (VED) in a Monday update to economic development partners.

“We expect a large increase in unemployment to happen quickly, led by the hospitality sector, with substantial job losses in retail as well,” he wrote. The short-term impact will vary substantially by industry sector:

  • Minor impacts for ~48% of total employment in Virginia (federal government, healthcare, K12 education, utilities, data centers, and agriculture);
  • Moderate impacts for sectors representing ~35% of total employment (professional services firms, IT firms, manufacturers, higher ed, real estate, construction);
  • Severe impacts for sectors representing ~17% of total employment (hospitality, retail (with a few exceptions, e.g., grocers), and small businesses generally (especially those in the non-traded sector), and movie production.

Any prognostication must be tempered by big unknowns, he said: (1) the size and speed of federal stimulus to offset social distancing impacts, and (2) the timeline for social-distancing measures to remain in place. Continue reading

Act Now to Bring State Budget in Line with Reality

by James A. Bacon

About 18 months ago Secretary of Finance Aubrey Layne conducted an analysis of state government finances to see how they would hold up under the stress of another recession of the magnitude of the Great Recession. Hardly anyone thought that a downturn was in the cards; the economy was chugging along just fine. But you never know, and Layne wanted to know how vulnerable the commonwealth was in case the unexpected occurred.

Virginia’s General Fund budget, he concluded, would experience three years of “fairly significant” declines in revenues:

Year 1 — $2.6 billion
Year 2 — $3.7 billion
Year 3 — $3 billion

A cumulative decline of $9.3 billion over three years would be devastating. That’s why Layne became the most forceful advocate in the Northam administration of building up the state’s Revenue Stabilization Fund and financial reserves. Last fall, when the administration began working on its biennial budgets for the 2020 and 2021 budgets, Governor Ralph Northam was forecasting that the commonwealth would build up its reserves to $1.6 billion. “We start out this budget cycle in a good place,” he told the General Assembly money committees last August.

Then came an event that no one predicted, a true black swan: the COVID-19 epidemic. Continue reading

Damn the Coronavirus! Full Speed Ahead!

Source: Department of Planning & Budget revenue forecast. Click for more readable image.

The budget forecasts underpinning Virginia’s General Fund budgets for FY 2021 and 2022 suggests that revenues will increase 4.5% next year and 3.7% the year after that. Secretary of Finance Aubrey Layne released those numbers back in December, when COVID-19 was still an obscure disease incubating in a Wuhan wet market. But it’s a very different world today. Nations are shutting down travel and enforcing social distancing. Economies are slowing. Retail sales are suffering. Economists are revising growth forecasts downward. Speculation is rampant that the global economy could enter a recession, dragging the U.S. down with it.

None of these developments appeared to make the slightest impression upon Virginia General Assembly leaders as they finalized changes to the budget submitted by Governor Ralph Northam. Read Dick Hall-Sizemore’s recap of the legislature’s budget actions here. Like junkies reaching for the needle, spending-addicted legislators paid no heed to their surroundings. They made no accommodations whatsoever for the impending epidemic.

Republican lawmakers did propose a delay in adopting the budget on the not-unreasonable grounds that the rapidly changing situation could have a big impact on revenue forecasts. Democrats responded that a delay would create unnecessary uncertainty.

As Admiral Farragut famously said, “Damn the torpedoes, full speed ahead!” That dare-devil approach worked out for the Civil War commander in the Battle of Mobile Bay. We’ll see how it works out for Virginia in the Battle of the Coronavirus.

— JAB 

And This is How They Will Spend the Money

By Dick Hall-Sizemore

Although the General Assembly, as usual, left most of the Governor’s budget bill untouched, it did leave its mark on it. Its top priority clearly was increasing compensation for state employees and teachers. It also toned down some of the Governor’s initiatives.

The revised budget bill for the 2020-2022 biennium reflects an additional $330.6 million in total revenue over the Governor’s introduced bill.  This increase is made up of $187.6 million in additional nongeneral fund (NGF) revenue and an additional $142.9 million for the general fund (GF). The bulk of the additional NGF comes from increases in transportation revenue provided for in the Governor’s omnibus transportation bill and from additional federal Medicaid matching funds.

This report will focus on the changes in GF appropriations agreed on by the legislature. The revision in the revenue projections accounts for most of the additional GF, with the remaining resulting from policy actions enacted by the G.A. Continue reading

Will the Tuition Incentive Work a Second Time?

Data Source: Virginia Department of Planning & Budget

by James A. Bacon

In a gambit to hold the line on the rising cost of college attendance, the General Assembly last year budgeted $52.5 in incentives to be distributed to higher-ed institutions that froze in-state tuition increases. It worked. Governing boards of every institution agreed to hold steady on tuition and mandatory fees. This year lawmakers in the House of Delegates are hoping for a repeat, proposing a comparable incentive: $111.8 million spread over two years.

Governor Ralph Northam did not include the sum in his proposed budget, however, nor did the state Senate in the budget it passed last week. The fate of the initiative will be worked out in the Senate-House budget conference.

“If passed, three straight years of tuition freezes would give Virginians a chance to play financial catch-up when it comes to the share of household income they’ve been spending on college education,” James Toscano, president of the Partners for College Affordability and Public Trust, told the Richmond Times-Dispatch. Continue reading

Bacon Bits: From Feel-Good to Feel-Bad

Feel-good story of the day. Musical superstar Pharrell Williams, a Virginia Beach native, is collaborating with the city’s Convention & Visitors Bureau to create two 60-second commercials, featuring his soon-to-be-released song “Virginia,” promoting Virginia Beach as a city open to tourists. Pharrell contacted city officials after the mass-shooting last year, asking how he could help his home town. One of the commercials, reports the Virginian-Pilot, will show the work that takes place in early-morning hours to prepare for visitors: a man cleaning kayaks to rent, a chef chopping vegetables, city workers grooming sand on the beach, hotel staff fluffing pillows. Williams composed the hit song, “Happy,” which went wildly viral as hundreds of groups shot videos of themselves lip syncing to the song.

Good news from Petersburg. After digging itself out of the worst fiscal meltown in modern Virginia history, the City of Petersburg is reporting its first positive fund balance in four years. The city’s “unassigned fund balance,” not earmarked for a specific portion of the General Fund, came in at $2.8 million in Fiscal 2018, reports the Progress-Index. The city has set a goal of increasing the unassigned balance to $7.6 million. Petersburg was no more reckless than any number of other cities across the United States, but Virginia is less forgiving of fiscal incompetence. As a consequence, the poor, largely African-American municipality was forced to make hard choices and enact brutal spending cuts. Now it is emerging more financially disciplined than before. If Petersburg can straighten itself out, so can other deadbeat states and municipalities. If Virginians demanded that Petersburg make sacrifices, we should expect the same of others, too. Puerto Rico, I’m talking to you! Chicago, I’m talking to you!

When “multicultural” means “nonwhite-cultural”… Last week video surfaced of a black female student delivering a “public service announcement” at UVa’s new “Multicultural Student Center.” Apparently, the “multi” part did not include white culture. There were “just too many white people,” the young woman informed the unwelcome visitors. The center, she said, was “a space for people of color.” To its credit, the University administration issued a statement affirming that the center is “open to all members of the University community.” But it appears that a lot of students (including many white students) agree with the young woman. In interviews published on The College Fix, many students agreed with the proposition that minorities need a “safe space” free from whites.

A Series of Hidden Tax Hikes In the Bag

The bag tax is 5 pence in Scotland, but will be 5 pennies here in Virginia.

By Steve Haner

Politicians hate taxes that voters pay by check and love taxes that are buried deep on invoices or fully invisible. The 2020 General Assembly is raising taxes right and left (mostly left) but focused on that second method. These will be tax increases most people will never spot.

Governor Ralph Northam’s record introduced budget was based on several proposed tax increases (and of course the extra money collected by breaking his promise to continue last year’s tax reform effort). But legislators have not been shy, only sly, about building on that base with additional levies.  Continue reading

Higher Ed Bonds, Fees, and Donations

By Dick Hall-Sizemore

Almost totally overlooked or ignored among capital projects in the budget bill are those higher ed projects financed with revenue bonds.  They are probably ignored because their passage does not affect the state’s debt capacity and tax revenues are not needed for debt service.  Nevertheless, they do have an impact on Virginia citizens.

For most higher ed institutions, these bonds are issued by the Virginia College Building Authority (VCBA).  The debt service is covered by revenue from a variety of non-tax sources, such as room and board fees,  parking fees, donors, and general student fees.  The issuance of these bonds has to be approved by the General Assembly. Continue reading

Let’s Build Some More!

Source: Debt Capacity Advisory Committee, 2019 Report

By Dick Hall-Sizemore

This report on the capital budget section of the budget bill is later than I had planned. There is so much going on with the General Assembly this year.  I was familiar with the term “like trying to drink from a fire hose.” Now, I know the experience.

Debt

Because the vast majority of capital projects are funded with tax-supported bond proceeds, any discussion of the capital budget proposals needs to start with the Commonwealth’s debt picture. (The source of the data on the debt is the latest annual report of the Debt Capacity Advisory Committee (DCAC). Anyone wanting a clearly written explanation and discussion of the Commonwealth’s debt status can find the report here.)

Outstanding tax-supported debt of the Commonwealth more than doubled over the last ten years, from $10.6 billion (FY 2010) to $21.7 billion (FY 2019). This total is comprised of debt issued for general construction and for transportation facilities, as well as pension and other post-employment benefits liabilities. Continue reading

Northam Budget Stiffs Online Students

Liberty University graduates from online programs — stiffed in governor’s proposed budget.

by James A. Bacon

While Governor Ralph Northam’s proposed 2020-22 budget lavishes tens of millions of extra dollars on higher education, it does cut back in one area — support for distance learning. Specifically, the budget would tighten eligibility requirements for the Tuition Assistance Grant to exclude Virginia students at private, nonprofit colleges and universities who take online courses.

Northam wants to bolster the TAG program, the purpose of which is to support private nonprofit higher-ed institutions based in Virginia, by increasing annual grant awards from $3,400 per residential college student to $4,000. But the budget would end support for Virginia students taking courses online. As it turns out, two institutions with the most biggest online enrollments, Liberty University and Regent University, have conservative leadership.

Last week Liberty President Jerry Falwell Jr., one of the rare higher-ed leaders to openly praise President Trump, suggested that the Democratic governor was targeting Liberty for his conservative views. Liberty’s online enrollment includes about 2,000 Virginia students. Assuming the university lost $3,400 per student, the budget would impact Liberty negatively by $6.8 million. “The very people they claim to champion are the ones they are harming,” he told Inside Higher Ed. “Those who claim to be tolerant are usually the most intolerant.”

The Northam administration denies any political motivation. “The purpose of the TAG program is to help address and offset the cost of college, notably brick-and-mortar costs associated with attending college,” a Northam spokesperson told the publication. Continue reading

Boomergeddon Update: $31 Trillion Debt by 2030

by James A. Bacon

According to the latest Congressional Budget Office (CBO) projections, the federal budget deficit will hit $1.0 trillion in 2020 and will average $1.3 trillion annually for the rest of the decade. Deficits will increase from 4.6% of gross domestic product each year to 5.4%. Most alarmingly, chronic deficits will push the national debt as a percentage of the economy from 81% this year to 98% in 2030, and to a mind-blowing 180% by 2050.

In my book, “Boomergeddon,” written 10 years ago, I went out on a limb and forecast fiscal collapse by the early 2030s, soon after the Social Security trust fund ran out and Congress had to make no-win decisions on how to cope with the inability to maintain retirement payments to seniors. While things still appear dire by 2050, a 98% debt-to-GDP ratio in 2030 looks manageable. Perhaps I was too pessimistic.

The CBO’s not-so-rosy forecast makes one big assumption, however: There will be no recession this decade. The current business cycle is the longest in U.S. history. So unless the geniuses who run the economy have truly figured out how to engineer perpetual prosperity, the U.S. is at extremely high risk for another recession within the next ten years. When it comes, the picture will change dramatically. Let’s see what CBO’s long-term forecasts look like when deficits are running $2 trillion a year! Continue reading