Category Archives: Budgets

Inmates Need Costly Medical Care, Too

by Dick Hall-Sizemore

In the most recently completed fiscal year, the general fund cost to provide medical care to Virginia prison inmates was $221.6 million.

That is a lot of money by any measure; it exceeds the entire budget of all but a few state agencies. However, despite its size, it does not get much public attention.

Like the state budget, medical costs threaten to consume the DOC budget.  The FY 2019 expenditures constituted more than 18% of the agency’s general fund budget. Each year, the budget request for additional funding for medical services is at the top of DOC’s list. Its FY 2019 appropriation for medical services exceeded its FY 2017 appropriation by $34.8 million. For the upcoming biennium, the agency has requested an additional $21.8 million in the first year and $28.3 million in the second year. Continue reading

This Little Piggy Went to General Assembly…

by James A. Bacon

With all the hungry piggies pushing for mo’ state money, the feeding trough is getting crowded. Besides the K-12 piggy (squealing for an extra $950 million), the Virginia Retirement System piggy (an extra $215.6 million), and the monstrous Medicaid piggy (the sky’s the limit — how much money do you have?), we can add the higher-ed piggy. A State Council for Higher Education of Virginia (SCHEV) report concludes that the Commonwealth’s public colleges and universities need an additional $212 million in the next biennial budget for operations and financial aid, and $826 million for capital outlays.

Here’s a breakdown of the operational funding needs: Continue reading

A Budget Cut that Should be Made

by Dick Hall-Sizemore

Just to show that I am not the “tax and spend” liberal that some people may think I am, I am proposing a significant budget cut for the Governor’s office to consider in its effort to satisfy all the demands it is getting for the upcoming biennial budget. That budget item can be summed up with one numeric phrase: 599.

Long-term observers and participants in Virginia government and politics, such as Jim and Steve, know immediately what I am talking about. The 599 program provides financial aid to local governments with police departments. The program’s appropriation for the current fiscal year is $191.7 million. Its name refers to its enacting legislation: HB 599, passed by the 1979 General Assembly.

The HB 599 program should be repealed and its funding used for more pressing needs of the Commonwealth. There are several reasons for this conclusion: The rationale for the program was flawed from the beginning; the underlying distribution formula is unknowable; and the funding cannot be tied to its original, ostensible purpose, the support of law enforcement. The remainder of this post will be used to substantiate these claims. Continue reading

The Game of Budgets

by Dick Hall-Sizemore

There is lot of wailing and gnashing of teeth going on in this blog and by the administration over the upcoming budget. Although there are some big-ticket budget items, that is nothing new; there always are. Even if the Democrats gain a majority in both houses, I don’t think there will be a tax increase. The doom-and-gloom scenarios don’t take into account a couple of issues related to revenue. First, the legislature last Session extended the sales tax to internet sales. Second, the legislature opted to conform the state’s tax code to the changes in the federal tax laws recently enacted by Congress.

Those changes, plus the good economy, are bringing in the revenue. The Secretary of Finance has reported that total revenues in September were $367 million more than the previous year’s September. On a fiscal year basis, general fund revenues to date are 8.2% higher than the previous fiscal year; the forecast was for an increase of 1.2%.  This additional revenue will not be available to the Governor and General Assembly for the crafting of the next biennial budget, but they portend a healthy increase in the revenue forecast for the next biennium, which can be used in budget development. Continue reading

We Can’t Explain Virginia’s Declining Test Scores — Just Trust Us and Give Us Mo’ Money

by James A. Bacon

The Richmond Times-Dispatch took a good hard look today at the alarming decline in reading scores by Virginia students in standardized tests, including both the state Standards of Learning (SOL) and the National Assessment of Educational Progress (NAEP). But reporter Justin Mattingly came up dry in explaining what might have caused the lower scores, which represent a stark reversal from improving or steady scores over the previous decade. “Why scores are on the decline,” he writes, “is the million dollar question.”

Mattingly makes a remarkable statement in the article that deserves highlighting: “State education leaders — who aren’t sure why the scores have dropped so much —  are calling for $36 million to go toward new reading specialists.”

That’s not all they’re asking for. The State Board of Education is recommending the state increase support for K-12 education by $950 million next year. Virginia’s educrats can’t explain the decline in reading and math scores, but they still have the audacity to say, “Trust us to spend more of your money.”

The usual suspects, like the Commonwealth Institute for Fiscal Analysis, are backing them up. Providing no evidence to demonstrate an empirical link between the funding decline and student achievement, CI has been pounding the drums to remind legislators that state support, adjusted for inflation and increasing enrollment, is 8% less than before the Great Recession. Continue reading

More SOQ Money

The other shoe has dropped on the budget requests for K-12.  The Department of Education has told the Senate Finance Committee that it will cost approximately $300 million per year over the next biennium to “rebenchmark” the Standards of Quality.

This amount would be in addition to the $950 million needed annually to finance the proposed changes in the SOQ proposed earlier by the Board of Education.  (I summarized the policy changes in the SOQ being proposed by the Board of Education in an earlier post.)

The rebenchmarking process is a technical one in the sense that it involves no new policy changes in the SOQ.   The rebenchmarking  uses updated data for numerous inputs into the SOQ calculation.  The most important ones are prevailing non-personal costs and support positions, salaries, and student enrollment.  If you are feeling especially wonky, the 45-page PowerPoint presentation, with detailed graphs can be found here.

SOQ Examination

by Dick Hall-Sizemore

There has been a lot of commentary in recent posts over the state Board of Education’s proposed changes in the Standards of Quality, with a $950 million price tag. Rather than focusing on the total price tag and one component of the proposal (equity fund), it seems to me a more productive approach would be to look at each component and evaluate it separately. (The detailed descriptions of the items can be found here, the first item under “Action/Discussion Items.)

Before delving into the details, there are several considerations to keep in mind:

  1. The Board of Education can only propose changes to the Standards of Quality. The General  Assembly has the last word.
  2. Any new funding associated with any changes in the SOQ will be in addition to the amount needed for “rebasing.” This is the biennial exercise in which the SOQ funding is adjusted for changes in student enrollment and general increased costs.
  3. Educational funding is not my field of expertise. I am endeavoring to summarize what is proposed, based on the BOE document, and add my two cents’ worth for certain issues.

Continue reading

Tax-and-Spend Pressure Builds Inexorably

by James A. Bacon

There are two items in the news today indicating that pressure for more spending and taxes will be remorseless in the 2019 General Assembly session: (1) The Virginia Retirement System board of trustees has lowered the expected rate of return on its $82.3 billion investment portfolio, requiring $215.6 million-per-year additional contributions from state and local governments, and (2) the Virginia Board of Education has approved changes to the Standards of Quality for Virginia public schools that would require $950 million more in state support to meet. And that doesn’t include increased demands from Medicaid, the program that ate Virginia’s budget; higher education where state support is the only thing restraining runaway tuition increases; or more money to meet the state’s burgeoning mental health needs.

First, the VRS. Last year the retirement system for public-employee and teacher pensions earned a 6.7% return on investment: not shabby but below the 7% assumption used to calculate contributions from state and local governments. In recognition of poorer investment prospects in an era of super-low interest rates, the board reduced its assumed rate of return to 6.75%. To make up the difference, state and local governments will have to contribute $215.6 million a year more during the two years of the next Biennial budget, reports the Richmond Times Dispatch.

“I know it’s going to take more money out of the budget, but it’s the right thing to do,” Secretary of Finance Aubrey Layne told the RTD. Continue reading

JLARC: Medicaid Jumps 19% In Expansion Year

Source: JLARC October 7 report on state spending over time, in this case a decade of sustained economic growth with no recession.

By Steve Haner

Every year, the Joint Legislative Audit and Review Commission issues a report looking at ten years of state spending, sliced and diced various ways. In recent years, the headline results have largely been surprisingly consistent and the 2019 report issued Monday fit the pattern. As seen before:

  • Medicaid program costs lead the charge, exploding almost 19% in one year due to the expansion that started January 1, 2019, even though the fiscal year was one-half over by then. It went from $10 billion to $11.9 billion. The average annual growth over the decade has exceeded 7% and $600 million.
  • Keeping up with Medicaid, and exceeding it in some categories, are the various forms of transportation spending. In the decade since the base year of the report, fiscal year 2010, Virginia has passed both statewide and regional transportation tax increases, and various toll projects have been completed – all flowing through the state’s books.
  • The third budget element that has seen major growth is higher education, with the vast majority of the new money coming from tuition, fees and auxiliary operations at the state schools, not state tax dollars. When all the schools are lumped together, their spending growth is right in line with the other two mega programs, and the higher education totals push past the growth in state funds transferred for local public schools. Local public schools don’t charge tuition and fees they can raise at will.
  • Virginia’s general economic performance lagged the national average for the entire decade, with average annual gross domestic product growth of 1.4% (versus 2.2% nationally), per capita income growth of 2.8% (versus 3.4% nationally) and labor force growth of 0.9% (versus 1.5% nationally.)  The GDP is adjusted for inflation.

Continue reading

Medicaid Expansion Cost Still Off-Budget, Elusive

By Steve Haner

All the signs point to trouble. The next state budget, a two-year plan to be proposed in December, adopted by March and implemented in July, may be caught between stagnant revenue and soaring spending.  The spending charge will be led once again by Medicaid.

Just how much the decision to expand Medicaid will cost in the future remains elusive.

The state’s fiscal prospects were explained to the General Assembly’s money committees September 16 and 17 by Secretary of Finance Aubrey Layne.  The highlights are summarized in this article for the Thomas Jefferson Institute for Public Policy, using the image of a strand of worry beads.  The article is being distributed today.  Continue reading

Surplus? How About $455 Million Windfall Tax Hike

Income breakdown and average “windfall” tax in 2018 on the taxpayers who paid more. All averaged more than $220. Source: Secretary of Finance and Ernst & Young. Click to expand.

by Steve Haner

Virginia ended the last fiscal year with about $797 million more in revenue than projected, and the Northam Administration credits $455 million of that to higher taxes on about 30% of taxpayers caused by conforming to the new federal tax law. More than 700,000 tax returns stopped claiming state itemized deductions, accounting for much of that.

The tax conformity windfall amount was calculated by outside consultant Ernst and Young, Secretary of Finance Aubrey Layne told a meeting of the combined legislative money committees Tuesday. That is not the same firm hired last year to project the state tax impact of the federal Tax Cuts and Jobs Act. Layne said he wanted a different team looking at the results.

The E&Y report is the final 23 pages of Layne’s slide presentation to the committees, here. Continue reading

Slow and Steady Wins the Budget Race

by James A. Bacon

Thanks in part to a $797 million surplus in last year’s budget, Virginia will build up its budget reserves to $1.6 billion by the end of the 2020 fiscal year, and Governor Ralph Northam is promising to take a “cautious and strategic” approach to the next biennial budget.

“During the next budget cycle we will continue laying a strong foundation for Virginia — preparing for a rainy day while investing responsibility in our long-term growth,” the governor said in an address to General Assembly budget committees.

Northam highlighted the $20 billion in economic development announcements made since he has taken office, more than any previous administration in a full four-year term. But looking ahead, he took note of increasing economic uncertainty heightened by the trade war with China. Speaking personally, he described how retaliatory tariffs could keep the soy beans grown on his family farm in the Eastern Shore “in the fields if we can’t sell them.” Continue reading

Going Nowhere Fast: Virginia’s Transportation Dialogue

Northern Virginians are complaining again about their inadequate transportation infrastructure, and I can’t blame them. Traffic is terrible, especially on transportation arteries like Interstate 95, and I avoid going up there, or even through there, if I possibly can. NoVa is transportation hell — a point that was reiterated Wednesday during a forum sponsored by the Northern Virginia Chamber of Commerce. As usually happens, however, participants defined the problem as not enough money.

“We are in the position (where) we don’t have more money,” said panelist Monica Backmon, executive director of the Northern Virginia Transportation Authority, according to Inside Nova. “We have an open call for projects right now, but the reality is that’s for Fiscal Year 24 and 25. If you need more money on previously funded projects, I really don’t have it.”

Where will the money come from? Ed Mortimer, a U.S. Chamber official, said the federal government needs to do more. Secretary of Transportation Shannon Valentine argued that Virginia is relatively undertaxed and should boost its gas tax.

Given the paralyzing political polarization in Washington, D.C., these days, I don’t expect any solutions coming out of the nation’s capital. But Richmond hasn’t reached the same level of dysfunction. What about a higher gas tax? Does that idea make sense? Continue reading

Compare Localities to Improve Performance

Roy Fauber. Photo credit: Richmond Times-Dispatch

I like the way Roy Fauber thinks. One doesn’t have to agree with the conclusions of the retired Federal Research Bank of Richmond executive to appreciate how he goes about dissecting issues in a recent op-ed in the Richmond Times-Dispatch.

The cities of Richmond and Norfolk are close peers, he observes. They are similar in the sizes of their population (Norfolk 243,000 and Richmond 217,000), the percentage of the school-age population (11% and 12%), and poverty rates ( 22% and 25%). One might add that both cities are similar in that they are 200+ years old, can boast large downtown districts, and suffer from decaying decayed inner city neighborhoods and aging infrastructures.

Despite the similar nature of their challenges, Fauber notes, Richmond’s real estate taxes are 19.6% higher than Norfolk’s on a per-capita basis. General taxes are 26% higher per capita. He asks: “What accounts for this major disparity? … Do Richmond citizens get more for their money?”

Darn good question. Politicians are masters of deflection and excuse making. Citizens can cut through the rhetorical fog by posing questions like Fauber does. Continue reading

Staying Within the Debt Capacity

I am following up on an earlier post discussing the capital budget recommendations of the Governor and the Commonwealth’s debt capacity. Jim Bacon’s recent post discussing Secretary of Finance Aubrey Layne’s worries about increasing debt also dealt with this general issue.

Guided by Secretary Layne, the Governor’s introduced budget was relatively conservative in its capital provisions and the authorization of $568.4 million in additional tax-supported debt. As predicted in the earlier post, the General Assembly came under a lot of pressure to add to the package and responded accordingly.  The final budget bill, signed by the Governor in early May, authorized the issuance of an additional $1.1 billion in state-supported debt.

The major projects added by the legislature were the replacement of Central State Hospital ($315 million), a top priority of the Governor; “renewal” of Alderman Library at UVa ($132.5 million); and demolition and replacement of Daniel Gym at Virginia State University ($82.9 million). Also included in the introduced and final total packages was $248 million, primarily for Virginia Tech, which was tied to the Amazon deal.  Including the authorizations provided by the 2018 General Assembly, the 2018-2020 Appropriation Act authorized the issuance of an additional $2.1 billion in tax-supported debt. Continue reading