One of the many debates expected in the 2019 General Assembly of Virginia, which is coming at us like a freight train, will focus on school construction funding and the need for a dedicated source of revenue to repair or replace old or dilapidated local facilities.
Proponents have latched onto additional sales tax revenue that would flow from expanding the tax to more out-of-state retailers who sell into Virginia via the internet. Earlier this year the U.S. Supreme Court overturned precedents and set some ground rules that Virginia could easily adopt for 2019, forcing more retailers around the country to collect and remit Virginia sales tax.
During months of public discussion of this issue, one key element has been ignored. Virginia already has a dedicated funding source for school construction, one that produces $260 million a year. Historically those funds have leveraged very low-cost bonds for new schools across the Commonwealth and built much of the existing stock of school facilities.
This is the State Literary Fund, enshrined in the Constitution of Virginia and the source of amusement to insiders, who joke when they pay a traffic fine that they are “making a contribution to the Literary Fund.”
According to the Treasurer of Virginia the Literary Fund collected $264 million during the last fiscal year, most of it from unclaimed property ($165 million), unclaimed lottery prizes ($14 million) and court fines, fees and forfeitures ($52 million.) It also received more than $23 million back from local school divisions as principal and interest on earlier revolving loans.
Wouldn’t $264 million per year leveraged through low-interest government financing support a healthy construction and repair program? It would indeed, but only two projects have been funded with this money in a decade, both earlier this year. They were the first since 2008. A report to the most recent meeting of the State Board of Education listed 19 deferred applications seeking $83 million, the most recent from 2013.
Instead of building schools the money is used to pay for school equipment ($72 million, also through bonds) and for deposit into the Virginia Retirement System for teacher retirement ($181 million.) Using Literary Funds to pay for VRS means that much less money needs to be found from state or local taxes, which can then be spent on something else. School divisions no longer view the Literary Fund as a construction funding source.
The fund would be substantially larger, but in 1990 the General Assembly proposed, and the voters approved, an amendment to that provision allowing criminal forfeitures to divert from the Literary Fund and be spent on law enforcement instead. As with payments to VRS, this is also a way to take pressure off tax funds.
So as the debate kicks up, key points to remember include:
Virginia does have a fund for this purpose already, but the General Assembly has chosen to spend it otherwise. It could revisit that choice.
It might be more logical to use any new sales tax revenue to pay for the General Fund function of funding teacher retirements, so the Literary Fund can return to paying for new or improved school buildings.
It might be worth discussing whether that pile of loot collected under the criminal forfeiture procedures should be returned to its original home with the Literary Fund and help pay for schools.
This overlaps with the debate over unpaid fines and fees, which are collected with the help of a very unpopular practice of suspending debtors’ driving licenses. Abandoning the effort to collect that revenue is walking away from major revenue for the Literary Fund.