Category Archives: Finance (government)

Richmond’s Skinny Budget: Low Stakes Poker, High Stakes Rhetoric

by Shaun Kenney

Virginia’s General Assembly managed to pass the Richmond equivalent of a continuing resolution to fund the government until Senate Democrats and House Republicans can hammer out a compromise on corporate tax breaks.

One will have to pardon me for not getting terribly wound up about tax breaks for corporations while small businesses and working families are struggling with back-to-back  years of 9 percent inflation from Washington.

Meanwhile, much of the damage done by the Northam administration with regard to Critical Race Theory, Diversity, Equity, and Inclusion (DEI) requirements, gender ideology, and the long litany of progressive efforts to remake Virginia were left both untouched and unchallenged.

Even school choice — the marquee legislation championed by Lt. Governor Winsome Sears — was left to die in committee.

Meanwhile, Senate Democrats are promising a “brick wall” against House Republicans until they get what they want — in other words, reneging on the pledge from conferees to honor a $950 million tax cut. The stopgap fixes the $200 million shortfall snafu created by the Virginia Department of Education’s spreadsheet, puts another $25 million into the Virginia Retirement System, and another $100 million towards cost overruns for existing building infrastructure. What mystifies most is that the Senate Democrats haven’t been precisely clear on what they want beyond platitudes for higher salaries for bureaucrats, public education, higher education, etc. Continue reading

Latest Debt and Deficit Projections Warrant a Full-Scale Freakout

by James A. Bacon

The latest projections from the Congressional Budget Office (CBO) indicate that, given continuation of current levels of taxation and programmatic spending, the U.S. budget deficit will be running at $2.3 trillion a year by 2033, driven in large part by a $1 trillion-a-year increase in interest payments on the national debt to $1.4 trillion a year.

As it happens, 2033 is just a couple of years away from 2035, the year that Social Security’s Old Age and Survivors Insurance trust fund is scheduled to run out of money and the payout will be limited to what the program brings in from payroll taxes, limiting the payout to 77% of what was promised.

What’s the most likely scenario in the early 2030s? Congress will borrow to sustain the full Social Security payments, adding to the deficit and accelerating growth in the national debt. This year the deficit will be about 4.3% of gross domestic product. By 2033, it will be 7.3% — and that’s before a Social Security bailout. Interest on the national debt, which cannot be cut without triggering a default, will amount to 3.6% of the entire economy. Continue reading

Top Three Financial Takeaways from RVA

Nothing but blue skies over Richmond? Not yet.

by Jon Baliles

Last week Richmond’s Mayor and Chief Administrative Officer (CAO) reported to City Council that the Annual Comprehensive Financial Report (ACFR) was completed and had been turned in to the Virginia Auditor of Accounts. The report was due in mid-December, but better late than never I guess (and still it was way earlier than Mayor Jones, who tuned them in super-late three years in a row).

The external auditor called in virtually for the brief presentation to Council and went over their firms’ processes and evaluation methods (video starts at 1:03:30 mark) but never referred to any numbers or conclusions; she pointed out that certain figures could be found with corresponding footnote numbers in the report, which Councilors did not have.

After the auditor finished her brief presentation, Councilwoman Jordan had to inquire as to what figures the external auditor was talking about and where could she see them (at the 1:11:25 mark of the video) because the Council did not have the audit report in front of them so they could ask questions. The auditor told her they disclosed what they were required to and that she would be happy to go into the numbers. That’s when CAO Saunders stepped in and told Council the reports had been delivered to each Councilor’s office on Friday. Talk about collaboration and communication.

Councilwoman Lynch also asked the external auditor for the “Top 3 bullet points or risks” from the audit. Continue reading

Child and Adolescent Mental Health and Virginia Public Schools – Big Complications and Major Changes

Credit JAMA Pediatrics, April 6, 2020

by James C. Sherlock

Rebecca Aman, a member of the Newport News School Board, is frustrated. She told me in an interview that:

Without sufficient discipline and access to clinical mental health services, behavioral intervention does not work to make schools safer and healthier.

She believes that Newport News schools need to improve both discipline and the effectiveness of behavioral interventions.

She is absolutely right.

But school-based mental health services offer different, very complex and rapidly changing challenges.

The profession of psychology has recognized that the one-on-one clinical treatment model is permanently out of reach for the broad communities needing assistance because the supply of qualified professionals cannot now and will never meet the demand.

So the delivery model is in the midst of profound change.

Three key changes being pursued are

  • a far bigger emphasis on prevention, much of it to be delivered by school staff;
  • better diagnosis; and
  • “school based” (their term) group treatments.

Which raises at least three questions:

  • Are the pediatric mental health delivery models changing so much that the schools are “shooting behind the rabbit” in the hunt for more services?
  • What does the profession of psychology mean when it describes massively expanded “school-based” services? The schools and parents better find out.
  • Should schools even be in the hunt for more in-school services? I say no. They are already trying to do too much.

Continue reading

Focus on the Standard Deduction, QBI Deduction

We tried to tell everyone. Indexing the tax code for inflation is wildly popular, but it’s not in the pending package.

We have seen this before in Virginia and here we go again: the classic conflict between tax cuts for the many versus more government spending for a few.

The Republican-dominated House of Delegates has passed a series of broad tax reductions, while the Democratic-dominated Virginia Senate has killed its versions of the same bills.  Last Sunday the Senate then produced a budget proposal about $1 billion richer in funds for education, mental health services and other poll-tested priorities.

Killing the tax bills creates even more revenue to spend in future years, billions more. Continue reading

Will McDonald’s Be Leaving Virginia? Not This year, But…

by Chris Saxman

I wish the headline of today’s column was just click bait. It originates from a headline that was pushed across my phone that read “Will McDonald’s be leaving California?”

That immediately made me think that McDonald’s corporate offices might be considering moving their headquarters from California to another state. Given the exodus of companies that have left the Golden State it would be just another news story about another company leaving California.

Quickly remembering that McDonald’s was based in Chicago, not California, I clicked on the article. The president of McDonald’s USA, John Erlinger, had written an open letter dated January 25th in which he lamented the legislative and regulatory reality of California:

Last fall, the legislature passed a bill – AB257, or the FAST Act – almost entirely at the behest of organized labor’s firm grip on many of the state’s lawmakers. It makes it all but impossible to run small business restaurants, but the impacts are far beyond that. Under the FAST Act, an unelected council of political insiders, not local business owners and their teams, would make big decisions about crucial elements of running a business, fracturing the economy in the process. [Emphasis added.]

Continue reading

RVA 5×5: State of The City – What The People Think

by Jon Baliles

There is a little-known part of Richmond’s City Code that requires the City Auditor to produce a “Services, Efforts, and Accomplishments” (SEA) Report by conducting a thorough poll/survey of Richmond residents to see what they think about the level of service and performance and deliverability of City government. In other words, it’s the poll that every politician fears more than anything because they can’t B.S. their way past the peoples’ opinions of what they see and experience every day.

Doug Wilder used to say (and still does), “The people are always ahead of the politicians,” and that is never more accurate than with the SEA report presented by the Auditor in February 2022. It received virtually zero attention, but that’s usually what happens with bad news. You try and bury it, label it fake news, or quickly move on to something else.

SEA reports include questions like: Are you satisfied with the overall direction of the City? What is your opinion of the value of services for the taxes paid to Richmond? Does the City do a good job informing residents about issues facing the community? Is the City open and transparent with the public?

The reason this 2022 report is relevant 11 months after it was issued is that tonight, Mayor Levar Stoney will deliver his penultimate State of the City speech that will undoubtedly be an upbeat recitation of his accomplishments and how great the City is doing — in his eyes. His office put out this four-minute video a few weeks ago to tee-up the talking points and set the stage for his speech (and perhaps his next campaign). Continue reading

Governor’s Plan to Bolster Law Enforcement Is Meek Rather Than Bold

by Dick Hall-Sizemore

In October, amidst much fanfare, Governor Youngkin announced Operation Bold Blue Line.  In the words of the Governor’s press release, this initiative is “a series of concrete actions to reduce homicides, shootings, and violent crime.”

I had some questions and wanted some details on the proposal.  I posed these questions to the Governor’s press office.  Crickets.  I then posed them to the office of the Secretary of Public Safety and Homeland Security.  I got an acknowledgement and a pledge to provide the information I had requested.  Time marched on and no answers, just requests for more time to prepare the response.  Finally, I was told that my inquiry was being bumped to the Governor’s press office.  Fortunately, someone in that office did respond and answer my questions.

After doing some research and reading the responses to my questions, I have to say that I am underwhelmed by this initiative. Continue reading

A Conservative Fiscal Proposal

by Dick Hall-Sizemore

Governor Youngkin has proposed tax reductions that would reduce state revenue by about $1 billion in this biennium.

I have an alternative proposal on how to use that billion dollars, one that should appeal to the instincts of conservatives on this blog—reduce the Commonwealth’s outstanding debt balance.

The Debt Capacity Advisory Committee has reported that, as of June 30, 2022, the Commonwealth had a balance of $4.0 billion in authorized but unissued tax-supported debt. Using the $1 billion in general fund revenue that Youngkin proposes to forego in the form of tax reductions to supplant bond authorizations for capital projects instead would save the Commonwealth a significant amount in interest payments over the course of the term for which those bonds are now authorized. I do not have all the data needed to project the savings, but it could easily be several hundred million dollars over the course of 20 years.

Financial advisors often urge individuals to pay down debt balances whenever possible. It seems that would be a prudent move for the state as well.

Whiplash on Virginia’s Economy

by Dick Hall-Sizemore

“Our beloved Commonwealth is in a ditch.” Glenn Youngkin, May 7, 2021.also see here.

“The commonwealth has never been in a stronger financial condition.” Glenn Youngkin, Nov. 21, 2022

Double-Standard Bonds

by Jon Baliles

One of the eternal mysteries of the Commonwealth of Virginia’s governing structure is the separate treatment of counties and cities. We are the only state in the country that has the screwy system of independent cities that are not part of a county government or structure. But that’s not where the screwiness stops.

For some reason, the state treats bond referendums for cities differently than those for counties. A county can issue bonds for major projects (usually for schools, roads, fire stations, libraries, etc.), but it has to be put to a voter referendum for approval. The state doesn’t want localities to spend what they don’t have, and then come to the state for a bailout.

Cities, however, can authorize major bond issuances with just the approval of the governing body (i.e., City Council). State code section § 15.2-2636 states: “The governing body may authorize and issue bonds in accordance with the applicable provisions of this chapter, without submission of the question of the issuance of the bonds to the voters for approval.”

So what? It is important to remember that this different “standard” allows cities to make bond referendums much more susceptible to politics (and shenanigans) because you only need a majority of votes of the governing body. That’s a much easier bar to clear than having to convince voters.

I bring this up only to point out the difference in referendums and what localities use them for. What we saw this week in our region were two huge referendums pass overwhelmingly: Henrico ($511 million); and Chesterfield ($540 million). Continue reading

State Treasury Brings In More General Fund Revenues Than Projected

by Dick Hall-Sizemore

Some commenters on this blog have expressed serious concern about the choices facing Governor Youngkin this fall in the development of his recommended amendments to the state’s two-year budget. They cite the prospects of recession and the uncertainty created by such prospects. They can rest a little easier for now.

The Secretary of Finance has informed the Governor that the Commonwealth’s first quarter general fund revenues for the current fiscal year are $500 million ahead of projections, or 7.6%. In September alone, after adjusting for timing differences, “total general fund revenues increased 10.7 percent for the month compared to a year ago.” Continue reading

Public Featherbedding at the Norfolk Redevelopment and Housing Authority?

The Young Terrace public housing community is along St. Paul’s Boulevard, just north of downtown. (Bill Tiernan) Credit Virginian Pilot

by James C. Sherlock

Daniel Berti published an excellent investigative report this morning in The Virginian-Pilot.

“Norfolk’s housing authority is in ‘dire’ financial condition, bloated after years of failing to downsize” details what may prove to be waste and abuse at that agency to preserve jobs as the administrative requirements and funding of the mission have diminished.

In other words, the report details what some may construe as government agency featherbedding. If it is true, it has been a big mistake, because federal dollars are involved.

I congratulate both the author and the paper on this exclusive. Please read it.

The article, as revealing as it is, does not mention the annual independent audits the Norfolk Redevelopment and Housing Authority (NRHA) is required by federal regulation to undergo.

It has been my experience over the years that local agencies spending federal funds often get into financial trouble that is traceable to audits.

Most often to good audits that are ignored. Continue reading

The Crisis of Reducing Costs and Maintaining Standards at Virginia’s State Colleges and Universities

Courtesy Virginia Tech

by James C. Sherlock

Virginia’s state-funded colleges and universities are too expensive.

Tuitions are the headline numbers.

But student fees and food and housing costs are as important to the budgets of families and individual students as tuition.

Costs within the college system have gone up because of a general lack of management systems and data to support oversight. They are going up further because of inflation in the economy.

Demand is going to plummet starting in 2025 as the “demographic cliff” of a 15 % drop in freshman prospects approaches due to the decline in birth rate in the 2008 recession that lasted for years thereafter.

The missing babies from 2008 would have begun entering college in 2025. Not a rosy scenario for the colleges. They all talk about it a great deal internally.

Some will have to get smaller to maintain student quality admissions standards or, alternately, lower those standards along with those of the programs of instruction.

Maintaining the same staff with smaller numbers of students will not work without massive price increases that they will not be able effectively to pass on without exacerbating the demand crisis.

Action is demanded, or parts of the Virginia higher education system, generally the smaller ones, are going to price themselves out of existence. The ones that do not act will be in a continuing crisis of their own making.

In the realm of enterprise disruptions, declining demand and increased costs are the big leagues. Continue reading

The Governor’s Tuition Freeze Request and the Board at UVa – It’s Complicated

Signatures from the first meeting recorded in the Minute Book of the UVa board of visitors, May 5, 1817 – ALBERT AND SHIRLEY SMALL SPECIAL COLLECTIONS LIBRARY, UNIVERSITY OF VIRGINIA

by James C. Sherlock

Much has been made of a recent request by Governor Glenn Youngkin to eliminate a tuition increase at the University of Virginia and the Board’s decision not to honor it.

The tensions between means and ends that have to be resolved in producing a budget at any large and complex university are enormous.

UVa has implemented a Responsibility Center Management (RCM) budget model.

An RCM budget model decentralizes decision-making, provides incentives for innovation, and improves overall financial results and stewardship. It couples distributed program responsibility with meaningful authority over resources.

A central RCM budget product is thus fragile, in that changes have far reaching effects unpredictable at the board level. The later the changes, the bigger the disruptions.

The Governor’s request, while appropriate to his goal to help parents deal with inflation, arrived just before the start of the fiscal year. The board judged it to be too late to be accommodated.

This is the story of the budgeting process that drove that decision and why the endowment could not be used to fund the difference.  I think elements of this may prove be informative to all who send their kids off to college. Continue reading