Dueling Fiscal Impact Statements

Del. Marcus Simon (D-Falls Church) Photo credit: Falls Church News-Press

by Dick Hall-Sizemore

Providing a fiscal impact statement (FIS) for legislation is a positive aspect of the legislative process. The statement can alert the legislators to the possible fiscal implications of a bill under consideration and its estimated cost. Thus, legislators are in a position to make a more informed decision about supporting the bill.

The process for preparing FISs has been described and discussed in detail in an earlier post on this blog. There is a bill currently under consideration that nicely illustrates the ways in which fiscal impact statements can be misused. Before going into specifics, it would be useful to review how that happens.

As with many things intended to be positive, FISs have a negative aspect, as well. For example, legislators can hide behind them. Subject-matter committees are supposed to make the policy decision on a bill and, if it is approved, refer it to the House Appropriations Committee or the Senate Finance and Appropriations Committee, as applicable, for the consideration of the fiscal impact. The money committees, in theory, are supposed to limit their consideration to whether the projected fiscal impact can be handled in the budget. In reality, however, those committees also take the policy aspects of those bills into consideration. As a result, legislators on the subject-matter committees who may think a bill is bad for any of several reasons, but do not want to oppose it for political reasons, can vote for it, knowing it will be referred to the money committee, which will likely kill it.

Agencies can play games with FISs, as well. If an agency, or the administration, really does not like a bill, it can, and usually does, significantly overstate the possible fiscal impact and cost of the bill. Another trick used by agencies is to overstate the cost of a bill in order to pad its own budget. This can happen with a bill that the agency thinks has a good chance of passing and it can “ride” it to get some more funding for its budget.

As explained in the earlier post, the Department of Planning and Budget (DPB) has the main responsibility for preparing FISs. The Joint Legislative Audit and Review Commission (JLARC) has the authority to review a bill’s FIS if the chairman of a General Assembly committee requests such review.

There is one other fiscal impact process involved. The Virginia Criminal
Sentencing Commission (“Sentencing Commission”) is required to prepare a FIS reflecting the additional operating costs of a bill that would result in an increase in the number of criminal offenders sent to prison. For legislation that would create a new criminal offense, the Sentencing Commission will report that the effect cannot be determined because it does not have any historical data on sentencing behavior for that offense. In such a case, a provision of the Appropriation Act requires the Sentencing Commission to assign a fiscal impact of $50,000.

Obviously, $50,000 is not much money in a $30-billion general fund budget, but it is enough to get a bill referred to the money committees, where it can be killed due to its fiscal impact. (There is a legitimate reason for this requirement of a minimum $50,000 fiscal impact, but it is beyond the scope of this article.)

In the past, DPB analysts did not automatically accept agencies’ projections of the fiscal impact of specific bills. Based on their own analyses and their knowledge and familiarity with agencies and their operations, DPB analysts would often reject agencies’ projections or at least scale them back. In recent years, DPB seems to have moved away from that approach and accept what agencies submit. There are hints at that new approach in the verbiage used in the FISs.  Instead of stating the estimated fiscal impact and setting out the analysis that led to that estimate, a FIS is likely to use such phrases as, “According to XYZ agency…” and “XYZ agency reports….”

HB 40, introduced by Del. Marcus Simon (D-Falls Church), involves all the negative aspects of a FIS. This bill is one that is very familiar to BR readers. It would prohibit political candidates from using campaign contributions for personal expenses. To his credit, Simon has introduced this bill in several previous sessions, but each time it was defeated.

The FIS posted by DPB is a prime example of poor, or a lack of, analysis. The first paragraphs of the “Fiscal Implications” section of the FIS focus on the bill’s requirement for the Department of Elections to investigate any claim that a candidate had diverted campaign donations to personal expenses. If such an investigation yields evidence that indicates that a violation may have occurred, the State Board of Elections would be required to hold a public hearing to resolve the complaint.

The FIS states that the department and board “do not currently conduct investigations involving campaign finance violations or field complaints in this manner. There is currently no existing data upon which the level of resources needed to carry out the functions outlined in the bill can be estimated. The impact of reviewing allegations of personal use violations is indeterminate and would depend upon the number of complaints.”

It should have stopped there—fiscal impact unknown until bill is implemented.  However, it went on to say that the agency does not have sufficient staff to absorb the “additional workload.” What additional workload? The author has just said that any additional workload, if any, cannot be determined.

Nevertheless, the FIS goes on to say that “additional staffing” may be required, and for “illustration purposes” listed the cost of a “full time Hearing and Legal Services Manager I to be $168,094 with an additional Administrative Support person to be $99,245.” Although DPB hedged its projection with its “illustration purposes” language, there is a clear implication of a fiscal impact of more than $250,000 for an unknown workload. (There are other reasons why this projection is overstated, but I will avoid getting any further into the weeds.)

The bill would require that the State Board of Elections, in consultation with the Attorney General “develop and publish guidance” on the provisions, including examples of expenditures that would and would not violate the act. To accomplish this task, the FIS says that the Office of the Attorney General “would require” two attorneys and a paralegal, at an annual cost of $426,426. Who says that would be required? The Attorney General, of course.

On its face, it is ridiculous to claim that it would take two attorneys and a paralegal to perform what would be a fairly routine task. Obviously, the Attorney General saw this as a chance to add staff and money to his budget. The DPB analyst should have rejected this claim outright and said in the FIS that the Office of the Attorney General could implement the requirements “within existing resources.”

The chair of the Committee on Privileges and Elections, to which the bill was referred, requested JLARC to review the FIS for HB 40. JLARC did not mince words in its review. Rather than the hundreds of thousands of dollars that DPB posited, “JLARC estimates the fiscal impact of the bill would be negligible.”

JLARC based its conclusion on the experience of two states, Tennessee and Georgia, which have similar statutory provisions. Both states reported that they have few complaints of the diversion of campaign funds to personal use and do not need to have staff devoted to implementing the law. Granted, DPB analysts have lots of FISs to prepare and do not have the luxury of time to contact other states, as JLARC does. However, as pointed out above, there were ample other reasons to say that the cost could not be determined or could be handled with existing resources. Indeed, JLARC pointed out that the 2020 General Assembly had enacted legislation requiring the Board of Elections to randomly review campaign committee finance reports for irregularities and suggested that “reviews or investigations of personal use could likely be subsumed as part of this new function.” If there were a large number of complaints or instances of private use found in the staff reviews, additional staff could be added then. Unless the DPB staff was new, he or she should have known about this requirement and not resorted to parroting the agency’s claims that it does not conduct investigations of campaign finance violations.

The proposed legislation would have made an intentionally false claim of diversion of campaign funds a Class 5 felony. By establishing an offense that could have resulted in additional persons sent to prison, the bill triggered a FIS by the Sentencing Commission. As would be expected with a bill establishing a new offense, the Sentencing Commission assigned it an impact of $50,000, as required by law. Due to the experience of other states, JLARC concluded that the impact on the Department of Corrections would be negligible. In the past, the General Assembly has chosen to ignore the Sentencing Commission impact statement when a JLARC review affirmed that the impact on the prison population would be slight, at best.

Faced with DPB saying that the bill would have a large fiscal impact and its research arm saying the fiscal impact would be negligible, it is interesting how the House of Delegates handled the bill. The Privileges and Elections Committee voted unanimously to report the bill to the floor and not refer it to Appropriations. However, when the bill came up on the House calendar, the chair of the Appropriations Committee moved that it be re-referred to that committee. As is common with such motions, there was no discussion and no opposition.

The bill was re-referred to House Appropriations on January 30. There it has sat, not even being referred to an Appropriations subcommittee for consideration. Monday is the last day that the House has to act on House bills, except the budget bill. The meeting of the Appropriations Committee scheduled for Monday has been cancelled. Did the members realize that the fix was in and the bill was doomed to die in Appropriations?

The measure is not dead. Sen. Boysko (D-Fairfax) introduced an identical bill, SB 377, in the Senate. That bill got kinder treatment than its House counterpart; even its fiscal impact was deemed to be less.

Written a few days after the JLARC review for HB 40 was posted, the FIS for SB 377 prepared by DPB did not include the “illustration” of a potential impact for the Department of Elections and the Attorney General “indicated” that he would need only one additional attorney and a paralegal and not two attorneys and a paralegal that were “required” for HB 40.

The Senate Privileges and Elections Committee reported the bill with only one “no” vote and re-referred it to the Finance and Appropriations Committee, which reported it unanimously. (It remains to be seen whether the committee includes a budget amendment for the Office of the Attorney General for the amount shown in the FIS.) The full Senate passed the bill on a vote of 35-4.

The obvious question now is whether the House, with its respected research agency saying the fiscal impact of the bill will be negligible, continues to use the Appropriation Committee to kill the bill.

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4 responses to “Dueling Fiscal Impact Statements”

  1. VaPragamtist Avatar

    This is why we can’t have nice things. People let politics seep into everything, even the “neutral” data-driven info.

    I think an FIS is a good idea, if done right. Similar to Sentencing Commission, I’d love to see required FIS’s for legislation impacting local governments. . .

    1. Dick Hall-Sizemore Avatar
      Dick Hall-Sizemore

      The Commission on Local Government is required to prepare those. https://law.lis.virginia.gov/vacode/title30/chapter1/section30-19.03/

  2. DPVA once assigned me to ride herd on a congressional campaign where conversion of contributions to personal use was an issue. The optics were so bad they were afraid that even though legal it would be fatal to the candidate.

  3. LarrytheG Avatar

    Stupid me thought the fiscal impact process was without politics and messing with data and analysis. I thought it was a wholly independent process, largely apart from skulduggery and conducted more like JLARC and the APA do things even though I know JLARC has been accused of “fudging”, not sure about

    It could be the nature of things that no matter how independent, an agency starts out that over time it can be gradually undermined (like the SCC) and it sure looks like the current process for fiscal impact analysis is not as independent and virtuous as
    some might have thought .

    In theory, the process sounds like good government. In practice, it has familiar and bad odors which shouldn’t really surprise I guess but pushes me more to cynical thoughts.

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