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.

The Secretary urges caution and cites uncertainties and has asked agencies to look for savings. But that is what Secretaries of Finance do. Ric Brown did it all the time. They need to tamp down the enthusiasm of state agencies, lobbyists, and legislators who are drooling over the prospect of significant new revenues. And until the last couple of years, every General Assembly, even though they were dominated by Republicans, was perfectly willing to spend every cent available.

Of course, a lot of that additional revenue will be a result of the federal tax changes.  The General Assembly directed that the additional revenue attributable to those changes be identified and placed in a special fund, the Taxpayer Relief Fund. According to the legislation, the money in the Fund is to be used to “to effectuate permanent or temporary tax reform measures.” The annual estimated amount for the Fund is $450 million. I, of course, do not know if the Governor is going to include that amount in his revenue estimates available for the general fund, but, if I were a betting man, I would bet that money would no longer go into the Taxpayer Relief Fund but would rather be retained in the general fund.

The federal tax bill resulted in higher state taxes for some Virginians. If that additional money is indeed used for general budget purposes, rather than for tax reform measures, those individuals may consider that a tax increase. If so, they can blame the Republicans in Congress who enacted the federal tax bill and the General Assembly Republicans who were not able to enact a tax reform bill that shielded Virginians from those adverse effects of the federal bill.

Based on my past experiences, I can speculate on the budget games that are going on right now. The administration is carrying a conservative (i..e. high) estimate for additional Medicaid funding in its tracking spreadsheet. The revenue estimates are still fluid. The Board of Education has proposed SOQ changes totaling $950 million annually that is also being factored into the thinking, as well as the $300 million needed annually to rebenchmark the SOQ. Finally, there is the additional $94 million annually requested by VRS. Analysts at DPB are being discouraged from recommending any additional funding for agencies, sound and reasonable as they may be.  Everyone is waiting for the elections to see who will be in charge.

After the elections tomorrow, the situation will begin to shake out. The Medicaid projection will come in and will likely be lower than anticipated. That will “free” up some money. The Governor will decide not to go along with all the BOE proposals, freeing up even more money. The Governor’s Policy Office will veto many DPB recommendations for new funding before the Governor even sees them. (DPB is no longer the point agency on budget matters; the Policy Office is.) Then, toward the end of November, the revenue estimates will be nailed down. Suddenly, there will be a significant amount of money “available.” Rather than going back to re-examine some of those worthwhile proposals that were put forth by the agencies and initially rejected, the Governor’s Policy Office will earmark the “extra” funding for their pet projects, as well as those proposed by interest groups in letters, meetings, and phone calls with the Policy Office and the Governor. The crush will come between Thanksgiving and the end of the first week in December when the budget has to be completed and sent to the printer. A lot of money will be “spent” in that period.

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24 responses to “The Game of Budgets

  1. Geeze Louise Dick – what a refreshing analysis!

    I still do not understand why it costs so much money to “re-benchmark” the SOLs… If it’s not just process but a re-calibration of the money the composite index allocates – why can’t it be revenue neutral? Isn’t the DOE essentially proposing to ADD more required employees to the SOQ staffing standards? If that’s true (and it may not be due to my own ignorance), it’s that NOT one-time money but recurring – i.e. it stays in the budget and increases the budget for future years also.

    I guess it really does not matter that much because even the GOP does not want to face elections with a “record” of having opposed education – they all tout their record of “supporting” education down our way even as they say they fought to reduce taxes!

    Good article. Thank You and you’re boosting the worth of BR!

    • The nice thing about predictions like this is we get to see who’s right soon. The two money committees will gather in ten days for their retreats. Much will be learned there. But on the eve of the election Dick is taking the party line reassuring nervous voters and being instantly applauded by Larry. Fine.

      Larry doesn’t understand the difference between adjusting the current baseline cost for existing BoE programs ($300 million) and a whole bunch of new stuff ($950 million.) I’ve wasted too much of my life trying to educate Larry. His ignorance is often intentional. But Dick does understand, so to fit fact to his premise he just ignores the $950 million. He assumes Northam will include none of it in his introduced budget. That is one whale of an assumption, given the Board of Education and the state supe all serve at his pleasure. The Gov could have nipped this in the bud with a call.

      To fit his premise (no tax increase needed) Dick also assumes a whole bunch of so-far unrecognized revenue flowing from the recent federal changes, which Virginia did NOT actually return (except for that one-time check, now forgotten by the voters…..) I agree with that assumption on Dick’s part, there will be a continued rush of revenue which the state will keep. As I predicted here on this blog 18 months ago. Whether that counts as a tax increase or not is debatable, but I will so count it. It might just be one of them.

      Dick worked behind the scenes and knows the budget development process better than I, and continues to access the direct accounting information used to build the budget. But his analysis ignores other signs of stress on the revenue side. Yes, the Wayfair rule is bringing in more sales tax. But the underlying economy is sputtering, and by January could be showing real problems. I predict a tough winter for VA taxpayers.

      • But I do applaud Dick for pointing out that the policy office, a political bunch, has now co-opted the process and cut out the professionals at DPB. That is not a good thing at all.

    • The SOQ sets out the minimum requirements that local school boards have to meet–teacher/student ratio, support staff, etc. The appropriation for the state share of the cost of implementing those standards takes into account the average cost of those items. Every two years, the state updates that data–number of students, salary costs, other costs, etc. You are right, that is not a one-time appropriation, it is rolled into the base amount in the budget. The initial rebenchmarking estimate was based on a projection of school enrollment. In the past, that initial estimate was adjusted as more recent school enrollment data was available.

      The recalibration of the composite index that allocates the state SOQ appropriation is an administrative process that takes place outside of the budget process.

      The $950 million is the estimated cost of two basic things: (1) lifting the freeze on some of the SOQ standards imposed during the recession and funding them at the current rate and (2) increasing some standards and adding some new ones. Whatever is agreed upon by the legislature will not be a one-time expenditure, it will also be rolled into the base that will become the beginning point for years in the future.

      • Thank you Dick for the easy-to-understand explanation. So it seems the $300 million is primarily in response to population changes/increases to maintain SOQ standards rather than increase staffing regardless of population changes.

        I’m quite sure if you asked 100 people what the re calibration is – they’d not know and just consider it another increase in money.

        If it is primarily an adjustment due to population – wouldn’t it be better to explain it that way at the top?

        So if I got this wrong – again -my apologies but it’s not “dishonesty”, it’s just plain not understanding it..completely.

        • It involves more than population. And, in all honesty, it involves more than the SOQ funding. It involves all Direct Aid to localities for education. SOQ is just the biggest component and “SOQ rebenchmarking” is a shorthand way of referring to it. It involves student enrollment, salary costs, inflation, etc. Here is a fairly detailed, but clear, explanation by DOE (the presentation gets into a lot of details, but the first few pages provide a good overview of rebenchmarking): http://sfc.virginia.gov/pdf/committee_meeting_presentations/2017%20Interim/101917_No2_DOE%202018-2020%20Rebenchmarking.pdf

          • Much appreciated – still hard to understand in terms of it having to be “re-benchmarked” on a regular basis – and earlier slide: ” Rebenchmarking is technical in nature and does
            not involve changes in funding
            policy/methodology or funding for new programs.” Page 4.

            so 90% of it is for SOQ funding that is not increased policy-wise/programmatically but by things like salary and I assume the number of additional SOQ positions that increased in response to increased enrollment?

            Steve – FWIW – these are not “dishonest” questions guy. I truly am trying to understand specifics here – and I think most people would – NEED to understand the DIFFERENCE between the costs to MAINTAIN a current funding stream due to changing things factors not changes in budget policy (like increasing SOQ positions).

            This is essentially recurring money but I’d ask – don’t other State agencies have changes in salaries and numbers of employees dictated by population to include also the counties Constitutional officers and law enforcement, etc?

            Why is the Ed stuff separate in terms of how it is handled? Don’t the other agencies/locality positions get handled as regular budget process?

  2. Conservative types might argue that the tax “increase” has already occurred when all that conformity money was not given back and we can rightly blame the GOP that had the majority and also had the time to do it – as other states did.

    And if Northam chooses to not fully fund the Education proposal as Dick intimates – my bet is that the GOP will not give him credit for it and will continue to talk about just how awful the MedicAid Expansion is and that the Dems are really tax and spend socialists in sheeps clothings per their usual!

    One thing about Steve – is that I simply do not understand him at times. If I’m the only one – I’ll take responsibility but Dick often does explain things in a way that I can so I urge Steve to do better!

  3. “This is essentially recurring money but I’d ask – don’t other State agencies have changes in salaries and numbers of employees dictated by population to include also the counties Constitutional officers and law enforcement, etc?”

    Yes, yes they do, but the SOQ is in a category by itself, enshrined in the state constitution. Semi-entitlement. The Compensation Board for example oversees the local constitutional officers’ budgets, using formulas etc., but those proposals don’t come in with a giant thumb on the scale such as SOQ. And much state spending is purely at the discretion of the power that be.

    When I do choose to answer you Larry, it is mainly to reach other readers :). And sometimes your confusion is intentional, I stand by that. The other day you were writing on local land use issues and your IQ went up a full 20 points and style improved. You get this far better than you let on. (Or somebody ghosted for you? :))

  4. re: ” And sometimes your confusion is intentional,” Nope. That’s YOUR issue guy. I’m NOT dishonest – I own my own ignorance and misunderstandings and I try not to accuse others of dishonesty either as it is a Ad Hominem … and we don’t that here… get better…

    and yes…sometimes I SKIM when I should read more closely for content and yes, sometimes I do flip politically-infused comments… guilty… guilty guilty – but ..I’m not alone on that! 😉

  5. Just to follow up on Steve. Yes, the new budget gets adjusted to account for previous salary increases for state employees. Typically, salary increases are provided for just a portion of a year at first (that makes the initial appropriation smaller) and then has to be “annualized” in the next budget. (These are called technical amendments, but they still must be accepted by the GA.) But, state agency budgets, and those of constitutional officers, are not automatically increased due to population changes. Nor are salaries increased based on changes in populations. Those are discretionary actions that the GA must approve in the final analysis. For example, the Code of Virginia sets out a formula, based on population, for the number of law-enforcement deputies each county is entitled to. However, there is not enough appropriation provided in the budget to support all those deputies. (The Appropriation Act trumps all.)

    Technically, “rebenchmarking” is discretionary (the GA has to include it in the budget), but Steve is correct: it is an article of faith that the GA hardly questions.

  6. re: ” However, there is not enough appropriation provided in the budget to support all those deputies. (The Appropriation Act trumps all.)”

    NOW I think I DO understand AND that education is done differently for the same or similar issues and they call it “rebenchmarking” but the issues involved are generic and apply to all state agencies and localities with Constitutional officers and public safety?

    How about DSS which also has staff at the locality level? We keep hearing from local DSS that they do not have enough staff for the population they serve and their salaries are way below the median in the region.

  7. I do not know enough about the DSS staffing formula to comment in detail. The state does provide some funding and any increase in state-funded positions would take GA action.

    For any state-funded positions, be it schools, sheriffs, other constitutional officers, local probation, etc., localities have the option to supplement the number of positions and the actual salary levels. And many do.

  8. Interesting and plausible analysis, Dick. I sure hope you’re right that the General Assembly can accommodate all the new spending pressures without raising taxes. But I’ve gotten cynical in my old age. Rather than propose a giant, highly visible tax increase around which opposition can coalesce, I expect the powers-that-be to push a series of “revenue enhancements” that are so opaque and difficult to explain that they don’t penetrate the public consciousness enough to inspire opposition. Pick up a hundred million dollars here and a hundred million there, and you’ve accumulated a nice bundle of added revenue. Virginia has done it this way for years, and I expect it will continue to do so.

    • You are right, it is a common strategy to target certain areas that do not involve a general tax increase. Depending on the area and type of “enhancement”, that is not necessarily bad. Each has to be judged on its own merits.

      • Note to Dick and others: DSS funding will also be in line for a major boost, following a JLARC report which will be just as negative as last year’s report on foster care…..

  9. “Even if the Democrats gain a majority in both houses, I don’t think there will be a tax increase.”

    Over what period of time? Just the 2020 General Assembly session? If so, you may be right. There have already been multiple tax increases snuck into operation. The conformance with federal tax changes, the taxing of hospitals to pay for expanded Medicare, the building into the rate base of wind turbines that cost 4X what natural gas generation plants cost to push a green agenda. The tolls on I-66 without any increased capacity for that road. The never-ending tolls on the Dulles Toll Road that were promised to end when that road was paid for.

    Northam has proven that the first casualty of Democratic rule is truth. The second is transparency. Northam was the guy in blackface until he wasn’t. Elizabeth Warren will pay for her supposedly Scandanavian socialist regime without taxing the middle class. And the newly ascendant Democratic junta in Virginia will finance their endless supply of “free stuff” through alchemy.

    It will be politically astute of the Democrats to continue to use fiscal trickery to avoid admitting that they are raising taxes in the 2020 session, maybe the 2021 session as well. But once they have controlled redistricting and the 2022 sessions rolls around … Katie bar the door.

    Care to bet? If our new Democratic overlords don’t overtly raise taxes by the 2022 session I’ll come to Richmond and buy you lunch (with beer) at Cool Smoke in Richmond. If they do, you come to NoVa and buy me lunch (with beer) at Mookie’s.

  10. Let’s see–conformance with federal tax legislation, “taxing” of hospitals for Medicaid, building into the rate base the cost of wind turbines, who was in the majority in the GA when these actions were afflicted upon Virginians? Oh, that’s right–Republicans. Tolls on I-66? I think the Republicans were in the majority then, as well. As far as the tolls on the Dulles Toll Road, probably both parties bear some blame for that.

    As for 2022, I have learned that 2 years is an eternity in politics and no one can really predict what will be in store. By then, we may be in the middle of the Trump recession and something will need to be done. Regardless of what happens, if you are in Richmond anytime, I would be delighted to buy you lunch.

    • You’re making my point, I think. A mixed state government uses various opaque techniques to expand government and (effectively) raise taxes. Why would anybody think that an all-Democratic state government will show restraint? On the national stage two of the four Democratic front runners are out and out socialists. A long time ago the Democrats in Virginia might have been willing to buck the national trend. No more. Today’s Virginia Democrats are as much “mo’ money”, expand government, “mo’ taxes” as their national counterparts. The real problem in Virginia is that the Republicans are no different. As you point out – the Republicans controlled the General Assembly and a wave of new taxes and fees were put into place anyway. The Republicans in Virginia demonstrate very little in the way of conservative thinking. Where is the fiscal restraint for example?

      As for lunch – the offer is reciprocal if you are ever in NoVa (contingent, of course, on my having enough cash to buy lunch after the Democratic tax tsunami, lol).

  11. Funny thing, DJ has been calling the GOP in RIchmond Asshats for about as long as I can remember! And more often than not over Dillion and their “Plantation” culture! I assume he’s channeling the Dem governance in NoVa ….. and their ability to more freely tax and spend!!!

    • The Dems will tax and spend. Look at the national elections and the Dem primary. Two of the four leaders are socialists, plain and simple. However, if the Virginia Dems also tackle campaign financing, hold the line on Dominion, decriminalize / legalize marijuana, legalize gambling, force polluters to pay for their externalities of their pollution and make state government more transparent the extra taxes will be worth it. The big question is whether they will do any of those things (other than raise taxes – in one form or another).

      One thing for sure, as Dick points out above – the Republicans in Virginia have been fiscal spendthrifts. And political grifters. I used to be a reliable Republican. However, when it comes to state government, I am willing to give the “new kids on the block” a chance.

      My guess is that Elizabeth Warren has a good chance of being the next president. I hate that thought but I have to accept it. If so, the blowback in the Virginia race of 2021 will be substantial. The Dems may not have long to bring socialism to the Old Dominion. Hopefully they can implement some libertarian social policies along with their bigger government and higher taxes before Lieawatha settles in.

      • I think when the GOP equates health care for everyone as “socialism” -they’re gonna lose in all but the hard core rural areas with their base.

        Most folks now are worried about health care and have someone in their family or friends that is having trouble getting insurance and they realize that the GOP’s approach will not protect them or help them.

        • The devil is in the details. It’s not “health care for everyone” that is the problem. It’s “healthcare for everyone for free” that’s the problem. “Healthcare for everyone for free” is what Lieawatha and Sandersaur are proposing. Not Scandinavian socialism where people pay for what they get but a fairy tale world where “free stuff” flies magically into people’s pockets. They are talking more about Cuba than Copenhagen. Biden and the rest actually have a much better plan with Medicare for those who want it and are willing to pay the premiums. They would subsidize more people but it’s a lot better than the “free stuff” theories of Warren and Sanders.

          People wonder how a guy like Trump got elected. It was because his opponent was absolutely ghastly. The Dems are on a course to repeat the same mistake in 2020 as they made in 2016. What’s wrong with Tulsi Gabbard? Or Mayor Pete? Or even Biden for that matter? The Dems have candidates who could win and do a good job as president but it sure doesn’t look like they are going to nominate one of those candidates. We’ll see. Right now I’d vote for Trump over Warren or Sanders. I’d vote for Gabbard or Mayor Pete over Trump. In a Trump / Biden race I might write in Jim Bacon.

          • Well yes, the Devil IS in the details but what party is willing to go forward?

            Health Care is NOT “free” – not in any country with universal health care. People DO PAY for it!

            To this day – not a person in this blog has said how Obamacare and the Medicaid Expansion is actually funded. Other countries also have various embedded funding mechanics but despite this – the debate in this country is whether or not it is “free” or not – not how much it actually costs US when we do not have it! People go bankrupt! They pay 100 times as much for insulin as they did 10 years ago. On and on and what is the GOP stance on health care? What changes will they pursue?

            That’s “free” narrative is just an opposition canard from folks who will do nothing – that’s their way of justifying doing nothing and it ain’t going to fly!

            Trumps opponent WAS indeed ghastly but guy – she got more votes that he did as bad as she was!

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