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State budget negotiations will dictate local spending
Media attention seems riveted on the politics and drama surrounding the House and Senate budget conference committee negotiations in Richmond. Local officials – elected and appointed – must be wondering if the public really understands the importance of the conference committee talks. The amounts and conditions placed on state financial assistance by the conferees are critically important in local budget development, particularly as local revenues remain stagnant or show only a nascent recovery.
The descriptions below provide a glimpse of budget development across the Commonwealth as school boards begin reviewing their superintendents’ budgets, and city councils and boards of supervisors await the budget proposals of their managers and administrators.
Northern Virginia
Are the effects of the burst housing bubble over? Are the recovery signs permanent or temporary? Time will tell. But the region where the housing crisis first appeared in Virginia is stirring, and local budget development for next fiscal year does not seem as frantic as last year’s efforts.
Real estate assessments in the City of Falls Church are up 2 percent overall compared to last year. Single family residences increased in value by 4 percent even as overall commercial property values declined by 1 percent. City Council will determine the real estate tax rate in April when the FY12 operating budget and capital improvements program is adopted.
In Arlington, the county manager has proposed a FY12 budget with no real estate tax increase and no restoration of previous service cuts, which include savings of more than $33 million and the elimination of 160 positions over the past two fiscal years. The proposed budget increases local funding for the schools by $17.8 million or 4.9 percent over this fiscal year. There would be a 1.9 percent increase for other government operations. The real property tax base increased by 6.3 percent since last year.
For the first time since FY08, Alexandria does not have a budget shortfall. Property assessments are up 2.55 percent, and the proposed FY12 operating budget includes no tax or fee increases and no new cuts to city services. The city’s contribution to the school division would go up by 4.1 percent. The proposed budget for city operations increases by 3.2 percent. The budget also assumes changes in BPOL to help small businesses. The changes include raising the threshold for paying BPOL from $100,000 to $350,000 and cutting the tax rates in half for businesses with gross receipts between $350,000 and $750,000. However, there would be a new 12.5 cent dedicated add-on tax imposed on non-residential commercial property. The money would be used for transportation projects. City Council will adopt the budget in May.
In Prince William County, the school superintendent is proposing a budget that would freeze employee salaries for the fourth consecutive year, but would prevent layoffs for the first time since 2007. His budget would increase spending by $36 million over this year and includes the hiring of 175 additional teachers to meet the needs of more than 2,700 additional students. School officials are determined to maintain English as a Second Language programs and reduced-price lunches. One of every three students qualifies for free or reduced price lunch. The school district has one of the lowest per student spending in the D.C. area.
The Fredericksburg schools superintendent submitted his budget request to the school board, saying he would need $1.4 million from the city to balance his proposed budget. The schools have not had an increase in local funding since the 2009 school year, and last year local contributions fell $700,000.
In neighboring Spotsylvania County, the school board is seeking permission from the Board of Supervisors for additional time to prepare the school budget. The school board’s goal is to get a clear picture of state funding and the actual cost of items such as health insurance and required VRS contributions before making decisions that include position cuts and employee pay. The superintendent’s budget proposal calls for the elimination of 45 positions for the next school year.
Hampton Roads
In Chesapeake, the schools superintendent is proposing a fourth year of no salary increases for teachers. Expenses are rising while funding has been cut by more than $61 million during the economic downturn. The upside is that no layoffs are proposed and insurance premiums are expected to remain stable. Also, most of the 171 positions tied to employees who opted for the retirement incentive offered in the fall will be filled.
The Suffolk City Council was given a grim preview of the FY12 operating budget. Potential cuts in state funding ($4 million) and declining property values could slash city revenues by $7 million or more. To offset those losses, council may need to consider cutting city payroll, reducing employee pay, eliminating city services, or raising real estate tax rates. The city’s tax rate is the second-lowest in Hampton Roads.
Piedmont
The Charlottesville School Board is considering a budget proposal with a projected $1.5 million loss in state and other funding. The proposal represents an overall 1.43 percent decrease from the current FY11 budget. The budget submission does include an average 2.4 percent pay increase for all teachers and staff based on a revised salary scale. School officials credit the city for providing more funding as state and federal funding has decreased in recent years. State funding has fallen more than 23 percent or $4 million since fiscal 2009. The proposed budget would require a 4.34 percent or $1.7 million increase in local funding.
The Lynchburg School Board is asking City Council to be released from a 2007 agreement that obliges the school division to use annual surpluses for capital improvements. The schools project a $2.5 million surplus in the coming fiscal year, and would like to consider other uses such as buying new textbooks, replenishing the schools’ health insurance reserve, or providing bonuses.
Albemarle County officials were buoyed by the news that local sales and use tax collections rose by more than 6.5 percent last year. The good news was somewhat tempered by the fact that sales tax collections fell 12.5 percent over the FY08 and FY09 period.
Richmond region
In Hopewell, the schools superintendent projects a 3.55 percent loss of revenue in FY12. He warned that “we are at a stage where our operation as an effective school division is in jeopardy.” The school division is striving to improve its 71.1 percent on-time graduation rate and to reduce it 19.2 percent dropout rate at the same time expand early childhood programs. The schools are hit hard by proposed changes in the state budget to alter VRS contributions, eliminate “hold harmless” funds related to changes in the local composite index, and declining enrollment.
The Petersburg school division reports that next year’s budget will mark the fourth year in a row without salary increases for personnel. A $2.27 million budget shortfall is projected.
In Chesterfield County, two straight years of budget cuts have eliminated nearly $80 million and 500 teaching positions. The affects of the cuts are affecting classroom sizes. Nearly 9 percent of high school classes have 30 or more students; 12 percent of the district’s middle schools are that big; and 15 of the system’s 38 elementary schools have an average class size of 30 ore more pupils at either the fourth- or fifth-grade level. With a projected budget shortfall in FY12, the staffing ratios are not going to improve.
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State revenues jump in January
January is a significant month for state revenue collections. Individual estimated payments, sales taxes on Christmas sales, and corporate income taxes from large retailers are all due.
The monthly revenue report released Tuesday by Gov. Bob McDonnell shows total general fund revenue collections rose a whopping 12.6 percent in January. The increase was driven by solid growth in the individual income tax and in the sales and use tax. Year-to-date total revenues have jumped 5.4 percent, ahead of the official economic-base forecast of 5.2 percent growth. Here is a closer look.
Employers added jobs for the sixth consecutive month in December. Payroll employment in Virginia grew 1 percent in December from December of 2009. The state unemployment rate fell from 6.6 percent to 6.4 percent in December, the lowest rate since April 2009.
In addition, the Virginia Leading Index rose 0.3 percent in December, which marks the ninth monthly increase over the last 12 months. (The Virginia Leading Index measures the changes in vehicle registrations, building permits, initial claims for unemployment benefits, length of manufacturing workweeks, and the U.S. Leading Index.)
The rise in economic activity is now showing up in the state treasury. Collections of payroll withholding taxes grew 5.4 percent in January. Payroll tax revenues have increased for nine consecutive months, and are out-performing the official revenue forecast. Collections of sales and use taxes, reflecting December sales, rose 5.7 percent in January. Taking into account the accelerated sales tax program and tax amnesty, sales tax collections have grown by 4.7 percent since July, close to the economic-based forecast calling for a 4.8 percent increase. The net individual income tax and the sales tax comprise 86 percent of all general fund revenues.
The revenue category of wills, suits, deeds, and contracts make up only a small portion of the state’s general fund, roughly 2 percent. However, this category is mainly recordation tax collections. On a year-to-date basis, collections are up 1 percent, ahead of the official forecast of a 5.6 percent decline. The small increase may suggest that the housing industry, which is the most important source of local tax revenue, is stabilizing.
Regional education press conferences scheduled
As a follow up to a rally held in Richmond on Monday to urge the General Assembly to adequately fund K-12 public education, a series of regional press conferences will be held in the upcoming days.
Local officials are encouraged to attend in order to express support for increased state funding for education. So far, press conferences have been scheduled as follows:
Friday, Feb. 18, 1:30 p.m. Harrisonburg City Schools Central Office Building 317 S. Main St. Harrisonburg
Monday, Feb. 21, 4 p.m. Patrick Henry High School 2102 Grandin Road Roanoke
Tuesday, Feb. 22, Noon Virginia School Boards Association 200 Hansen Road Charlottesville
Tuesday, Feb. 22, 5 p.m. William N. Neff Center 255 Stanley St. Abingdon
President releases budget; domestic spending cuts ahead
President Barack Obama released a $3.73 trillion budget plan for fiscal year 2012 on Monday. The proposed budget represents a reduction of 2.4 percent from current spending levels, with the majority of cuts aimed directly at state and local programs.
State and local programs affected by reductions include the Community Development Block Grant (CDBG) program ($300 million). Other domestic programs slated for cuts include the Low-Income Fuel Heating Assistance Programs (LIHEAP), which would sustain a 50 percent reduction ($2.5 billion), as well as funding for water treatment plants and other infrastructure programs, as well as consolidation of public health programs run by the enters for Disease Control and various forest service programs ($1 billion).
Looking beyond 2012, the administration’s budget plan proposes a five-year freeze on many domestic programs, equaling at least $400 billion in savings. These reductions help the administration move towards its goal of obtaining $1.1 trillion in deficit savings over the next decade.
Over the next 10 years, defense programs would see some reductions as well, with $78 billion trimmed from the Pentagon’s budget for certain weapons and vehicle programs.
The FY12 proposal includes no reductions to entitlement programs such as social security or Medicaid.
While the budget plan freezes or cuts some domestic programs, it includes investments other domestic programs that the administration believes are necessary to promote economic growth and prosperity. New funding would go towards selected areas of education, biomedical research, energy efficiency, and high-speed rail, and other infrastructure-related programs.
In the Congress, the National League of Cities reports that House leaders are expected to introduce a Continuing Resolution to fund federal programs for the remaining seven month of FY11. NLC says that cuts to CDBG and other domestic programs are also on the table in this House package.
The administration’s budget plan will move to Congress, where the White House and House and Senate leaders will negotiate on federal spending levels and priorities over the next several months.
NLC will be working with other local government organizations to counter the proposed cuts to CDBG in particular, which is viewed as essential to job creation and economic recovery efforts in communities across America. NLC urges local officials to contact their congressional delegations and do the same. In particular, Congress will be in recess during the week of Feb. 21-25, and NLC urges you to call them to visit or tour a CDBG-funded project in your community, so they can see first hand the difference those dollars are making in the community.
Appalachian Power offers cash incentive for energy-saving lighting
AEP Appalachian Power is offering cash incentives to its city, town and county customers in Virginia if they replace existing light fixtures and bulbs with new energy-saving lighting.
The purpose of the incentive for these “public authority” (PA) customers in Virginia is to reduce up-front costs that result in lower long-term power bills. The cash incentives range from $2,000-$9,000 per customer and must be applied for by March 15.
The company sent information packets to PA customers in Virginia about the program. The packets included application forms and a list of available contractors in the service area. For more information about the program ,contact James D. Fawcett at 304-348-4133 or JDFawcett@aep.com.
The program is part of an agreement reached in 2009 as part of rate negotiations with Appalachian Power’s PA customers. A second phase of incentives may be implemented if funding is available.
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