2011 General Assembly

Budget amendments, transportation construction plan stir discussion

With the General Assembly’s imminent return to Richmond, stakeholders have begun to line-up on several critical issues, including education and transportation funding, as well as employer and employee contributions to the Virginia Retirement System. Here is what people are saying in the run-up to the 2011 session, which begins Jan. 12.

Retirement contributions

As part of his pension proposal, Gov. Bob McDonnell recommended that legislators give local governments the option to stop paying their employees’ 5 percent retirement contribution, provided that any locality choosing to do so gives a 3 percent salary increase. The governor also wants the state to stop paying state employees’ share into the fund. To curb the blow for state workers, he proposes a 3 percent pay hike.

The Virginia Sheriffs’ Association is opposing McDonnell’s budget amendments on this issue.

“The plan will ultimately decrease the take home pay of the already under-funded deputy sheriffs and support staff, and reduce the public safety budget for sheriffs by $13.4 million,” according to a news release from the Virginia Sheriffs’ Association. Pittsylvania County Sheriff Michael W. Taylor said the governor’s proposal will mean an additional reduction of nearly $113,000 in state funding for his office and the loss of four deputy sheriff positions for the upcoming fiscal year. Norfolk Sheriff Bob McCabe said the retirement proposal will reduce his office’s budget by $497,000, resulting in the loss of 14 deputy sheriff positions. This would be in addition to the 27 positions lost during last round of budget cuts.

Education funding

After cutting almost $600 million in state general fund dollars from the K-12 education budget in the 2010-2012 biennium, the governor will ask the General Assembly to eliminate another $57.6 million currently earmarked to act as a cushion for 97 school systems whose local composite index rose. McDonnell would use that money to pay the state’s share of an increased contribution into the teacher pension fund, requiring local school divisions to pay the local match, which totals $100.0 million statewide. As noted in a recent editorial published in the Virginian-Pilot, “localities would lose money they were promised a year ago and would be forced to cough up even more of their own revenues.”

The Williamsburg-James City County School superintendent said the elimination of the hold harmless money was a concern because it would translate into a loss of $1.2 million the division expected to receive next school year. In Albemarle County, the school division could be forced to pick up an unanticipated tab of $3.5 million to $4.5 million, based on the loss of hold harmless funds and additional payments for teacher pensions. In the current year, the school division cut more than $6 million, laying off teachers and increasing class sizes by an average of one student per class for each of grades 4 through 12.

In South Hampton Roads, the elimination of hold harmless dollars in FY12 means the loss of an estimated $4.4 million for Norfolk schools, $1.9 million for Portsmouth, $2.1 million for Suffolk, $7.3 million for Virginia Beach, and $5.5 million for Chesapeake.

Why are the issues of education funding and retirement contributions so important to local governments? The answer is simple. The state reductions will have to be made up with local tax dollars, services will have to be cut, or localities will have to employ both strategies.

Transportation funding

The McDonnell transportation funding plan, if approved, will pump an additional $4 billion into transportation construction projects over the next three years. Some $2.9 billion of the package is debt related. In essence, McDonnell’s bond proposals have two distinct elements. The first part calls for $1.8 billion in state-backed bonds to be issued over the next three-years. These bonds were authorized by the General Assembly in 2007, and were supposed to be issued at $300.million per year. But, the state lacked the cash necessary to meet debt service requirements. The governor wants to issue some $600 million a year for the next three-years.

The second part proposes a bond issuance of $1.1 billion to be backed by future federal allocations to Virginia for road construction. The state match needed to qualify for the GARVEE bonds would come from credits earned by the state from collections on toll roads.

The Virginia Transportation Construction Alliance, which is made up of several diverse business interests, wrote that “the prudent use of bonds will help address the Commonwealth’s chronic transportation infrastructure needs. Using bonds, in this manner, will allow the Commonwealth to leverage and make some of its scarce transportation resources go further.” The Alliance also wrote that the “infusion of dependable, dedicated transportation funds is critical to putting Virginia’s transportation program on a sound financial footing and ensuring sustained economic growth.”

The Northern Virginia Transportation Alliance wrote that while “accelerating funding into projects to take advantage of favorable construction pricing is good news for the short-term, absent from the governor’s announcement was new sustainable, longer-term maintenance and construction funding that the governor, in the past, has acknowledged as essential to an overall solution.”

Why is this issue important to localities? There are several reasons. First, new construction will help relieve traffic congestion and improve safety for the traveling public. Second, the bond proceeds can be used for transportation capital needs other than roads. Third, the economic activity resulting from the construction will help to pump up local economies. How the governor’s proposal will meet local road maintenance needs and what effect, if any, the proposal will have on the state’s credit rating (and indirectly on local governments’ credit ratings) will have to be answered during the legislative session.

View an in-depth look at the McDonnell budget amendments >. contents

Real estate markets continue decline

Real estate taxes are the backbone of local revenues, comprising roughly half of local generated revenues across the state. Housing sales and prices took a nosedive more than three years ago. Over the past year, home sales across the state fell 17 percent, which is the largest year-over-year decline since the first quarter of 2008. Will the new year signal a positive change? If the third and fourth quarters of 2010 are true indicators, then 2011 is unlikely to be a turnaround year.

According to Clear Capital, a data provider of real estate asset valuations, home prices in the Richmond area hit new lows in November. Prices dropped nearly 8 percent from a year ago, and prices are down 23.4 percent since the April 2007 peak.

In the Fredericksburg region, median housing prices dipped below $200,000 in November for the first time since February. Sales in the higher-end housing market were particularly sluggish. There was a 9.5 month supply of homes on the market by the end of November. The homes that sold spent about 88 days on the market, and sold for about a 9 percent discount to the average list price.

Peninsula area home sales plunged 41 percent in November compared to a year earlier. Part of the reason is that first-time homebuyers could tap federal tax credits of up to $8,000 in 2009. Those credits, however, expired last spring. The median sales price also slid by 2.0 percent in November compared to November of 2009. The number of homes for sale in November jumped by 12 percent compared to a year ago. With sales slow and housing inventory rising, Peninsula Realtors believe it will take roughly 11 months at the current sales pace to sell all the homes listed in Hampton; 10 months in Newport News and York County; and 14 months to sell in Isle of Wight County and Poquoson.

Information recently released by CoreLogic, a California company that tracks mortgages across the county, shows that more than one in five local mortgage borrowers in Hampton Roads (21.5 percent) are “underwater” on their loans. Owing more on a home loan that the property is worth is one of the most common precursors to foreclosure. Although the number of foreclosure auctions and repossessions in Hampton Roads fell in November, and was down nearly 31 percent from October, the number was still 30 percent higher than November of 2009. The improvement in November may be related to actions taken by Bank of America to suspend foreclosure proceedings. The bank, however, resumed foreclosing in December.

Median prices in South Hampton Roads were up slightly in November, but the first 11 months of 2010 saw an overall decline in prices of 1.4 percent compared to the same period in 2009.

Roanoke County experienced for the first time in decades a decline in real estate values. New construction was also at its lowest total in recent memory. This fiscal year’s budget assumed a 1 percent increase in real estate tax revenue. A half-percent decrease would drop the total by a little more than $205,000. The county administrator said that savings in personnel costs through a hiring freeze and the potential for increases in other taxes will make the real estate loss manageable. Real estate taxes account for 52 percent of the county’s general fund.

In the Washington, D.C. area, the housing market is not expected to recover for at least a year, and 2011 could mark a new low for some jurisdictions like Prince William County, according to RealtyTrac, a foreclosure tracking firm based in California. The Northern Virginia Association of Realtors predicts that the housing market will stay flat.

As for the future, the Federal Reserve Bank of Richmond reports that residential permitting activity contracted 29.6 percent in October for the sharpest decline since March 2009. Over the year, new permit levels fell 3.1 percent. contents

Red Flag rules may not apply to local governments after all

For more than a year, VML has kept its members informed about an impending set of federal regulations that would require localities that bill customers for services such as water to adopt a program to protect against identity theft. It appears that the federal bureaucracy had the horse before the cart. On Dec. 18, the president signed a bill that makes it look like local governments will not be subject to the regulations, which are known as “red flag rules.”

A bill was submitted in Congress – the “Red Flag Program Clarification Act of 2010” to clarify that an entity that “advances funds on behalf of a person for expenses incidental to a service provided by the creditor to that person” is not a creditor for purposes of the Red Flag law. When a town or city sells water to customers, and sends a bill for the water used the preceding month, the locality is advancing funds for expenses incidental to the water service. One major law firm, Nixon Peabody, has opined that the amendment “excludes … utility companies, telecommunications firms, … from complying with the Red Flags Rule.” A locality selling water is in the same position as a telecommunications firm or utility company.

The Federal Trade Commission is still scratching its head over the significance of the new law. If the FTC decides that the language does not exclude local governments, VML will inform its members. For now, however, VML believes that localities are not required by law to adopt a red flag program. Nonetheless, taking steps to protect against identity theft is a smart move, law or no law. contents

HUD grants available for local housing programs

The U.S. Department of Housing and Urban Development (HUD) is taking applications for two grant programs of possible interest to local governments:

Learn about the 14.263 Rural Innovation Fund Program at http://bit.ly/fxDgFG. The Rural Innovation Fund is designed to support innovative, risk friendly, unconventional experiments in Farm, Non-Farm and micro-Finance sectors that would have the potential to promote livelihood opportunities and employment in rural areas. Eligibility includes state and local governments. Due date: Feb. 23.

Learn about the HUD Office of Community Planning and Development’s 14.259 Transformation Initiative Technical Assistance and Capacity Building Request for Qualifications at http://bit.ly/dQ7OqD. Under the new Transformation Initiative at HUD, the approach to technical assistance capacity building and the organization of the technical assistance delivery system itself has been fundamentally changed this year. The new technical assistance structure for community planning and development named the OneCPD Integrated Practitioner Assistance System (OneCPD) will provide grantees with a single cross-program, results-focused demand-response delivery system driven by local needs and administered directly from HUD headquarters. The purpose of OneCPD is to provide state government, local government and nonprofit recipients of federal community development, affordable housing, economic development and special needs funding with the assessment tools and technical and capacity building assistance needed to fully understand their local market conditions, to increase their capacity to successfully carry out federal assistance programs while leveraging other public and private resources, and to achieve positive and measurable outcomes.

Eligibility includes state and local governments, public housing authorities, HOME program participating locality. Due date: Feb. 24. contents

AT THE LEAGUE

NLC policy committee nominations sought

Take full advantage of your local government’s membership in the National League of Cities by joining a policy and advocacy committee in 2011. These committees meet twice a year – the first meeting will be held during the Congressional-City Conference in Washington (March 12-16), and the second meeting will be held at the Congress of Cities (Nov. 8-12, Phoenix).

There are seven policy and advocacy committees from which to choose: Community and Economic Development; Energy, Environment, and Natural Resources; Finance, Administration, and Intergovernmental Relations; Human Development; Information Technology and Communications; Public Safety and Crime Prevention; and Transportation Infrastructure and Services

Policy committee meetings offer a good opportunity to learn more about issues at the federal level that may affect your community, to meet and talk with other local officials who share similar policy interests, and to promote your community’s and region’s interests during the NLC policy development process.

Each state gets a certain number of seats for each of these committees, and VML is responsible for submitting to NLC the names of interested governing body members and chief administrative officials from NLC-member communities in Virginia. VML must submit its names to NLC later this month.

If you are interested in learning more about NLC’s policy process or in serving on a committee, call or email Janet Areson at VML, 804/523-8522, jareson@vml.org. You can also look at NLC’s website (www.nlc.org) to see more information about the policy process and committees. contents

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