eNews Apr 21, 2017
Friday, April 21, 2017 - 10:45am
State and local governments warily view tax reform efforts
Earlier in April, the National Governors Association, the National Association of Counties, the National League of Cities, the United States Conference of Mayors, the International City/County Management Association, the National Conference of State Legislatures, and the Council of State Governments petitioned Congress to maintain both the tax exemption for municipal bond interest and the deductibility of state and local taxes.
The group cited the protection of state and local tax deductibility as essential for investments in infrastructure, public safety and education. Eliminating or capping federal deductibility for state and local property, sales and income taxes would represent double taxation as these taxes are mandatory payments for all taxpayers.
As for tax-exempt municipal bonds, the seven organizations pointed out that municipal bonds remain the primary method used by states and local governments to finance public capital improvements and public infrastructure projects. The federal tax exemption reduces the cost of issuing municipal bonds, saving state and local taxpayer dollars.
Federal tax reform had originally been on President Trump’s fast track, but events in the nation’s capital have slowed down the tax train. Partisan infighting over the president’s refusal to make public his tax returns and congressional failure to repeal and replace Obamacare have upset the administration’s timeline. Treasury Secretary Steven Mnuchin told the Financial Times this week that his original prediction that lawmakers would get tax reform to President Trump’s desk by August was “highly aggressive to not realistic at this point.” Mnuchin is hopeful that Congress would be able to overhaul the tax system before the end of calendar year 2017.
For local governments wrestling with the challenge of finding ways to pay for roads, schools, and water infrastructure, the outcome in Washington over tax reform could have a major impact on the local wallet.
VML Contact: Neal Menkes, nmenkes@vml.org
Housing trends discussed by commission
The Virginia Housing Commission met on Tuesday for the first time since the General Assembly left town to hear presentations from the Federal Reserve Bank of Richmond, the Virginia Housing Development Authority and the Richmond Redevelopment Housing Authority.
Speakers discussed housing trends nationwide and in Virginia. Both sectors are trending up in single family home sales. Construction permits, however, are not even back to where they were in the 1990s. Virginia is trending behind the United States on housing starts, but is showing slow, steady improvement. Multi-family homes, however, are seeing a slowdown in demand both nationwide and locally. This is an expected trend that is expected to flatten out shortly. Construction companies are becoming more particular about their projects and more families are opting for single family homes. Distressed properties and foreclosures also were discussed. Foreclosure rates in Virginia are back in a normal territory. Delinquency rates for mortgages that are more than 90 days past due are still higher than they should be. With regard to employment, the labor markets do appear to be improving but at a rate that is slower than the United States.
All the speakers expressed grave concern about the effects of the federal budget on housing monies. Many of the proposed cuts would affect housing and the federal budget will continue to be monitored.
The Richmond Housing Redevelopment report focused on deconcentrating poverty in the City. They also reported on their redevelopment projects in the East End.
The Housing Commission also set up 3 work groups over the summer:
- Affordability, Real Estate Law and Mortgages (Delegate Peace, Chair)
- Common Interest Communities (Delegate Bulova, Chair)
- Neighborhood Transitions and Residential Land Use (Senator Locke, Chair)
Various bills related to these topics were assigned to each group and the Chairs will be scheduling the first meetings.
Housing Commission Meeting Materials will be posted shortly.
VML Contact: Michelle Gowdy, mgowdy@vml.org
Who really pays for K-12 education?
The quick answer is the taxpayer, but the breakdown of federal, state and local contributions may surprise you.
Local governments paid 51.8 percent of operating expenditures for public education in FY15-16, according to data recently released by the Virginia Department of Public Education. Property taxes are the largest revenue source for local governments.
The state (including the state retail sales and use tax dedicated to public education) put up 41.3 percent, while the federal contribution totaled only 6.7 percent. The income tax is the largest source of revenue for the state and federal governments.
According to the state Appropriation Act, the state’s share of the cost of the Standards of Quality is set at 55 percent, and the local share is set at 45 percent. How do local governments, therefore, end up financing more than half? Over the years as state revenues waxed and waned, the state changed the funding formulas to reset its contributions to match expected state tax collections. In effect, these formula changes, particularly those enacted during the Great Recession, depress the true cost of meeting the Standards of Quality. For example, the state has set an artificial cap on the number of support positions that are recognized in the funding formula. Also, school divisions in most localities hire more teachers at salaries that are higher than those recognized by the state formulae.
The end result: Local governments are the major funding “partner” for K-12 education.
Keep in mind, too, that these figures relate only to operating costs. Local governments shoulder virtually all capital costs. In other words, localities don’t make the rules. We just pay for them.
The data for FY16 can be found in Table 15 of the Superintendent of Public Instruction’s Annual Report, which is available in a PDF or Excel format on the Virginia Department of Education’s web site at https://bit.ly/2oPjtaA. The figures are derived from the annual school reports submitted by the divisions.
Sources of support for K-12 operating expenditures – Expressed as % of total FY16 operating expenditures
Source: Table 15, Annual Report, Superintendent of Public Instruction
VML Contact: Mary Jo Fields, mfields@vml.org
State tax collections exceed projections
Total general fund revenue collections rose 5.7 percent in March. On a fiscal year-to-date basis, total revenue collections increased 4.6 percent through March, well ahead of the annual forecast of 2.9 percent growth.
Job growth in Virginia remains sluggish. Payroll employment grew 2.3 percent in fiscal year 2016, but for the first half of FY 2017 the growth rate is a meager 1.0 percent. February payroll employment data, however, showed a 1.5 percent increase.
An article in last week’s Washington Post reported possible good news on future employment affecting Northern Virginia and Hampton Roads. The Trump Administration will lift the hiring freeze that it had imposed on the federal work force, even as the federal Office of Management and Budget directs agencies to submit plans for personnel cuts and other restructuring moves to fund the president’s budget proposal submitted last month.
The Virginia Leading Index rose 0.3 percent in February following an identical increase in January.
|
Individual Income Taxes Drive State Tax Collections |
|||
| Revenue Item |
% of Total General Fund |
Official Growth Estimate |
Actual Year-to-Date Data |
| Individual Income Tax Withholding |
63.0% |
3.6% |
5.3% |
| Individual Income Tax Non-withholding |
16.0% |
0.7% |
2.9% |
| Sales Tax |
18.0% |
1.5% |
(0.4%) |
| Recordation Taxes |
2.0% |
8.0% |
8.8% |
Unlike last fiscal year’s $266 million shortfall (due to lackluster payroll and sales tax receipts), the state should have a strong fiscal finish. Whether or not the revenue momentum extends into FY18 and beyond will be a question Gov. Terry McAuliffe’s financial team ponders as they begin preparing McAuliffe’s last budget submission this summer and fall.
VML Contact: Neal Menkes, nmenkes@vml.org
VDOT pushes Smart Scale Dashboard for locally managed projects
VDOT’s Local Assistance Division sponsored last month a webinar for localities concerning the Smart Scale Dashboard. The presentation can be accessed here.
The Smart Scale Dashboard emphasizes budgets and schedules over the tracking of project estimates and the milestones tied to project advertisements and contract acceptances. The objectives are to drive for “Early Start/Early Finish.” Mitigating project delivery risks are practiced through the use of “Yellow” dashboard indicators to identify projects prior to a critical due date.
Smart Scale Dashboard will be accessible to a wide public audience as well as to state government leaders. To demonstrate performance, the data, descriptions, schedules, budgets, etc. of locally managed projects must be kept current and accurate. This is the challenge localities will face.
VML Contact: Neal Menkes, nmenkes@vml.org
“Age Out Loud” is theme for Older Virginians Month
Gov. Terry McAuliffe recently issued a proclamation recognizing the month of May as Older Virginians Month. The theme this year is “Age Out Loud,” which emphasizes the value of supporting older adults as they take charge of their health, explore new opportunities and activities, and focus on independence.
The U.S. Administration for Community Living also designates the month of May to recognize older adults for their contributions to the country.
Local governments are encouraged to issue their own proclamations recognizing Older Virginians Month. According to the Department of Aging and Rehabilitative Services, Area Agencies on Aging and Senior Centers will be working throughout the month to raise the importance of community engagement.
In conjunction with Older Virginians Month, the Virginia Governor’s Conference on Aging will take place on May 22-23, at the Hotel Roanoke. Program and registration information is available on the Department of Aging and Rehabilitative Services’ website.
VML contact: Janet Areson, jareson@vml.org
Policy committee nominations still open
There is still time for local governments to submit their nominations for the 2017 VML policy committees.
Last month, policy committee information and nomination forms were transmitted to all VML member communities. Local governments complete and submit the nominations forms to VML.
VML has six policy committees:
- Community and Economic Development
- Environmental Quality
- Finance
- General Laws
- Human Development and Education
- Transportation
These committees meet once during the summer to hear presentations, discuss current and emerging issues, and develop policy positions that reflect the local government perspective on an array of statewide issues. The committees also recommend issues for consideration by the VML Legislative Committee for possible inclusion in the Legislative Program.
If you have any questions about the VML policy process, please call or email Janet Areson at VML, 804/523-8522; jareson@vml.org
VML contact: Janet Areson, jareson@vml.org
Virginia Leadership Academy announces FOIA / COIA classes on June 14 and 15
Virginia Leadership Academy will be holding in person training on both the Freedom of Information Act (FOIA) and Conflict of Interest Act (COIA). There will be two opportunities to receive this training and they are on Wednesday June 14, 2017 in Richmond, VA from 10 a.m. until 2 p.m. or on Thursday, June 15, 2017 in Roanoke, VA from 10 a.m. until 2 p.m. This training seminar will also provide you the necessary 10 credits towards VLA certifications (5 for FOIA and 5 for COIA). The fee for these training session is $75. The training sessions will be led by Michelle Gowdy, VML General Counsel. Registration and location details will be made available soon via the next eNews and on the VML website. Any questions please contact Mike Polychrones, VML Director of Member Services, mpolychrones@vml.org or (804) 523-8530.
VML contact: Mike Polychrones, mpolychrones@vml.org
