eNews Dec 2 2016

Uptick in Virginia economy may push budget pain to FY 2018

The Governor’s Advisory Council on Revenue Estimates (GACRE) met this week in Richmond to evaluate and recommend to Gov. Terry McAuliffe an updated “most probable” path for the Virginia economy as he finalizes his budget amendments for the 2017 legislative session.

Although news is scant about the GACRE meeting, it is likely that the August interim revenue forecast calling for a 1.6 percent increase in FY17 and a 3.6 percent increase in FY18 will be revised upwards for the December 16 introduction of the McAuliffe budget amendments.  The revenue changes in August resulted in wringing $1.2 billion from the revenue forecast adopted earlier in March.  Greater state revenues could lessen the impact of state budget cuts on local budgets, particularly in the areas of public education and public safety.

The modest growth in payrolls in FY 2017 has resulted in individual income tax collections greater than the August interim forecast.  October’s state unemployment rate of 4.2 percent (seasonally adjusted) compared to September’s 4.0 percent rate reflects in large part the increase in the number of job seekers.  Virginia’s workforce participation rate continues to outpace the national rate.

As reported in the Washington Post, between September and October of this year, 27,000 new workers were absorbed into the state economy.  This is the largest month-over-month increase in the size of the state labor force since the Bureau of Labor Statistics began surveying in 1976.  In fact, the size of the state’s labor force has grown for three successive months.  The state’s economic engine of Northern Virginia has been adding jobs at a faster rate than the nation, a 2.0 percent growth rate compared to this time last year.

The good news in payroll taxes is somewhat offset by the continuing lag in sales tax collections.  In the first quarter of FY17, sales taxes grew 0.2 percent compared with the 2.6 percent incorporated in the revised interim forecast.  By some estimates, untaxed internet sales may amount to as much as $250 to $300 million in foregone state and local sales and use tax revenues in Virginia.  Spending on services and healthcare is also putting pressure on sales taxes because these expenditures are growing faster than disposable income and because they are not subject to state sales tax.

The impact of the economic data, while generally positive, may not be enough to avoid budget cuts next fiscal year.  The House Appropriations and Senate Finance Committees have projected the FY 2018 budget gap at $400.0 million and $514.3 million, respectively.  These projections assume a $225.0 million drawdown from the state’s “Rainy Day Fund” and a $221.3 million freeze in salary increases that were approved in March. The good news in payroll taxes is somewhat offset by the continuing lag in sales tax collections.  In the first quarter of FY17, sales taxes grew 0.2 percent compared with the 2.6 percent incorporated in the revised interim forecast.  By some estimates, untaxed internet sales may amount to as much as $250 to $300 million in foregone state and local sales and use tax revenues in Virginia.

Spending on services and healthcare is also putting pressure on sales taxes because these expenditures are growing faster than disposable income and because they are not subject to state sales tax. As reported in the Washington Post, between September and October of this year, 27,000 new workers were absorbed into the state economy.  This is the largest month-over-month increase in the size of the state labor force since the Bureau of Labor Statistics began surveying in 1976.  In fact, the size of the state’s labor force has grown for three successive months.  The state’s economic engine of Northern Virginia has been adding jobs at a faster rate than the nation, a 2.0 percent growth rate compared to this time last year.

The calculus also includes additional spending in mandatory budget drivers like Medicaid, Children’s Services Act, state inmate medical costs, state employee health insurance, child welfare services, mental health, and other items.  The Senate Finance Committee estimates the cost of these “must do” items at $382.1 million for the biennium.  The House Appropriations cost estimate is $369.0 million.

The “bottom line” is that localities will likely face reductions in state financial support.  The cuts may not be as bad as what was feared in August.  But, there will be pain as Virginia’s cities, towns and counties wrestle with their own financial challenges early next year.

Fiscal impact volunteers needed

Each year VML relies on volunteers to participate in the process of preparing fiscal impact statements on legislation introduced during the General Assembly.  The fiscal impact contacts send locality-specific information to the Commission on Local Government, which compiles it for distribution through the state’s Legislative Information System.  The impact statements give VML, VACo and legislators specific data about the costs legislation would impose on local governments through additional new mandates or reductions of revenue-raising authority.

Volunteers are needed for the 2017 session! Typically, city managers, assistant city managers, finance directors, or budget analysts have volunteered.

The deadline for volunteering is Dec. 12, 2016. If you are interested, please contact Mary Jo Fields at mfields@vml.org.

As an FYI, this information also has been sent to local government managers.

VML contact: Mary Jo Fields, mfields@vml.org

Short-term rental work group considers tiered regulation system

A short-term rental work group of the Virginia Housing Commission has asked the State Division of Legislative Services to draft a bill on the limited residential lodging issue – aka Airbnb – and similar Internet-based businesses.  This work group met on Monday, November 7^th and discussed the Limited Residential Lodging Act Issue Matrix which was created by the Division of Legislative Services at the direction of the Chairman.  The matrix focused on issues such as: Is legislation necessary? Should legislation focus on only primary residences or any residential property? Should there be preemption of local authority and various registration and tax collection methods?  The group had a lively discussion and there was not a lot of consensus.  Senator Barker made a motion asking the Division of Legislative Services to draft the framework of a bill to include four things:

1. All properties should be included (not just primary residence).
2. Potential of tiers – the concept involving a de minimis threshold where there is less regulation.
3. Ministerial Registration – a registration process that is not more burdensome than other registration processes in the locality.
4. Collection of tax at the state level.

A lot of the discussion centered around a tiered system with the idea being that there is some minimum threshold which should be allowed with very little regulation and as the use increases in frequency so should regulation.   However, this idea fails to account for the basic premise that land use begins on day one. 

VML had a follow up meeting with the Division of Legislative Services, which will draft a proposed bill based upon these four items.   Once VML has received the bill, the League will disseminate it and ask for comments!

VML contact: Michelle Gowdy, mgowdy@vml.org

VML needs your input on proposed legislation for 5G technology and local authority

The Virginia Wireless Communications Infrastructure Work Group met on Wednesday, November 9^th and considered a draft bill that was provided to VML on Monday evening less than 48 hours prior to the meeting.   VML has met with the industry for several hours over the summer trying to find a way to support 5G technology while ensuring that localities retain authority to control the character of its neighborhoods.  This proposed bill reflected none of those discussions and was quite disappointing.   The Chairman of this work group, Delegate Ware, and the other General Assembly members in attendance (Delegate Danny Marshall and Delegate Korey) were very clear that there was going to be legislation this year and that the various stakeholders should work together to agree.

VML asks that you please take the time to look at this proposed legislation and provide comments ASAP.   Some of our concerns that have been expressed are:

• constitutional issues regarding the rights-of-way,
• use of public property for private purpose without a public hearing or local review,
• preemption of local land use,
• running afoul of current franchise agreements and/or utility agreements,
• set fees in state code and more.

There are also issues with historic districts and entrance corridors.  Any input that you can provide is much appreciated. 

VML contact: Michelle Gowdy, mgowdy@vml.org

FOIA Council considers seven bills and plans to reconvene December 5

The full Virginia FOIA Council met for what was supposed to be the last time on November 21, but then agreed to meet again on December 5^th.  During the November 21 meeting, they took up seven bills from the 2016 General Assembly Session.  Of the seven, only one – HB336 – will be recommended by the FOIA Council. HB 336 protects library records for patrons under 18 years of age.   The other bills dealt with invalidating action at a public meeting if there is not proper notice (HB334), requiring a public comment period at every open meeting (HB698) and four bills (HB280, HB281, HB282, HB383) that relate to economic development projects and the need for the public to have access to proposed plans.

Also presented were two omnibus bills, one dealing with records and one dealing with meetings.  However, as the meeting progressed, there was a lot of discussion about these two omnibus bills and it was decided that they should be reworked and reviewed on December 5^th.   Proposed Records Omnibus Draft  Proposed Meetings Omnibus Draft

VML is reviewing these bills now and welcomes any comments. 

VML contact: Michelle Gowdy, mgowdy@vml.org

Virginia COIA Council considers six advisory opinions and proposes dozens of legislative changes

On November 21, 2016, the COIA Council met to consider six formal advisory opinions and 28 proposed legislative changes for 2017.   Here is a list of the formal advisory opinions:

1. Employer Gifts
2. Contractor Event
3. Events at Conferences
4. Service on a private board
5. Travel paid for by a public university within the Commonwealth
6. Food received at an event while performing additional duties

Here is a summary of just a few of the COIA staff recommended legislative changes.  Proposals 1 and 2 clarify that only forms filed with the COIA Council must be filed electronically and are searchable in a database.  Proposal 8 talks about information that you can redact from the disclosure forms.  Proposals 11, 18, 19, 26 and 27 all deal with the definition of gift.  Proposal 22 deals with advisory opinions and the immunity provisions.

This was an extremely substantive meeting and VML will continue to monitor this proposed legislation. 

VML contact: Michelle Gowdy, mgowdy@vml.org

Virginia Code Commission meets on gender-specific study and other issues

The Virginia Code Commission met on November 21 and continues to work on the gender-specific study, which is expected to be complete in 2018.  Currently, they have identified over 130 code sections that use gender-specific terms.  These code sections will be reviewed to determine if they need gender-specific terms.  There was also a report on the recodification of Title 55, Property and Conveyances.  In addition to these topics, the Code Commission took reports from the Administrative Law Advisory Committee, the staff working on Title 23.1 and then selected patrons for their upcoming 2017 General Assembly bills. 

VML contact: Michelle Gowdy, mgowdy@vml.org

Employment law alert: New overtime rules won’t take effect yet

Last week, a Texas federal judge put a halt on the new overtime rules spearheaded by President Obama’s administration that were to take effect on December 1.

Employers – including local governments – everywhere have gone into overtime to prepare for the new Fair Labor Standards Act (FLSA) wage & hour rules by auditing their workforce and adjusting pay scales and duties to comply.  All of that is now delayed.  And it is possible they will never go into effect or will be modified by the new administration.

For more information, go to the Sands Anderson Virginia Workplace Law Blog, written by the firm employment lawyers C. Michael DeCamps, Faith A. Alejandro and Brian G. Muse.

VML will continue to monitor the situation and keep you informed on updates as they happen.

VML contact: Michelle Gowdy, mgowdy@vml.org

Local input needed on development of population projections

The Weldon Cooper Center is working on the process for producing population projections for 2020, 2030, and 2040 for the state and localities, as well as projections by age (five-year age groups), gender, race, and ethnicity (Hispanic or non-Hispanic).

The Cooper Center will be asking for comments from data users at two points during the process: Now (deadline of Dec. 15), and again when provisional total numbers are released next year.

At this point, the Cooper Center is asking for input on:

• specific data needs or preferences that users have,
• methodological considerations that users would wish to recommend, and
• information about how projections are used (including guidance on the frequency with which fresh projections are needed and the optimal time of year to receive them for your purposes).

The Cooper Center has produced three documents as background materials:

1. Understanding Population Projections: A general document on the nature of population projections,
2. Statewide Projections and Locality Scenario Projections: A discussion of the difference between locally-customized scenario projections and statewide projections using a standard methodology, and
3. Virginia Population Projections Methodology: A description of the methodological approach to the total population projections.

Electronic copies of the document can be found here.

Please send any comments to Meredith Gunther at the Cooper Center; email meredith.gunter@virginia.edu; telephone 434-982-5585.

VML contact: Mary Jo Fields, mfields@vml.org

Flexibility in SOQ staffing standards focus of discussion

The idea of more flexibility in the staffing standards under the state Standards of Quality is likely to get further attention as part of the issues under consideration by a subcommittee of the commission studying the future of education in Virginia at a Nov. 28 meeting in Richmond.

The subcommittee looking at the Standards of Accreditation, Standards of Learning and Standards of Quality seems to be heading toward endorsement of a proposal that would allow for ongoing discussions of the standards between the Board of Education and the legislature. Delegate Steve Landis, vice chair of the subcommittee and the full commission, said that with funding being what it was, perhaps school divisions needed the flexibility to decide which positions are the most useful.  Board of Education President Billy Cannaday, one of the presenters at the meeting, said the ongoing discussions would allow for the vetting the idea of getting away from prevailing practice in determining staffing standards.

Del. Richard Bell reminded the subcommittee working on virtual (online) learning that the workgroup’s goal was to develop recommendations to enhance virtual education and learning, to make virtual education as good as it can be, and to consider full-time virtual education as part of that mix.  The subcommittee, which met Nov. 30 in Richmond, heard presentations from WHRO, which develops online courses for use by schools, and from two for-profit virtual education companies.  Bell anticipates that the workgroup would not meet again until after the adjournment of the 2017 session.

The full commission will meet later this month in Richmond.

VML contact: Mary Jo Fields, mfields@vml.org

VML/VACo Finance webinar on new VIP Stable Liquidity

VML/VACo Finance’s Virginia Investment Pool will host a webinar on its new VIP Stable NAV Liquidity Pool and our exciting online interface: MYACCESS.  The webinar takes place Friday, December 9th, at 11:00 a.m. Click here to register.

Announcing the VIP Stable NAV Liquidity Pool

Recent federal money market reform has severely limited the availability of liquid investment vehicles that offer both high returns and stable net asset value.  Fortunately, such funds may still be offered by governmental programs such as the Virginia Investment Pool (VIP).  The VIP Stable NAV Liquidity Pool fills the void created by recent regulation with an AAAm-rated alternative whose goal is to offer the most competitive returns on liquid investments in Virginia.

VIP MYACCESS is now live

MYACCESS is a proprietary online interface offered exclusively for VIP participants. MYACCESS enables participants to make contributions, withdrawals, and transfers between the VIP Liquidity Pool, the VIP 1-3 Year High Quality Bond Fund, and their own checking or other local bank accounts.  With MYACCESS, users may schedule important transactions in advance to avoid cash access emergencies. Reporting features available via MYACCESS include access to monthly statements, transaction confirmations, and details of past, present, and future dated transactions.

Who should attend the Webinar?

Anyone interested in learning more about VIP’s higher return, Stable NAV Liquidity Pool.

Those who have considered joining VIP and want to learn how our expanded offerings and capabilities make VIP an even more valuable option for Treasurers and investment officers.

Participants in the VIP 1-3 Year High Quality Bond Fund – we will demonstrate how you can immediately begin taking advantage of MYACCESS and the new VIP Liquidity Pool.