eNews Feb. 1, 2019
Friday, February 01, 2019 - 04:53pm
In this issue:
- Super Budget Sunday
- Competing tax plans
- Counties, Cities and Towns Committee reports bills
- Funding for I-81 improvements?
- COIA training, nepotism bills reported by Senate Rules Committee
- Towing bills benefit from being amended
- Dueling redistricting plans
- Human services roundup
- School counseling bills changing shape
- House General Laws Committee reports bills
- Economic data reflects short-term uncertainty
- Seeking interested members for Aging Services Study Stakeholder Group
Superbowl Sunday…and Budget Sunday, too!
The House and Senate budget-writing committees will release their versions of the budget on Sunday afternoon (yes, before and during the televised Superbowl festivities).
The House Appropriations Committee will meet at 1 p.m.; the Senate Finance Committee will meet at 5:30 p.m.
Although the Committees will release outlines of their budget plans on Sunday, the real details will follow on Tuesday afternoon when each committee posts the specific amendments they have adopted.
Early next week, VML will provide an update on highlights from the Sunday presentations. A more detailed report will follow later in the week once the specifics of each budget are known.
If you want to watch the Committee meetings on Sunday, you can view them through the General Assembly’s website (look under video for the House and Senate committee links). You can also view or download the various subcommittee reports of House Appropriations and Senate Finance on Sunday afternoon by going to the State Budget webpage. On Tuesday afternoon, the specific amendments approved by each Committee will also be posted to the State Budget webpage.
VML Contacts: Janet Areson, jareson@vml.org); Neal Menkes, nmenkes@vml.org; Jessica Ackerman, jackerman@vml.org
3-Ring Circus plays on; State budget could hang in the balance
General Assembly and the Governor push very different competing tax plans
Between this coming Sunday, when the House Appropriations Committee and the Senate Finance Committee report out their respective budget amendment packages, and the February 23 date for adjourning sine die, a compromise will have to be reached so that taxpayers can get their refunds and the business of government at the local and state levels can proceed uninterrupted.
The gist of the problem centers on managing the impact to state taxes of the federal Tax Cuts and Jobs Act of 2017 (TCJA). In past years, governors would submit legislation to the General Assembly to conform state tax policies with federal changes to the Internal Revenue Code. The legislature would routinely approve a handful of exceptions to the federal changes and slap on an emergency provision in January so that tax preparation for individuals is made simple by using federal taxable income as a base point for the tax returns due in May. Emergency legislation requires approval by four-fifths of each chamber.
The federal TCJA substantially reduces federal taxes, causing more than a ripple effect on state taxes because federal taxable income is the starting point for state tax returns. The primary reason is that state tax law requires taxpayers who choose the federal standard deduction to also use the state standard deduction. This means that taxpayers who choose to itemize deductions on their federal returns must do the same on their state returns.
The result for Virginia taxpayers: Because the state standard deduction is significantly less than the federal standard deduction, Virginians cannot reduce their state tax liability as much as they have in the past.
The result for the state: the Virginia Department of Taxation estimates that roughly $1.2 billion could end up in the state treasury.
The paragraphs below summarize the three different policy choices facing the 2019 legislative session.
Governor Northam’s Plan
Because the General Assembly did not address tax conformity in the 2018 session, Northam wants to do this first and revise state tax policy afterwards with the legislature.
The governor’s plan targets state tax relief for families making $54,000 a year or less. It is his contention that this income group is not going to receive a big benefit from the federal TCJA changes. To that end, Northam proposes a fully refundable Earned Income Tax Credit (EITC), which would cost $10.3 million in FY 2019 and $206 million in FY 2020.
Northam also proposed in his budget amendments several spending initiatives that utilize the revenue flowing from TCJA conformity.
| FY19 | FY20 | FY21 | FY22 | FY23 | FY24 | Total | |
| TCJA Revenue | $517.3 | $433.6 | $455.7 | $480.4 | $506.8 | $532.5 | $2,926.3 |
| Refundable EITC | 10.3 | 206.0 | 212.9 | 220.0 | 226.6 | 233.8 | 1,109.6 |
| SLAF | 0 | 50.0 | 50.0 | 50.0 | 50.0 | 50.0 | 250.0 |
| WQIF BMPs | 20.0 | 15.03 | 80.5 | 80.5 | 80.5 | 80.5 | 357.0 |
| Broadband | 0 | 46.0 | 46.0 | 46.0 | 46.0 | 46.0 | 230.0 |
| Land Conservation | 5.5 | 5.5 | 0 | 0 | 0 | 0 | 11.0 |
| AST Threshold | 0 | 27.2 | 0 | 0 | 0 | 0 | 27.2 |
| Revenue Reserve | 479.1 | 50.0 | 64.5 | 74.5 | 74.5 | 74.5 | 817.1 |
| Subtotals | 514.9 | 399.7 | 453.9 | 471.0 | 477.6 | 484.8 | 2,801.9 |
| Balance/(Shortfall) | 2.4 | 33.9 | 1.8 | 9.4 | 29.2 | 47.7 | 124.4 |
Unfortunately for the governor, the Republicans in both the House of Delegates and the Senate have not embraced his tax proposal. His conformity bills received a frosty reception, sending shivers of consternation through the Virginia Department of Taxation. Earlier in the week the Tax Commissioner said the agency had already received well over a 100,000 tax returns that cannot be processed until the conformity issue is decided. Numerous Virginians will not take this news with much patience and understanding.
Senate Proposal
The Senate’s major tax legislation (SB1372) is on the Senate floor. It is a Republican plan. According to the leading Democrat on the Senate Finance Committee, the Republicans did not involve her party in developing the legislation. The bill was reported out of the Senate Finance Committee on a party-line vote of 11 to 5.
The bill does include an emergency provision but not a refundable EITC. The Republicans intent is to return the TCJA-generated revenue to those taxpayers who paid it. In effect, there would be no income redistribution. This would have significant impact to the state budget, severely shrinking the pool of resources the governor used for the items in the table above.
The measure does not return all the revenue, just the revenues tied to the TCJA’s business provisions. Although these revenue totals are not significant in the 2018-20 biennium, they do increase in the outyears to several hundreds of millions of dollars.
In today’s Senate floor session, the Republicans failed to persuade any Democrats to defect to their side, meaning the quest for a four-fifths majority failed. The vote forced the Republicans to amend SB1372 by removing the emergency provision. The second vote on the bill, which only required a simple majority for passage, was 21 to 19. This party-line vote means the bill survives and moves on to the House. But, it also means that the tax returns of Virginia taxpayers remain in limbo and will not be processed. An emergency conformity provision can only be attached to the bill if Gov. Northam submits an amendment to do so. That scenario is unlikely unless the Senate Republicans and governor can hammer out a compromise.
House Plan
Like the Republicans in the Senate, House Republicans developed their tax proposals (HB2355 and HB2529) without input from the Democrats. And, like their Senate brethren, House Republicans do not have enough political muscle to put together a four-fifths majority putting their emergency conformity provision in jeopardy.
The House bills are generally compatible but not completely in sync. The intent of the legislation is to deposit the additional revenues generated from the temporary individual income tax provisions of the TCJA into a specially created Taxpayer Relief Fund. That’s about $952.3 million for the biennium. Language is also included to require the Virginia Department of Taxation to submit a plan in August to appropriate and refund all the TCJA-generated revenues to affected taxpayers who experienced an increase in state taxes as an indirect result of the federal tax changes.
Budget Impacts
Both the House and Senate budget plans will have less money for spending than the introduced Budget Bill. The $2.2 billion Gov. Northam had to put together his budget amendments was based on the $1.2 billion of TCJA-generated revenue and about another billion dollars from future economic growth and the previous fiscal year’s revenue surplus.
That means the House and Senate have roughly a billion dollars to meet the needs Northam addressed with a total resource package that was twice as large. Of this amount, $462.6 million is already committed to address a budget shortfall in the Medicaid program (the shortfall is not related to Medicaid Expansion).
The House and Senate can pump up their resource totals with additional lottery money, program spending cuts, and a slowdown in the effort to build up the state’s cash reserves. But these strategies come with political costs.
For local governments, the good news in the introduced Budget Bill may no longer be the case. The subcommittee reports to be released on Sunday and the budget amendments that are made public next Tuesday will let us know. Stay tuned!
VML Contact: Neal Menkes, nmenkes@vml.org
House Counties, Cities and Towns Committee reports bills
House Counties, Cities and Towns Committee had a pretty full agenda today, Feb.1, and reported out several bills as follows:
HB1614 (Cole) allows localities to create a local stormwater management fund to assist private property owners or common interest communities for stormwater management and erosion prevention. The fund can consist of only local monies.
HB2806 (LaRock) was reported and referred to the House Courts of Justice Committee. This bill would require localities to codify all ordinances in paper form or online. In addition, it allows a citizen who sues the locality for a violation an affirmative defense that the ordinance was not codified and therefore the citizen was not provided notice of the ordinance.
HB1838 (Marshall) was introduced at the request of Pittsylvania County. It would apply to localities that enter into a revenue sharing agreement under the Virginia Regional Industrial Facilities Act whereby a portion of tax revenue is paid to one locality and redistributed to another. The bill requires the Tax Department to apportion the percentage of tax revenue ultimately received by each locality in its calculation of the locality’s true value of real estate, which is one of the factors in the computation of the local composite index. The bills, therefore, would alter the LCI. VML is concerned that the bill would have a chilling effect on encouraging jurisdictions to cooperate.
HB2549 (Jones, S.C.) restricts localities from including Resource Protection Areas in the density calculation for cluster zoning. It also restricts localities from having a greater overall density for a clustered development than in a non-clustered development.
HB2621 (Ingram) states that as part of a rezoning or conditional use permit, a locality shall require a written agreement to decommission solar energy equipment, facilities and devices. If the agreement is defaulted, then the locality may enter the property and decommission the equipment. There are also restrictions on the costs that the locality can assess if the locality conducted the decommissioning. The bill is now identical to SB1091 (Reeves), which is on the Senate floor.
HB2686 (Knight) requires that when a Board of Zoning Appeals takes some types of action, the vote must include a majority of those present and voting.
HB2779 (Edmunds) allows the Governor to renew enterprise zones designated on or after July 1, 2005 for up to three 5-year renewals and zones prior to July 1, 2005 for one five-year renewal period. This bill was substantially amended, so be sure to review the committee substitute to see the current wording.
VML Contact: Michelle Gowdy, mgowdy@vml.org
Funding for I-81 improvements appears dead for this session
Improvement plan slows down but is still rolling
On Thursday, the Senate Finance Committee approved SB1716 (Obenshain) that seeks to move forward on an Interstate 81 Corridor Improvement Plan. However, the bill in its current form looks little like the version that was introduced. As introduced, SB1716 would have imposed tolls along I-81 and would have used the toll revenues to pay for improvements to the interstate. As amended, the bill no longer provides new funding for I-81 projects. Instead, it creates an Interstate 81 Committee, made up primarily of state and local elected officials, and directs the Committee to recommend a funding source for I-81 projects prior to the 2020 General Assembly Session.
For its part, the House is also backing off from raising funds for I-81 improvements at this time. Instead, HB2718, which was also intended to provide tolls on I-81, was amended by the House Transportation Committee so that it is almost identical to SB1716 (the only difference is that the Senate bill appears to have one more Senator on the Interstate 81 Committee than the House bill does).
Both bills will be considered by their respective bodies and are expected to be approved next week. All legislation providing actual funding for I-81 improvements now appears to be dead for the 2019 Session.
VML Contact: Bernie Caton, bcaton@vml.org
COIA training, nepotism bills reported by Senate Rules Committee
SB1430 (Obenshain) will require all local elected officials to take Conflict of Interest and Ethics training online at least once every two years and within two months of taking office. There was a provision about attorneys not holding dual offices, but it was removed. As a reminder, Senator Obsenshain also introduced SB1431, which has similar training requirements on the Freedom of Information Act. SB1431, however, was amended to have a delayed effective date of July 1, 2020. The bill was reported out of Senate Finance on Jan. 31.
SB1491 (Chafin) removes the prohibition for a school board to hire or employ a relative of the school division superintendent. There are some process requirements that must be followed in the hiring process.
VML Contact: Michelle Gowdy, mgowdy@vml.org
Towing bills benefit from being amended
Committees in both the Senate and the House have now passed bills (SB1567-Marsden; and HB1865-Fowler) setting certain fees for trespass towing. As introduced, the bills would have taken away much of the authority localities have over towing. After being amended, the bills now simply set the same maximum towing fee ($150) for all localities in the State.
VML Contact: Bernie Caton, bcaton@vml.org
Dueling redistricting plans from the House and Senate
The House Committee on Privileges and Elections this morning reported HJ615 (Cole), a constitutional amendment on redistricting from House Republicans to compete with the Senate’s SJ306 (Barker). While the proposals vary slightly, neither amendment would permit the General Assembly as a body to amend any plan proposed by an independent commission.
| HJ615 (Cole) | SJ306 (Barker) |
12 members
Three of four members selected by each legislative body must support final plan |
16 members
Six of eight legislative and private citizen members must support final plan |
HJ615 includes this language: “Every effort possible shall be made to preserve the political parity between the two political parties receiving the highest and next highest number of votes in the immediately preceding gubernatorial election.” The resolution also requires localities that elect members of council/board of supervisors by district to establish 4-member redistricting commissions. Equal representation would have to begiven to the political parties having the highest and next highest number of votes for governor at the last preceding gubernatorial election. SJ306 does not contain language, as does HJ615, that requires that political boundaries shall be respected to the maximum extent possible.
VML Contact: Jessica Ackerman, jackerman@vml.org
Human services roundup
The House of Delegates approved HB2280 (Head) which would exempt local parks and recreation programs for school-age children as well as before- and after-school programs offered by public schools from recently approved state child care reporting and administrative requirements. Some parks and recreation departments operate child care programs that are licensed by the state; those are not affected by this legislation. The bill now moves to the Senate for consideration. VML supports the bill.
The Senate Rehabilitation and Social Services Committee reported an amended SB1407 (Mason) which would allow local law enforcement agencies to process and submit requests for national fingerprint background checks for child care providers (including applicants for licensure, registration, employees and volunteers, family members in the family day home). Currently these checks are processed through the Virginia Department of Social Services. An identical bill – HB 1994 (Price) was tabled by a House Appropriations Subcommittee earlier this week.
VML Contact: Janet Areson (jareson@vml.org)
School counseling bills changing shape upon review in the House and Senate
HB2053 (McQuinn) and SB1406 (Dance) have had their impact significantly reduced following review by the House of Appropriations Committee and Senate Finance Committee, respectively. Each bill originally aligned with Governor Northam’s plan to bring counselor-to-student ratios down to 1:250 by the 2021-2022 school year, based on testimony heard in 2018 by both the House Select Committee on School Safety and the Virginia Children’s Cabinet. However, following review by the House Appropriations Committee, HB2053 has now reduced its scope to only one phase of the proposed three-year staffing increase, and reduces the ratio to 1:375. The Senate Finance Committee, meanwhile, added “The Clause” to SB1406 (i.e., “The provisions of this act shall not become effective unless an appropriation effectuating the purposes of this act is included in a general appropriation act passed in 2019 by the General Assembly that becomes law”). Each bill has yet to go to the floor for a full vote.
VML Contact: Jessica Ackerman, jackerman@vml.org
House General Laws Committee reports bills
HB2182 (Austin) requires the Department of General Services to notify a locality (the chief administrative officer and the economic development entity, if any) if the state has surplus real-estate property in the locality. The locality would have 180 days to submit a proposal for use of the real property and the department and locality would then try to reach an agreement on the sale. If there is no proposal offered within the 180 days, or if no agreement is reached, the Department could proceed with disposal of the property. The bill was reported and referred to House Appropriations. SB1681 (Mason) is a similar bill that is on the Senate floor.
HB2192 (Rush) establishes standards for school facilities to include in the design, construction, maintenance and operation of public-school buildings and facilities. It also allows for a local school division to enter into a lease with private entities to meet such standards.
VML Contact: Michelle Gowdy, mgowdy@vml.org
Economic data reflects short-term uncertainty
First comes the good news. The U.S. Labor Department reported that the national economy added 304,000 jobs in January even as the unemployment rate went up to 4% and the federal government endured a 35-day partial shutdown freezing or forfeiting the wages of some 800,000 federal workers and a million contractors. Even the labor force participation rate improved, jostling the dial from 62.9% to 63.1%, meaning more Americans were working or searching for jobs.
The not-so-good news is that the federal government shutdown cost the U.S. economy $11 billion, according to the Congressional Budget Office. Although most of the dollar loss will be recouped, roughly $3 billion will be permanently lost. First-quarter GDP growth is projected to be reduced by 0.4 percentage points. Real GDP is expected to slow to 2.3% in 2019, down from 3.1% last year.
The government shutdown in the Washington, D.C. region will cost more than $1.6 billion in lost economic output. About a quarter-million federal workers and contractors missed their paychecks for more than a month. The negative impact on income withholding taxes and sales taxes should be reflected later this month in the revenue collections report issued by the Virginia Secretary of Finance. Assuming this happens, it will be an additional complication to state budget development. Should this depression in revenue collections be considered temporary or as a harbinger of things to come?
And, don’t forget about the national debt. The Congressional Budget Office (CBO) hasn’t with its publication of “The Budget and Economic Outlook.” In its review of the document, The Washington Post noted these five points:
- The national economy is slowing down. The average annual economic growth for the years 2008 to 2018 was just 1.6%.
- The budget deficit in 2019 is projected at $900 billion and $11.6 trillion for the period 2020-2029.
- Federal government spending priorities have shifted from defense to health care and retirement. By 2029, the defense share is projected at 11%, the heath care/retiree share at 56%.
- Interest costs could explode because of growing federal budget deficits.
- The CBO estimates may be too “optimistic.” The numbers do not assume any recessions over the next ten years.
Considering the importance of federal spending to the Virginia economy, these sobering statistics reinforce the necessity of the Commonwealth to diversify the state economy. Overdependence on the federal largesse may not be a successful economic strategy.
VML Contact: Neal Menkes, nmenkes@vml.org
Seeking interested members for Aging Services Study Stakeholder Group
The Department for Aging and Rehabilitative Services plans to convene a stakeholder meeting to review the upcoming four-year State Plan for Aging Services in the Commonwealth. VML has been invited to send a representative to provide public comment at a meeting in Henrico on Wednesday, March 13th at 10:00 a.m.
If you are interested in participating, please email Jessica Ackerman at jackerman@vml.org no later than Friday, February 15th.
