eNews January 19, 2018
Friday, January 19, 2018 - 03:57pm
In this issue:
- Budget amendments on-line
- Modernizing the Communications Sales and Use Tax proposed
- Total General Fund Revenues Jump 10% in December
- Local governments continue to exceed state funding requirements for education
Budget amendments on-line
Look for details next week
Budget amendments championed by Delegates and Senators were released yesterday at noon. The link is here.
The Senate Finance Committee conducted a hearing yesterday from non-committee members about the various amendments. The Senate Finance and House Appropriations have about 3 weeks to finish their work before reporting out their respective budget packages.
VML will provide members next week a closer look of the budget amendments.
VML contacts: Neal Menkes, nmenkes@vml.org; Janet Areson, jareson@vml.org
Modernizing the Communications Sales and Use Tax proposed
HB 1051 (Watts) applies the communications sales and use tax (5.0 percent rate) to services related to the streaming of audio and visual data, and prepaid calling. The bill also clarifies that the tax applies to communications services regardless of whether customers are charged a subscription fee, a periodic fee, or an actual usage fee.
The was referred to the House Finance Committee.
Talking points for change are based on a 2015 report from the Department of Taxation:
- Revenue deposited since 2013 has declined each year, creating a yawning gap between tax revenues and appropriations. Without the cash, fewer dollars are allocated to localities each year.
- Between 2007 and 2014, telephone landlines decreased an estimated 21.1 percent and satellite radio services collapsed by 91.1 percent, helping to cause the revenue shortfalls.
- Digital subscriptions and audio/video streaming soared during this same time period, but are not taxed, meaning major services are untaxed.
- HB 1051 recognizes the changes in the marketplace and puts all digital services on a level playing field, capturing streaming audio and video services and prepaid calling services.
VML contact: Neal Menkes, nmenkes@vml.org
Total General Fund Revenues Jump 10% in December
So why is everyone urging caution?
Secretary of Finance Aubrey Layne reported to the House and Senate money committees this week that December’s collections substantially increased beyond the revenue forecast even though there was one fewer day for deposits.
On a year-to-date basis, total collections are more than 2.0 percent greater than the FY 2018 official projection – 5.9 percent actual versus the 3.4 percent projected increase over FY17 collections.
However, the budget gurus in the executive and legislative branches are concerned. Here is a closer look at the reasons driving their doubts.
The first reason is the slow growth in income tax withholdings, a revenue source that accounts for almost 2/3 of the general fund. Year-to-date data indicate that the actual rate of increase is 3.0 percent rather than the projected 3.5 percent increase. According to a January report issued by the Federal Reserve Bank of Richmond, Virginia’s job growth this fiscal year is 0.9 percent, trailing the national job growth rate of 1.4 percent. Also, Federal Reserve information shows that despite a 3.7 percent unemployment rate, job numbers are still falling in areas across the state. The job totals in the Virginia Beach-Norfolk metropolitan area dropped by 0.8 percent compared to a year earlier. To meet the official revenue projection, withholding collections will have to increase to 4.0 percent for the January 2018—June 2018 period. (For this same period last year, collections did increase 5.9 percent.)
The second reason revolves around non-withholding tax collections, which make up over 16.0 percent of all general fund dollars. Year-to-date collections ballooned to over $1.0 billion compared with the $800.3 million during the same period last fiscal year. That’s an increase of 30.6 percent and far ahead of the annual estimate calling for 4.3 percent growth!
So much of non-withholding is driven by investors taking their profits made from stock investments. With the Dow Jones hitting record high closings, optimists may think this source will pump out even more revenue for the state’s coffers. But, state budgeteers view this revenue source as “volatile”, meaning, as credited to Sir Isaac Newton, “What goes up must come down.”
The remaining reasons flow from the drama swirling in Washington, D.C.
The fiscal impacts resulting from federal tax changes will affect the state’s treasury. In separate presentations to the House Finance, House Appropriations and Senate Finance Committees, the Virginia Tax Department (TAX) said certain provisions of the new federal law will impact the state regardless of whether the General Assembly chooses to conform. It is likely that the General Assembly won’t take up major legislation in this session to deal with the thorny fiscal impacts, preferring to address the issue in either a special session later this year or in 2019.
A federal government shutdown will also have budgetary and economic implications for Virginia. Congressional failure to pass a budget, stabilize the nation’s health insurance program for poor children, provide emergency relief for regions of the country upended by natural disasters, address the next round of automatic federal spending cuts through sequestration, and increase the federal debt ceiling can and will damage and disrupt state and local finances and the services provided.
In light of these reasons, it is no wonder that the legislature is wary of the good news embedded in the December revenue report. Instead, the General Assembly will take a deep breath and look at ways to squirrel away money for any of the aftershocks discussed above.
VML contact: Neal Menkes, nmenkes@vml.org
Local governments continue to exceed state funding requirements for education
Local governments continue to pay more than required to meet state standards for funding public education.
In FY17, the average local operational expenditure in excess of the required level for meeting the Standards of Quality was 81.39 percent, according to a recent report by the Virginia Department of Education.
All school divisions exceeded the required local effort in FY17. Forty-six divisions spent more than double the required local amount in funding SOQ programs.
The total overmatch for all localities was $3.98 billion in FY17. The overmatch in FY16 was $3.88 billion.
The overspending shows the mismatch between what is funded through the SOQ, and what it actually costs for schools to try to meet the requirements not only for the SOQ, but for the Standards of Accreditation and the Standards of Learning.
VML legislative staff and assignments
Michelle Gowdy – Local government authority, planning and zoning, legal matters, housing, Freedom of Information, telecommunications and technology. mgowdy@vml.org; 804-523-8525
Janet Areson – Health and human services, and the state budget. jareson@vml.org; 804-523-8522
Mike Polychrones – Environment, land use, natural resources, elections and transportation policy. mpolychrones@vml.org; 804-523-8530
Neal Menkes – Taxation and finance, the state budget, transportation funding, retirement, education funding and community and economic development. nmenkes@vml.org; 804-523-8523
Roger Wiley (under contract) – Courts, criminal law, civil law, and procurement. roger@heftywiley.com; 804-780-3143
Chris LaGow (under contract) –Insurance and workers’ compensation. chris@lagowlobby.com; 804-225-8570
