eNews Nov 18 2016Friday, November 18, 2016 - 02:45pm
Delegates discuss ways to assess local fiscal stress
With the backdrop of recent news headlines detailing Petersburg’s financial woes, the House Appropriations Committee heard presentations this week from the State Auditor of Public Accounts and staff from the Commission on Local Government and the Division of Legislative Services.
The purposes were to learn how other states monitor the fiscal health of local governments and how those lessons could be applied to Virginia. The Auditor, Martha Mavredes, discussed different state models that incorporate varying degrees of state control over local finances. She concluded that the information now published in the annual Comparative Report on Local Revenues and Expenditures should probably be expanded to include a locality’s cash position and liabilities. Mavredes said her agency has the authority to include these variables in the annual report, but if the General Assembly expects her office to “intervene” at the local level, then more state resources would be needed.
David Conmy from the Commission on Local Government identified for the House Committee the ten localities in the Commonwealth (all happen to be cities) with the greatest revenue stress. He also said that his agency does not have the statutory authority to provide any technical assistance to a locality unless invited by a local government to do so. However, even if invited, the Commission does not have the resources to do much.
Jeff Sharp from the Division of Legislative Services informed the House panel about legal and constitutional constraints. Virginia law does not allow local governments to seek bankruptcy protection. Nor does state law permit the formation of state financial control boards, state “overseers,” state budget commissions, or state receivers.
However, even if the General Assembly wanted to employ one or more of the strategies used by other states, the Virginia Constitution imposes a high hurdle.
Article VII, Section 7 of the Constitution reads: “No ordinance or resolution appropriating money exceeding the sum of five hundred dollars, imposing taxes, or authorizing the borrowing of money shall be passed except by a recorded affirmative vote of a majority of all members elected to the governing body…” This means elected officials and not appointed officials or officials from other levels of government are empowered to make decisions setting tax rates and approving budgets.
Near the end of the presentations, the chairman of the House Appropriations Committee, Chris Jones, repeated his intention to develop a process to identify struggling local governments. Delegate Steve Landes will head up the House effort. Jones also said that the Senate Finance Committee has expressed an interest in working jointly with House Appropriations, ensuring that the legislature will take some action in the upcoming session.
Health commission approves policy options for 2017
Policy recommendations for several studies, including school vaccination requirements and access to services for Virginians with brain injuries, were addressed by the Virginia Joint Commission on Health Care at its Nov. 9 meeting in Richmond. The Commission looked at eight different study items during the past year, and took up policy and possible legislative recommendations for the 2017 General Assembly Session at this meeting.
The issue eliciting the most response throughout the study process was school vaccination requirements, which pitted medical associations against anti-vaccination advocacy groups. After considering several policy options, the Commission voted to take no action on potential legislative items to narrow or eliminate current exemptions to the state’s vaccination requirements.
Regarding the expansion of access to brain injury services and barriers to placement for Virginians with challenging barriers resulting from brain injuries, dementias, and Post-Traumatic Stress Disorder, the Commission voted to write a letter requesting a state interagency/stakeholder team (that includes Department of Medical Assistance Services, Aging and Rehabilitative Services, and Behavioral Health and Developmental Services) to add items to its study agenda. These items include: 1) forming an interagency implementation team to create a statewide program to serve people with brain injuries, and look at what new Medicaid authorities should be sought in doing so; 2) determining Medicaid payment rates and methods to encourage the opening and continued operation of in-state neurobehavioral/nursing facility units; and 3) developing a plan, including budget estimates, to add new services to the Medicaid Elderly and Disabled with Consumer Direction (EDCD) waiver. The Commission also voted to write a letter in support of SB 317 (Alexander), carried over to 2017, which would authorize the creation of veterans’ dockets within courts to emphasize problem-solving actions versus incarceration when brain injuries/PTSD are at issue.
The Commission also voted to introduce legislation to allow the Virginia Foundation for Healthy Youth (VFHY) to include prevention of the abuse of substances (e.g. drugs, alcohol) by youth as part of its mission. No new state funding would be included; the Foundation could seek private grant funding to pursue efforts on this front.
The VFHY, created in 1999 as the Virginia Tobacco Settlement Foundation, works to prevent tobacco use by youth and reduce childhood obesity. Funding comes primarily from the Master Settlement agreement.
VML contact: Janet Areson
State tax collections continue FY17 rebound
Despite one less deposit day, state general fund revenues rose 3.4 percent in October. The increase was driven mainly by payroll withholding taxes. With one-third of the fiscal year showing in the rearview mirror, total revenue collections have risen 3.5 percent, substantially ahead of the forecasted 1.7 percent growth.
State employment data show jobs in September rose 1.8 percent over September a year earlier. Over the past four months, seasonally adjusted nonfarm employment has increased, with the size of each month’s gain exceeding the previous month’s gain.
In September, Northern Virginia outperformed the statewide number with 2.0 percent growth, but stilled trailed the Richmond-Petersburg growth rate of 2.9 percent. Seasonally adjusted unemployment rose 0.1 percentage point to 4.0 percent in September as both the number of people reporting that they were working and number of people seeking work increased.
Here is a snapshot of the major state tax collections.
|Individual Income Tax Withholding (64% of general fund taxes)||4.3%||3.0%|
|Individual Tax Withholding (17% of general fund taxes)||(0.2%)||(1.2%)|
|Sales Tax (18% of general fund taxes)||(0.2%)||3.7%|
|Corporate Income Tax (4% of general fund taxes)||14.6%||(3.0%)|
|Recordation Tax (2% of general fund taxes)||11.6%||5.5%|
The good news on revenues is tempered by the uncertainty surrounding what actions a new President and a new Congress will take next year on federal taxes, defense spending, and federal budget sequestration. The policy choices made by Washington decision makers could very well influence the health of the Virginia economy and state budget.
These possibilities are likely to be on the minds of state legislators as the House Appropriations and Senate Finance Committees hold their respective annual retreats this week and as the Governor’s Advisory Council on Revenue Estimates (GACRE) meets for a final time on November 28. Gov. McAuliffe will release on December 16 a new general fund forecast and his budget amendments to fiscal years 2017 and 2018. Stay tuned.
State group continues its focus on opioid and heroin crisis
A policy framework that focuses on treatment and prevention, as well as monitoring prescriptions and developing a workforce trained to work in the addiction field, are all parts of efforts being undertaken by the state to handle the opioid and heroin crisis in Virginia. These efforts were discussed during a November 8 meeting of the Governor’s Opioid and Heroin Stakeholders in Richmond.
Health and Human Resources Secretary William A. Hazel, Jr., M.D., and Public Safety Secretary Brian J. Moran chaired the stakeholders’ meeting, which began with Hazel’s outlining of the state’s policy framework for addressing opioid and heroin abuse. Other presentations included an update on overdose and drug seizure data from the Department of Health and Department of Forensic Science, and an update on Virginia’s Prescription Monitoring Program.
To better address the need for a growing workforce to serve people with addictions, Virginia Commonwealth University is developing a comprehensive, interdisciplinary program to increase the availability of advanced educational opportunities for those who already serve this population, as well as to offer addiction studies concentration and interdisciplinary studies for students preparing for careers in psychology and health care. VCU’s School of Allied Health Professions and College of Humanities and Sciences gave an update on work to develop this program, which will take a full three years for the components and credits to be put into place.
VML contact: Janet Areson
Optional defined contribution plan proposed – sort of
The General Assembly should consider creating an optional defined contribution (DC) plan for new hires as another retirement plan available to state and local employees, according to recommendations at the Nov. 14 meeting of the retirement work group of the Commission on Retirement Security and Pension Reform. The recommendation was made with the proviso, however, that the DC alternative be explored in the context of cost and compensation. Del. Chris Jones, the work group chair, said he thought was that compensation was going to be the top issue to be considered, and that other items would have to find their place in order of importance.
The work group also endorsed steps to raise the level of voluntary contributions to the defined contribution portion of the current hybrid plan, subject to cost. Current hybrid plan members are required to contribute 4 percent of salary to the defined benefit (DB) portion of the plan, and 1 percent to the DC portion. Employers are required to contribute to the DB portion and are also required to match the 1 percent DC contribution. Employees also may elect to contribute up to 4 percent more to the DC portion and employers are required to match up to 2.50 percent of that voluntary contribution.
The issue is that employees will have an anemic income upon retirement unless additional voluntary contributions are made to the DC portion, but currently only about 23 percent of state employees, 15 percent of employees of political subdivisions and 12 percent of teachers are making those higher voluntary contributions.
Raising the level of voluntary contributions, however, comes with a price tag for the employer. Therefore, the work group’s recommendation to endorse raising the level of voluntary contributions “subject to cost” reflects the difficult revenue picture.
Work group members also discussed the issue of the higher benefits currently afforded to hazardous duty employees. Unlike other state and local employees, newly hired hazardous duty employees are in Plan 2, which is a defined benefit plan. At the time the hybrid plan was created with the carve-out for hazardous duty employees, some people thought that those employees should contribute more than the member 5% to their retirement to reflect the higher level of benefits they will receive. In fact, in some states, that is exactly the process that is followed. The work group did not make a recommendation along those lines, however.
Additional information is available on the commission’s website under the “Meetings” tab.
VML contact: Mary Jo Fields, firstname.lastname@example.org
‘Information only’ retirement rates show slight decline
Were this a rate-setting year, many political subdivisions would see a decline in their employer contribution rates, based on a valuation report presented to the VRS Board of Trustees at its Nov. 15 meeting. Currently, the average local employer rate (excluding the mandatory 5% employee contribution) is 8.15%, but that average would drop to 7.70% if this were a rate-setting year.
The 2016 valuation report, however, is not used to set rates but simply to give a snapshot of the pension plans. Rates that are in place for the current year will remain in place for next year.
Each political subdivision will receive a copy of its own valuation report after the first of the year. In the meantime, people interested in seeing an electronic copy of the aggregate report should email Mary Jo Fields at email@example.com.
Calculating an average rate for the 585 agencies in VRS masks some large differences among the political subdivisions. The average rate for plans that offer enhanced benefits to law enforcement officers (LEOs) would be 10.4%, while the rate for those political subdivisions that either do not have hazardous duty employees or do not offer the benefit would be 6.1%, more than 4% lower. The 585 political subdivisions include an array of cities, towns, counties, school boards, community services boards, water authorities, jail authorities, etc.
The average rates also mask the higher rates in the ten largest jurisdictions participating in VRS. These rates range from 7.55% in Alexandria to 17.73% in Lynchburg. (Alexandria is an outlier among the large jurisdictions because their public safety officers received LEO-type benefits from a local plan, not through VRS.) Even so, were this a rate setting year, all but one of these larger employers would see a slight decrease in their employer rates.
The funded status for most plans also improved. The average local retirement plan is about 85% funded, which means that the average local plan has about 85% of the assets needed to cover its liabilities.
The picture is even rosier for those subdivisions that either have no public safety officers or have not elected to provide their officers with enhanced benefits. The average local agency with no LEO benefits is about 92% funded, while those that offer LEO benefits are about 85% funded.
The state employee plan, in contrast, is about 72% funded, while the teacher plan is about 70% funded. While the state is on the path to fully funding its plans, for several years the General Assembly did not fund the contribution rates recommended by the Board of Trustees, leading to an under-funding of the plans. In contrast, for the most part, political subdivisions have had to pay the certified rates.
The aggregate unfunded liability for all local plans is $2.9 billion; the teachers plan has an unfunded liability of $12.8 billion (all of which is reflected on local financial statements) and the state employee plan has an unfunded liability of $6.0 billion.
As a reminder, standards promulgated in 2015 by the Governmental Accounting Standards Board (GASB) become effective for VRS employers in the fiscal year ending June 30, 2018. Among other requirements, GASB 75 will require employers to show the unfunded liability for Other Post Employment Benefits (OPEBs) on local financial statements. Under GASB 74, VRS’s statements will reflect those unfunded liabilities for the fiscal year ending June 30, 2017. Additional guidance is expected in February.
OPEBs that are affected, and the funded status for each include:
Health insurance credit
- Participating political subdivisions: 50.6% funded ratio
- Constitutional officers: 5.3% funded ratio
- Social services employees: 6.3% funded ratio
- Registrars: 2.1% funded ratio
Virginia Local Disability Program
- Teachers: 13.0% funded ratio
- Political subdivisions: 13.8% funded ratio
VML contact: Mary Jo Fields, firstname.lastname@example.org
Cost of jail operations shifted to localities
More than 3,000 inmates with serious mental illness in local jails
In FY15, the state reimbursed 39.6% of total jail operating costs, down from 58.8% in 1998, according to a presentation on jail funding and mental health issues made at the Senate Retreat in Blacksburg on Nov. 17.
Further, the state has shifted a significant part of the burden of holding prisoners to the jails, and jails are holding a growing number of state-responsible prisoners for the inmates’ entire sentence, due to a lack of sufficient bed space in state facilities. The report notes that holding more prisoners in jail has helped balance the state budget by allowing the Department of Corrections to close older state facilities, without building new ones.
The state pays a per diem amount of $12 per prisoner to jails for holding state responsible prisoners (inmates with a sentence of one year or more). The backlog in state-responsible prisoners who should have been transferred from a jail to a state facility has risen from 1,400 in 2002 to 4,550 in 2016.
A major issue is that jails are not designed to provide care for the seriously mentally ill. Jails are holding more than 3,300 persons with serious mental illness, most of whom should either be in the mental health system or housed in state correctional facilities. One conclusion of the report was that a lack of bed capacity in the Department of Corrections and in the mental health system has made jails the default option for confining the seriously mental ill.
State standards require only that jails have a written policy that specifies how mental health inmates are to be handled, including an agreement to use mental health services either through a community services board or a private hospital.
State standards applicable to jails also require:
- Medical screening (including mental health screening) upon admission
- Minimum of one licensed or qualified health care provider who is available at least one time per week
- Written procedures for management of drugs; and,
- 24-hour emergency medical and mental health care availability.
The report concluded that the state should strengthen standards of the treatment of mentally-ill inmates and for training for deputies, but noted that there would be a fiscal impact in both cases.
Senator John Edwards asked, “If we (the state) had more capacity for inmates outside of our jails, wouldn’t that solver our problem?” Dick Hickman, the Senate Finance Committee staff presenting the report replied, “Yes.”
The report also notes that the recidivism rate for state responsible prisoners held in jails for their entire sentences was about 7% higher than for those who served part of their sentence in a state facility. The recidivism rate for mentally impaired, state-responsible inmates serving their entire time in jails was more than twice as high as those who were released from a state facility. Hickman noted that state responsible prisoners with mental illnesses should be transferred to state facilities which have programs for them. This would require additional bed capacity at the state level, with treatment programs.
The report noted that other offenders should be diverted into the mental health system, which would require additional bed capacity in state hospitals, transitional facilities or group homes as well as other services.
Further, because some offenders will remain in jail, state jail standards for mental health training and treatment should be strengthened.
A complete copy of the report is available here.