eNews November 29, 2017

Wednesday, November 29, 2017 - 08:57am

In this issue:

Senators review challenges of local fiscal stress

In a presentation to all members of the Virginia Senate at the annual Senate Retreat held earlier in November, Finance Committee staff examined past efforts made by the General Assembly to tackle the regional differences in economic and demographic growth, financial stability, and the potential policy options available to the legislature.

Staff pointed out that it is in the Commonwealth’s interest to understand and act on the problems of local fiscal stress for reasons of preserving public health and safety, ensuring credit worthiness (e.g., preserve the state’s triple “AAA” bond rating), promoting economic growth, and attracting and retaining businesses.

The Auditor of Public Account’s recent Financial Assessment Model (FAM) survey was discussed at length. Seven localities were identified by the state auditor for further follow-up inquiries.

The “disconnect” between the FAM results and data from the Commission on Local Government’s Fiscal Stress Index showed that of the top 10 fiscally stressed localities, only three localities would have qualified for the auditor’s follow-up. This could suggest that a number of localities that rate as fiscally stressed have strong financial management practices in place, or have low debt loads, or a combination of the two.

However, the presentation’s information on per capita income and economic activity clearly demonstrated that certain regions in Virginia are better equipped than others to handle the challenges of providing essential public services in an era of state financial retrenchment in certain program areas. In fact, most regions of the state have yet to fully recover in terms of employment losses from the Great Recession.

The presentation ended with a description of the charge given to the Joint Subcommittee on Local Government Fiscal Stress to examine the issue. The joint subcommittee has met twice since the end of the 2017 legislative session, and will continue its work in 2018 (and possibly beyond). VML will closely monitor the joint subcommittee’s deliberations, and urges members to do the same.

VML contact: Neal Menkes

State revenues jump in October

Can collections withstand congressional (in)actions?

In a pre-Thanksgiving memorandum to Gov. Terry McAuliffe, Secretary of Finance Ric Brown reported that total general fund revenue collections rose 7.7 percent in October, driven by strength in payroll withholding, sales taxes, and corporate income tax payments. On a fiscal year-to-date basis, total revenue collections rose 4.9 percent through October. That’s 2.2 percent ahead of the annual forecast of 2.7 percent growth.

Collections of payroll withholding taxes which account for over 60.0 percent of general fund revenues grew 4.0 percent for the month. Year-to-date, withholding collections are also 4.0 percent ahead of the same period last year, substantially better than the annual estimate of 1.8 percent growth.

Collections of sales and use taxes which make up almost 20.0 percent of general fund revenues, reflecting September sales, rose 9.0 percent in October. On a year-to-date basis, collections have risen 4.5 percent, above the annual estimate of 2.8 percent growth, reversing a disturbing trend of poor collections.

Although corporate income taxes account for just 4.0 percent of the state general fund, on a year-to-date basis, collections of corporate income taxes were $269.0 million compared with $177.3 million in the same period last year, a 51.7 percent increase compared with the annual forecast of 1.6 percent.

So why would anyone have doubts about the remainder of this fiscal year and the 2018-2020 biennium?

Here is a sampling of the concerns expressed at the recent House Appropriations and Senate Finance Retreats.

The Commonwealth enjoyed an exceptionally low unemployment rate of 3.7 percent as of the end of September. However, shortages of workers with in-demand skills are holding back employment growth. The state’s economic growth rate has trailed the nation’s for the past six years, according to Old Dominion University’s annual “State of the Commonwealth Report.”

Although sales tax collections soared by 9.0 percent in October, adjusted for inflation and rate changes, Virginia sales tax collections fell 25.0% between 2000 and 2016. Given the shift in buying patterns moving away from brick and mortar stores to on-line retailers and the change in purchasing tastes from durable goods to services, this long-term decline is unlikely to be reversed.

Potential federal policy changes also drive uncertainty about the state’s revenue situation. For example, sequestration can trigger automatic spending cuts if Congress passes a Continuing Resolution to fund the government at same levels for full-year Federal FY 2018. Or, even more damaging, Congress fails to pass a FY 2018 budget, forcing another government shutdown as early as December 8.

Almost 30 percent of Virginia’s gross domestic product — its total output of goods and services — is directly related to federal spending with the greatest affects targeting Northern Virginia and Hampton Roads. A shutdown or another round of sequestration will affect state tax collections.

Anticipation of federal tax reform can play a role in the timing of state income tax collections, particularly non-withholding income tax payments, which make up some 17.0 percent of general fund taxes. Indeed, tax restructuring that increases the deficit and pushes up interest rates can dampen economic activity, making additional defense spending less likely and higher education for students and their families more expensive (i.e., removing the deduction for student loan interest).

Those are the reasons that have state government officials urging caution. Local governments are likely to follow suit.

VML contact: Neal Menkes

VRS board certifies contribution rates for 2019-2020

Just over half of the 589 political subdivisions participating in the Virginia Retirement System are expected to see lower employer contribution rates, with the others generally seeing modest increases according to rates certified by the VRS Board of Trustees at its Nov. 16 meeting. The Board certified the employer contribution rates for the next biennium that were recommended by the VRS plan actuary.

Political subdivision plans are not in a cost-sharing pool, so the political subdivision contribution rates are calculated based on the assets and liabilities of each individual covered employer.

For political subdivisions offering enhanced benefits for hazardous duty employees, the average employer contribution rate will be 10.6 percent of covered payroll, down from 10.7 percent.
For localities not offering enhanced benefits, the average employer rate will be 7.6 percent of covered payroll, down from 8.2 percent.

The funded status for most political subdivision employers improved. Local plans had an aggregate funded status of 88 percent on an actuarial basis for the fiscal year ending June 30, 2017, compared to the 85.9 percent average funded status as of June 30, 2016.

570 of 589 political subdivision plans, approximately 97 percent, are funded at 70 percent or higher.
538 of the plans are funded at 80 percent or higher.
218 are fully funded at 100 percent or more.

In January, VRS will mail actuarial reports, including the employer retirement contribution rate, to all political subdivisions, along with rates for other benefit programs. The new rates are effective for fiscal years 2019 and 2020, beginning July 1, 2018, and ending June 30, 2020.

The primary drivers that resulted in positive outcomes were:

Rate of return of over 12 percent, as compared to the assumed rate of return of 7 percent
Lower cost of living increases than expected
A reduction in unfunded liabilities

The VRS board also approved employer contribution rates of $705.77 per FTE for FY 2019 and 2020 for the Line of Duty Act Fund (LODA). The current rate is $564.48.

VRS experienced losses due to higher than expected expenses in FY17, and expect LODA Fund contributions to increase 12 percent annually. Factors expected to affect contributions include the increasing cost of health care and the increasing number of beneficiaries/static FTE employee count.

In October, the VRS Board certified an employer contribution rate of 15.68 percent for the teacher plan, a decrease from the 16.32 percent rate in effect for the current fiscal year. The board also certified rates for the state employee plan, and other state plans. Additional information is available here: State and Teacher Employer Contribution Rates.

The employer contribution rates for teachers (and rates for the other state plans) will not be final until the adoption of the Appropriation Act during the 2018 session of the General Assembly.

VML contact: Sandy Harrington

COIA Council decides against increase in mandatory local filers

In good news – the COIA Council did not endorse a legislative change to Virginia Code Section §2.2-3115(A) which would have expanded the number of mandatory local filers. The proposed legislative change would have used the word “governmental agency” rather than the current “authority.” The question of how “authority” is defined came up in a previous advisory opinion that was revised in October of this year. 2015-F-002 Thank you to Sharon Pandak and Walter Erwin for serving on this Council and protecting local government.

The COIA Council also agreed to release their proposed formal advisory opinions to the public prior to the Council voting on them. This way the Council can receive input on the opinions and have time to consider comments. Procedures for the release will be discussed at the next COIA meeting; but will include the fact that the opinions cannot be relied upon until they are approved.

VML contact: Michelle Gowdy

FOIA Council not endorsing public comment expansion

HB2223 from Delegate Kory has been “hanging” around all summer and deals with the right to speak at open meetings. This was a bill that VML opposed last year because comment at all open meetings could require public comment periods at subcommittee meetings, work sessions, etc. Delegate Kory did not attend the meeting and therefore the Virginia Freedom of Information Advisory Council (FOIA Council) did not endorse this proposed legislation; it is fully expected that she will reintroduce the bill in 2018.

There was a report from the Electronic Meetings Subcommittee which has spent the summer reviewing draft language. The three proposed drafts and the FOIA Council endorsed all three drafts: remote locations draft, combination draft and definition draft.

There was a lot of discussion regarding the three trade secret drafts which were all endorsed by the FOIA Council. They are the trade secrets exemption draft, trade secrets remedies draft, and the public procurement draft. The discussion was primarily about the attorneys’ fees and costs.

A proposal had been placed before the Council asking to add declaratory judgment as a remedy option for a FOIA lawsuit. The FOIA Council did not support this idea.

Amendments that were made to Virginia Code Section §2.2-3706(A) may have led to confusing what public bodies may use certain exemptions. The criminal and law enforcement records draft was prepared to clarify when exemptions apply to public bodies not necessarily engaged in criminal law-enforcement activities and when noncriminal records are held by public bodies engaged in criminal law-enforcement activities.

Lastly, the FOIA roadshow is not going to be as widespread as it has been in the past. For 2018, the Council plans to hold more free training in Richmond and offer online training.

VML contact: Michelle Gowdy

Virginia Code Commission moves to online code repository

Logistics for the Virginia State Code took up most of the Code Commission meeting last week. Phasing out of CD-ROM’s for the Virginia Code was the first topic; access to online code and its related history will be the solution to this phase out.

Of important note to local governments was the vote by the Code Commission to separate Volume 3A of the code into two volumes. (3A contains all of Title 15.2) The proposal is to place subtitle I “General Provisions; Charters; Other Forms and Organization of Counties” and subtitle II “Powers of Local Government” into one volume and subtitle III “Boundary Adjustments and Changes of Status of Counties, Cities and Town” and subtitle IV “Other Governmental Entities” into a second volume.

VML contact: Michelle Gowdy

National League of Cities holds business meeting Nov. 18

The National League of Cities met Nov. 18 in Charlotte, North Carolina to hold their annual business meeting. There were several policy amendments and resolutions passed to include: local government support for E-fairness, public transparency surrounding base realignment and closure and affirming support of local control of broadband infrastructure siting. A complete list can be found here: Annual Business Meeting Book.

VML contact: Michelle Gowdy

Registration open for Jan. 5 newly elected officials conference

Learn about—or get caught up on— FOIA, COIA, budgeting and more at the Jan. 5, 2018 Newly Elected Officials Conference in Charlottesville. The meeting will be held at the Thomas Jefferson Planning District Commission’s Water Street Center, 407 E. Water Street, Charlottesville. Register now.

The conference is designed to give an overview of council service and responsibilities. While the conference is timed for people who were elected in the November general election, the topics are useful for newcomers and incumbents alike.

VML contact: Mike Polychrones

DOE releases updated local composite indexes

The Virginia Department of Education has released its updated composite indexes of local ability to pay. VML will be doing further analysis but 47 school divisions saw a decrease in the composite index (which means a decrease in the required local effort), 9 saw no change, and 78 saw an increase.

VML contact: Sandy Harrington

Bill tackling food deserts introduced

Legislation to create a Virginia Grocery Investment Fund has already hit the hopper. The bill (SB 37-Stanley) creates the program to provide funding for the construction, rehabilitation, equipment upgrade, or expansion of grocery stores, small food retailers, and innovative food retail projects. VML has a policy position in support of the creation of the program. For more information on how this type of program can help tackle the problem of food deserts, visit the American Heart Association’s website.

VML Contact: Janet Areson

U.S. Census Bureau needs your help

The 2020 census count will determine the allocation of federal funding. An accurate address list will enable census workers to reach every living quarter and associated population. Local governments can assist with the census preparation by participating in the Local Update of Census Addresses (LUCA) Program.

Dec. 15, 2017 is the deadline to register to participate in the LUCA Program. Training workshops on the process are underway now. The Census Bureau will mail materials to registered participants in Feb. 2018.

VML contact: Kelley Hope

Calendar

Dec. 13	VML Leadership Academy: Transportation Dollars and Cents Webinar
Dec. 22	Deadline for entries to “If I Were Mayor” essay contest
Jan. 3, 2018	Finance Forum, Richmond
Jan. 5, 2018	Newly Elected Officials Conference, Charlottesville
Jan. 10, 2018	Opening of 2018 General Assembly session, Richmond
Jan. 31, 2018	VML Legislative Day, Richmond
March 10, 2018	End of 2018 General Assembly session, Richmond