eNews October 27, 2017

Friday, October 27, 2017 - 06:03pm

In this issue:

State revenue collections outpace official forecast

In recent appearances before the House and Senate money committees this month, Secretary of Finance Ric Brown brought good news for the legislators who work on the state budget. Based on deposits made to the state treasury, general fund revenues climbed 5.5 percent in September. On a fiscal year-to-date basis, the Secretary told the senators and delegates that total revenues rose 4.1 percent through September. The money in the bank is well ahead of the official annual forecast adopted in the 2017 legislative session, which called for 2.7 percent revenue growth.

September’s revenue numbers were driven by strong payroll withholding, sales taxes and corporate income tax payments.
Year-to-date, withholding collections are 4.0 percent ahead of the same period last year and well ahead of the official estimate of 1.8 percent growth. This source accounts for over 60.0 percent of general fund revenues.
Sales taxes, which comprise just under 20.0 percent of general fund revenues, popped up by 5.0 percent in September or 2.7 percent for the first quarter of FY 2018. The annual estimate is 2.8 percent growth. (In the last fiscal year, sales tax collections fell below the 2.8 percent growth estimate by 1.0 percent.)

Corporate income taxes make up 4.0 percent of general fund revenues. Collections were up 20.8 percent in September. On a year-to-date basis, revenues have climbed 27.9 percent compared with the annual forecast of 1.6 percent.

The strong deposits stand somewhat in contrast to so-so economic news. The Virginia Leading Index rose 0.7 percent in August after remaining unchanged in July. Payroll employment increased just 1.4 percent in August from a year ago. Unemployment is shrinking, but the labor participation rate is just slightly higher than the 65.6 percent figure from September 2014. Part of the answer for the better than expected collections may be in the rise of real personal income, which in the second quarter of 2017 (April – June) rose 0.7 percent, and has increased by 1.5 percent since the second quarter of 2016.

The question before Gov. Terry McAuliffe and state lawmakers concerns increasing the revenue forecast. This is a difficult question and has no slam-dunk answer. The fits and starts in Congress over tax reform (or is it just tax cuts?) casts a long shadow of uncertainty. Perhaps by Thanksgiving a tax plan will be ready for congressional action. A tax plan with enough detail for state and local governments to figure out the political and budgetary impacts would be timely.

The Governor’s Advisory Council on Revenue Estimates (GACRE) meets November 20, giving Gov. McAuliffe just under a month to digest the Council’s recommendations, complete and submit to the General Assembly his budget to amend FY 2018 and his budget for the 2018-2020 biennium.

VML contact: Neal Menkes

Congress zeroes in on tax reform

The U.S. Senate approved last week a Republican-backed budget, a critical step forward for the GOP to enact tax cutting legislation and to remove the sting from setbacks tied to the replacement of Obamacare.

The budget’s passage allows the GOP to use a procedural maneuver to pass a tax measure with 50 or more votes, foiling any effort by the Democrats to filibuster the legislation. (To break a filibuster, 60 votes are needed.)

Along with the ability to pass a tax bill by a simple majority, last week’s vote allows Congress to increase the federal deficit by another $1.5 trillion over the next ten years. As a point of comparison, President Obama’s stimulus package – the American Recovery and Reinvestment Act – added $800.0 billion to the nation’s debt.

Although the Republicans have $1.5 trillion of “wiggle room,” it is likely that there will still be a need to pay for some portion of the tax cuts through offsetting new revenue, budget cuts, or a combination of the two.

Why is action on federal taxes important to state and local governments?

First, state and local tax deductions (SALT) could be at risk. The National League of Cities has asked Congress and President Trump to preserve the deduction, arguing that it gives local governments the flexibility to raise the revenues needed to fund essential services and prevents taxpayers from being taxed twice on the same income. According to a 10-year old Tax Foundation study, 41.0 percent of Virginia’s taxpayers itemized, placing the Commonwealth among the top ten states whose taxpayers itemize their returns.

Second, there is interest in Congress to eliminate or reduce the federal exemption on municipal bonds. The “muni bond” market has funded $1.65 trillion worth of projects over the past decade, including schools, roads, water and sewer systems, airports, bridges, and other vital infrastructure. The federal exemption has been in place since 1913.

But exempting the bonds from federal taxes is not cheap. The ten-year cost is estimated by the Tax Foundation to be as much as $617.0 billion in lost federal revenue.

However, states and localities point out that the federal tax preference prevents an increase in the cost to taxpayers in building needed infrastructure and benefits all citizens. Construction of a new road or school is not a special interest loophole.

Third, federal action on non-withholding income (like capital gains) could affect Virginia’s tax collections. It is always difficult to predict taxpayer behavior, particularly when details of the forthcoming tax plan are scant. The changes may or may not be an incentive for taxpayers to hold on to or to sell their securities. Individual income tax non-withholding accounts for 17.0 percent of general fund revenues. The timing of when stocks and bonds are sold could be critical in making or missing a revenue forecast.

VML contact: Neal Menkes

Virginia Supreme Court to hear redistricting case

The Supreme Court of Virginia agreed October 24 to hear the case of Vesilind v Board of Elections, the lawsuit claiming that 11 of the 140 districts of the Virginia House of Delegates and Senate fail to meet the compactness requirement in the state Constitution. The date of the hearing has not yet been set.

The plaintiffs in Vesilind v Board of Elections argue that the state constitutional requirement that “every election district shall be composed of contiguous and compact territory” should be given priority over political considerations including drawing legislative boundaries to protect incumbents or to help one political party or another.

The lawsuit was filed in September 2015 and heard in trial court in March 2017. Richmond Circuit Court Judge W. Reilly Marchant ruled on March 31 that the 11 districts challenged in the OneVirginia2021 lawsuit were constitutional. The judge’s ruling, however, also supported the use of newly developed measurements to determine whether priority was accorded the constitutional mandate of compactness in drawing election districts, and rejected the House and Senate’s contention that maps drawn before these compactness measurements were developed set the bar for what is constitutional.

The lawsuit is sponsored by OneVirginia2021, a statewide coalition supporting fair, non-partisan redistricting. More information on the coalition is available at www.onevirginia2021.org.

VML contact: Mary Jo Fields

Get your requests for legislation in soon

Dec. 4 is the deadline for legislators to submit draft requests for bills and resolutions that will be prefiled for the 2018 General Assembly session. Localities planning to ask for legislation to be introduced should approach their legislators before that deadline.

For the past several years, the General Assembly’s resolution laying out the ground rules for introduction of legislation have limited members of the House of Delegates to filing no more than five bills that are not pre-filed. Further, House members have been limited to filing a total of no more than 15 bills and resolutions. Senators have been limited to filing no more than eight bills that are not pre-filed. In past years, Senators have not been subject to an overall cap like the House members, however.

Legislators can begin pre-filing their bills on Nov. 20. The General Assembly convenes on Jan. 10. Cross-over day is likely to be Feb. 13, although the official calendar has not yet been adopted. Adjournment is scheduled for March 10.

VML contact: Mary Jo Fields

Virginia Conflict of Interest and Ethics Advisory Council met on October 17th

In June of this year, the Conflict of Interest and Ethics Advisory Council agreed to reconsider an advisory opinion written about disclosure statements for members of commissions, boards and authorities. The opinion did not recognize the distinction between an authority and a board or commission. This now reconsidered opinion was adopted by the Council on October 17th and the opinion was narrowed greatly. 2015-F-002

They also looked at opinion 2017-F-004 and made no decision yet again on this opinion. This opinion deals with three scenarios involving legislators; the first is if the host of the event invites a legislator to attend, the second if an individual or an entity gives the legislator a ticket to the event and lastly, an individual or entity pays for or sponsors a table at an event and gives a seat at the table to the legislator. The discussion centered around the fact that the valuation for the same event with these facts may be different and confusing. The Council asked for more time to consider the opinion.

Lastly, the Council took up 2017-F-003 which was fairly straightforward. The question was whether an employee of a locality could purchase real estate at a delinquent tax sale auction that is being conducted by or on behalf of the locality. The answer is that is it not a violation if the employee has not participated in the sale or auction as an employee and that this fact is documented in a matter of public record.

There was also a presentation on whether local officials should file electronically with the Council instead of with the Clerk. The Council determined that this is not feasible.

VML Contact: Michelle Gowdy

Virginia Housing Commission Neighborhood Transitions & Residential Land Use Workgroup

The Virginia Housing Commission met on October 18th and reviewed proposed legislation for Smoke and Carbon Monoxide Alarms as well as Criminal Blight; the drafts are being rewritten again. Agenda The criminal blight proposal is in response to 2017 proposed legislation: HB1934/SB1183 entitled “Police Service; civil penalty when excessive number of calls from same property.”

This workgroup will review legislation in anticipation of the December 6th Housing Commission meeting.

VML Contact: Michelle Gowdy

Broadband Advisory Council

The Broadband Advisory Council met on October 23rd. There was discussion surrounding potential legislation and a presentation on Go Virginia. A lot of the input on Go Virginia centered around the need for more robust broadband to assist with Economic Development. This group will meet again before the 2018 General Assembly Session to discuss legislation.

VML Contact: Michelle Gowdy

Virginia Statewide Interoperability Executive Committee

The Virginia Statewide Interoperability Executive Committee (SIEC) met on Tuesday in Roanoke to hear a presentation from Verizon on their Interoperability capability and future plans for competing or working with FirstNet. Verizon has a very large presence with the Virginia First Responders and wants to have the ability to provide Interoperability through its own equipment. After a lot of discussion the SIEC voted to draft a white paper for the Secretary of Public Safety which would urge Verizon and FirstNet to work together in Virginia.

VML Contact: Michelle Gowdy

Joint commission on health care seeks public comment on 2017 policy issues

As the General Assembly’s Joint Commission on Health Care moves towards completion of its studies for the year, its meetings now focus on staff reports and potential policy options for the Commission’s consideration.
On Oct. 17, the Commission received staff presentations and potential policy options for three studies: heroin use in Virginia, medical use of cannabis and health effects, and the creation of a registry of abuse/neglect by service providers working with individuals enrolled in Medicaid-waiver programs (i.e., Building Independence, Family & Individual Supports, and Community Living programs).

Public comment on the proposed policy options within these reports are due by Nov. 7. Commission staff will compile the public comments and present summaries when the Commission meets in December to decide on policy options to pursue for the coming Session.

Contact: Janet Areson

Eastern Virginia Groundwater Management Advisory Committee presents final report

The Oct. 24 meeting of the State Water Commission focused on the final report of the Eastern Virginia Groundwater Management Advisory Committee and DEQ’s response. The State Water Commission will consider the report’s recommendations (listed below) at its meeting Dec. 4. VML will keep you advised as to the Commission’s decisions and legislative recommendations for the 2018 session.

The advisory committee was tasked by 2015 legislation with developing, revising, and implementing a management strategy for ground water in the Eastern Virginia Groundwater Management Area.

For the final report, released in July 2017, the Committee and five workgroups examined and provided recommendations regarding management of the six subject areas identified in the legislation:

(1) Alternative Water Sources and Solutions: The workgroups recommended a list of potential alternative water source projects to the Committee. The Committee adopted this list as a set of possible alternative sources and solutions, which included transitioning from groundwater to public and private surface water resources where applicable, piloting innovative aquifer recharge projects to create a greater water supply in the EVGMA (e.g., Hampton Roads Sanitation District’s Sustainable Water Initiative for Tomorrow (HRSD SWIFT) regional project), and supporting water conservation and efficiency.

(2) Changes in Permitting Criteria: The Committee evaluated options for enhancing the current permitting program. Recommended options include addressing the need for greater certainty for permittees to make long-term infrastructure investment decisions by lengthening the permit term to 15 years. The Committee also recommends voluntary regional planning through Planning District Commissions working cooperatively with DEQ to enhance the Local and Regional Water Supply Planning Process. Since the efforts by permitted users to reduce consumption are not enough to restore the aquifer for the long term, the Committee also evaluated ways to address the concurrent impact that unpermitted users have on groundwater resources. Unpermitted sources are typically small individual uses and represent a growing portion of groundwater use. The Committee recommends encouraging and incentivizing the connection to and use of public water supply systems (particularly those served by surface water), unconfined aquifers, and irrigation ponds where applicable.

(3) Alternative Management Structures: The Committee concludes that the current groundwater management process is sufficient at the moment, but recommends DEQ, in cooperation with 7 other agencies, establish an annual “State of the Eastern Virginia Water Resources” forum. This forum would be open to the public and create a voluntary mechanism for communication among regulators and stakeholders on the overall status of Eastern Virginia’s water resources.

(4) Groundwater Trading and Banking: Groundwater trading and banking programs can provide groundwater users various degrees of flexibility in how to conserve, manage, and/or allocate groundwater supplies. The Committee discussed and evaluated several banking and trading systems, and recommends the establishment of a groundwater banking framework as a mechanism for aquifer storage and recovery (ASR). This banking concept allows DEQ to grant a groundwater credit to any party that injects water into the coastal aquifer for water storage and recovery within the existing groundwater management areas. The Committee recognizes that a broader trading program could offer incentives to economize on water use and to develop alternative sources; however, due to the complexity of such a program the Committee does not recommend a particular trading system at this time. The Committee urges the General Assembly to continue to evaluate trading systems.

(5) Necessary Data Improvements: Collecting and maintaining credible data is essential for monitoring aquifer conditions and system responses to management actions. The groundwater management recommendations outlined in this report will keep this data current and establish the analytical capacity to assess ongoing management issues. DEQ proposed six areas for data improvements to the Committee that would allow DEQ to implement the groundwater program to its fullest extent. The Committee agrees that the list provided by DEQ with regard to data improvements identifies reasonable actions to be undertaken by DEQ. The Committee recommends that the General Assembly support such measures as listed by priority in the recommendations below. These data improvements will not only bolster current groundwater management efforts, but will also assist in measuring the success of future groundwater management projects.

(6) Funding Needs and Options: The Committee proposes two funding options to ensure that DEQ has the necessary operational funds to successfully manage groundwater resources in the Commonwealth. The Committee’s preference is for funding this effort through General Fund Appropriations. As a second alternative, and only if absolutely necessary, the Committee recommends a two-tier (based on households and businesses), capped, reasonable flat fee that would be applicable to both permitted and unpermitted users within the EVGMA.

The EVGMAC made the following recommendations to the State Water Commission:

Recommendation # 1:

Committee recommends that SWIFT and similar projects, including storage, recovery, and recharge projects, be supported by the Commonwealth as a significant part of the set of solutions pursued to improve groundwater sustainability in the EVGMA, subject to appropriate public health and environmental conditions as determined by VDH and DEQ in coordination with HRSD and in light of federal requirements.

Recommendation # 2:

Committee recommends that the Commonwealth promote the development of the list of alternative water sources and solutions included in this report, including solutions for public/private partnerships and potential funding for further evaluation and study of short-term and long-term alternative water sources and solutions.

Recommendation # 3:

Committee recommends lengthening the maximum groundwater permit term to fifteen years by changing the statutory language in Virginia Code Section 62.1-266(C), while maintaining the ability for the State Water Control Board to reopen and amend current permits to take changing groundwater availability into account throughout the permit term under Virginia Code Section 62.1-266(E).

Recommendation # 4:

Committee recommends that the General Assembly establish additional incentives for voluntary regional planning efforts that will proceed through Planning District Commissions working with DEQ.

Recommendation # 5:

Committee recommends that the General Assembly create incentives for local governments and well owners to connect to the public surface water systems when reasonably available, with possible credits to localities to help lower connection fees or to provide low cost financing.

Recommendation # 6:

Committee recommends that the General Assembly require new non-agricultural irrigation wells only from unconfined aquifers in the EVGMA where available and adequate.

Recommendation # 7:

Committee encourages the General Assembly to develop a statement of regulatory intent to encourage the use of ponds and stormwater ponds and to work to remedy the regulatory barriers in the development of irrigation ponds for agricultural purposes.

Recommendation # 8:

Committee recommends that DEQ, in cooperation with other agencies, establish an annual “State of the Water Resources” forum, open to the public, where all stakeholders are invited to discuss and learn about the status of the EVGMA’s water resources.

Recommendation # 9:

Committee recommends that the General Assembly authorize DEQ to develop and implement a groundwater banking system.

Recommendation # 10:

Committee recommends that the General Assembly direct DEQ with a timeline and resources to create a framework in consultation with stakeholders for an EVGMA groundwater trading program to be submitted to the General Assembly.

Recommendation # 11:

Committee recommends that the General Assembly provide funding to ensure a robust groundwater management program because of the importance of groundwater resources in Eastern Virginia and the unsustainable rate of demand on the resource. The Committee believes that the following DEQ activities, at a minimum, should be provided sufficient funding to be implemented. At this time, the activities, in priority order, are:

1) Update unregulated use estimation methodology for use on an ongoing basis
2) Ensure ongoing model maintenance consistent with best professional practice
3) Address gaps in hydrologic framework and water level monitoring network
4) Provide operation and maintenance for Suffolk and Franklin extensometers
5) Ensure funding to perform ongoing existing well network repair and maintenance
6) Implement saltwater intrusion network
7) Install new extensometer near West Point

Recommendation # 12:

Committee recommends that the General Assembly fund the essential operation costs of DEQ to successfully manage the groundwater resources, first through General Fund Appropriations, and second, if absolutely necessary, through a reasonable flat fee applied only to households and businesses in the EVGMA. If a fee is applied, the funding provided by the fee shall not result in any reduction of the general funds appropriated.

Staff Contact: Mike Polychrones

Calendar

Nov. 15-18: NLC City Summit, Charlotte, N.C.
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. 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