Docstoc

PPT - PowerPoint Presentation

Document Sample
PPT - PowerPoint Presentation Powered By Docstoc
					The Potential Impacts of a
 Shrinking State Budget
 on Virginia’s Localities


     James J. Regimbal Jr.
   Virginia Municipal League
        October 19, 2009
                               1
            VML/VACO
  2009 Local Fiscal Condition Survey

• VML/VACO conducted a local fiscal condition
  survey of Virginia localities in late summer.
  Those localities at least partially responding
  included:
  - 38 of 41 Cities and Towns of West Point and
      Colonial Beach
  - 92 of 95 Counties

                                               2
       2009 Survey Revealed a Deteriorating
            Local Financial Condition
                                                                  Better    About
                                                                                      Less able
                                                                   able    the same
Meet its financial needs for FY 2010 as compared to FY 2009?      2.3%      29.0%      68.7%

Address its financial needs for FY 2011 as compared to FY 2010?   1.5%      22.3%      76.2%




           Biggest local concerns for FY 2011:
-           Expiration of the federal stimulus and its impact on the state's
            ability to maintain funding for localities and school districts.
-           Continued erosion of real and personal property values that will
            place significant upward pressure on tax rates.

           Many localities have reserves. 74 of 106 localities responding
            reported reserves greater than 10 percent of FY 2010 spending.
                                                                                               3
           Local Revenues Are Declining
                  (Number of Localities Responding)

                                     2008 Growth   2009 Growth
Real Property Assessments (106)            6.6%          1.6%
Personal Property Assessments (92)         2.5%         -3.7%


                                          FY 09                    FY 10
                                        Budgeted FY 09 Actual    Budgeted
                                         Growth       Growth      Growth
Real Property Tax Revenues (115)            N/A          4.5%       0.5%
General Fund Revenues (104)                2.2%          1.1%      -2.9%




                                                                      4
                       Virginia Local General Fund Revenue
                                      Annual Growth Rate*

      12%


      10%



       8%


       6%


       4%


       2%



       0%


      -2%


      -4%
            1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

                                                          Fiscal Year




* APA Comparative Report FY 1990 to FY 2008; VML/VACO survey results extrapolated for FY 2009 and FY 2010
                                                                                                                       5
        Budget Balancing Strategies in FY 10 by Greatest Impact

                                                 Greatest        Second           Third         # With Great
Strategy:                                        Impacts         Greatest        Greatest         Impact

Delay or cancellation of capital outlay                     17              24            16               57

Across the board service cut                                25              10            13               48

Use reserves or undesignated balances                       20              9               7              36

Personnel layoffs                                           11              11              7              29

Hiring freeze                                               5               13              8              26

Salary or wage reductions/freeze                            6               8             10               24

Revenue enhancement                                         6               8               8              22

Cuts in other services and programs                         4               5               9              18

Reduced contributions to civic/cultural                     1               6               9              16

Other                                                       4               4               5              13

Reduce health care benefits                                 1               3               8              12

Renegotiate debt                                            7               4               1              12

Reduced education funds/increased costs                     4               4               0                  8

Replace local general funds with special funds              2               2               0                  4

Cuts in human/social services                               0               0               3                  3

Cuts in public safety services                              0               2               1                  3

Personnel furloughs                                         1               1               1                  3

Increase use of regional agreements                         1               1               0                  2

Early retirement incentives                                 0               0               0                  0

Increase privatization/contracting out                      0               0               0                  0

Reduce pension plans benefits                               0               0               0                  0


                                                                                                                   6
          Federal K-12 Stimulus Funding Prevented Layoffs
             and Education Program Reductions in FY 10

                     Impact of Federal K-12 Stimulus Funding on Localities



140



120



100



80
                                                                                                  Yes

                                                                                                  No
60



40



20



 0
      Prevent or mitigate layoffs in Prevent or mitigate education Allow expansion of education
              the schools                  program cuts                    programs


                                                                                                  7
          Future Spending Pressures


                                 Number of Localities


Education                                 48

Capital outlay/ infrastructure            40

Personnel compensation                    38

Personnel benefits                        33

Public safety                             26

Debt servicing                            19

CSA                                       11

Unfunded mandates                         9

VRS                                       6

Transportation                            3

Other                                    32
                                                        8
     Education Funding is Greatest Concern
• Commonwealth has reduced FY10 K-12 funding by almost $800 million
  GF – partially offset by federal stimulus funding.
• Expect additional K-12 cuts.
  -   K-12 is 35 percent of GF and 70 percent of local aid.
• State and local revenue problems will be compounded when federal K-12
  stimulus funding ends – beginning in FY11.
• Localities are holding Virginia’s public education system together to meet
  SOA and SOL standards by spending $3 billion more per year than
  required to match state $.
  -     In total, localities spend 82 percent more than required by state.
  -     This excess pays for 22 percent of all K-12 spending.
• Without state and/or local tax increases, major policy changes will be
  required to align K-12 spending levels with revenues, even with only
  minimal re-benchmarking costs ($138 mil. for biennium).
  -     Restoring “support cost” funding would require an additional $754
        million in the next biennium.                                     9
                 State Budget Summary
                (Setting the Stage for January)
• On August 19, Governor announced a $300 mil. FY 09 GF revenue shortfall
  and an additional $1.2 billion GF revenue shortfall for FY 10.

• On September 8, Governor announced $1.35 bil. budget reduction plan.
  Only for FY 10 - does not solve 2010-12 budget problems.

• Expect an even tougher 2010-12 budget due to a weakened state balance
  sheet (e.g. Rainy Day fund drawdown), lack of new debt capacity, expiring
  federal stimulus $, and a weak economic recovery.

• Medicaid and other HHS cost pressures will continue, putting additional
  strain on the 2010-12 state budget. Medicaid growth could consume all
  additional 2010-12 biennium GF revenues.
• State aid to localities will continue to be reduced in the 2010-12 biennium.
• Falling real estate and car values, sales taxes, business taxes will make it
  difficult for localities to continue backfilling declining state support.    10
               General Fund Revenue Forecast Changes Since Last Year

20.0%
15.0%
10.0%                                                                   2008 Adopted
 5.0%                                                                   2009 Introduced
 0.0%                                                                   2009 Adopted
 -5.0%                                                                  Aug. '09 Interim
-10.0%
-15.0%
          FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10
                                                             est.


         • 9.2 percent decline in state GF revenue in FY09
         • Est. 1.6 percent decline in FY10

         Cumulative results: >$5.5b. in 2008-10 state budget reductions since
         original 2008-10 budget
Note: 10+ percent revenue growth required in FY 11 to fund existing spending policies
                                                                                 11
in the 2010-12.
Dismal 1st Quarter FY 2010 GF Revenues
                                           Growth
                          % of GF   Forecast %   % Thru 1st Q

Individual Income Taxes    66.1%        -1.8%          -5.6%

 Withholding               66.2%         2.1%          -2.3%

 Estimated Payments        13.7%       -16.8%         -23.4%

 Refunds                  -13.8%        -1.2%          18.6%

Sales Taxes                20.5%        -0.4%          -5.9%

Corporate Income Taxes      4.7%         2.2%          -7.9%

All Other                   8.6%        -5.3%         -16.4%


Total GF Revenues         100.0%        -1.6%          -7.4%
                                                                12
     Reductions to the FY 2010 GF Budget
                                                                     Original                   Final
                                                                    FY 2010              FY 2010              % Change

Direct Aid to K-12                                                  $5,930.5             $5,148.2                 -13.2%

Medicaid                                                            $2,672.1             $2,220.4                 -16.9%

Other Health & Human Services                                       $1,723.4             $1,521.6                 -11.7%

Higher & Other Education                                            $2,060.8             $1,794.1                 -12.9%

Public Safety                                                       $1,828.2             $1,686.7                   -7.7%

Car Tax Reimbursement                                                  $950.0                $950.0                   0.0%

All Other*                                                          $2,424.0             $1,669.8                 -31.1%

Total GF                                                         $17,589.0             $14,990.8                  -14.8%


* Admin., finance, commerce & trade, natural resources, judicial, executive, legislative, capital outlay, other central appr.




Note: Federal stimulus funding offset $1.5 bil. in FY 2010 GF budget cuts                                                13
      FY 2010 GF State Aid Cuts to Localities
                     Major Categories of State Aid to Localities
                                 FY 2010 GF Appropriations

                                                                                  % of State
                                         Original GF       Current GF                 Aid to
                                       Appropriation     Appropriation % Change    Localities   % of GF

K-12 Direct Education Aid            $5,930,513,050    $5,148,221,622   -13.2%       71.0%       34.3%

Car Tax                               $950,000,000      $950,000,000      0.0%       13.1%        6.3%

Compensation Board                    $666,153,186      $600,400,897     -9.9%         8.3%       4.0%

Comprehensive Services Act            $323,640,564      $279,208,772    -13.7%         3.8%       1.9%

Community Service Boards              $256,463,596      $227,360,416    -11.3%         3.1%       1.5%

HB 599                                $205,001,876      $183,623,320    -10.4%         2.5%       1.2%

DJJ Juvenile Confinement/Treatment     $50,787,956       $48,266,904     -5.0%         0.7%       0.3%

Recordation Tax Distribution           $40,000,000       $40,000,000      0.0%         0.6%       0.3%

Public Library Aid                     $17,378,628       $16,509,697     -5.0%         0.2%       0.1%

"Flexible" State Aid Reduction        ($50,000,000)     ($50,000,000)                 -0.7%      -0.3%
                                                                                                 14
       Summary of Governor's September 2009
                  Proposed Budget Actions
                                                           FY 2010

General Fund Revenue Shortfall                            ($1,350.5)


Rainy Day Fund Withdrawal                                    $283.0

Other One-Actions:                                           $524.6

 Agency Pledged Balances                                     $140.2

 Sale of Corrections Facilities                                $25.0

 Fire Programs Fund Balance                                    $26.0

 Federal Stimulus Waiver for Higher Education                  $91.5

 VRS Employer Retirement Rate Suspension (incl. NGF)         $104.1

 VRS non-Retirement Benefit Rate Suspension (incl. NGF)        $30.9

 Medicaid Additional Federal Stimulus Match Rate               $97.0

 Additional Lottery Profits for K-12                            $9.9
                                                                       15
       Summary of Governor's September 2009
         Proposed Budget Actions (continued)

Local Aid GF Reductions:                              $256.9
 K-12 Sales Tax                                        $37.6

 Literary Fund Supplant for Teacher Retirement         $55.0

 Supplant With FY 11 Federal K-12 Stimulus Waiver      $68.9

 Constitutional Officers                               $30.4

 Aid to Police Departments (HB 599)                    $13.7

 Other (CSA, CSB, VJCCCA)                              $51.3

Operating Budget Reductions:                          $288.7
 Net Higher Education Reductions                      $105.3

 Close Corrections Facilities                          $11.6

 One Day Employee Furlough                             $16.3

 Indigent Care Funding                                   $7.0

 Mental Health Treatment Centers                         $6.3

 Economic Development/Tourism                            $3.1

 Other Agency Reductions (incl. deferred expenses)    $139.1

Total Actions                                        $1,353.2   16
   Over Next Few Years, State GF Budget Will
     Continue to Be Under Severe Pressure
• FY10 GF revenues expected to be $750 mil. below FY06 GF.
  - Less than $2 billion in new GF revenues available for 2010-12 biennium.
  - Increasingly difficult choices will have to be made to balance budget.
• Medicaid program likely to consume all available new GF revenues in the
  2010-12 biennium. Virginia’s Medicaid program already ranks 48th among
  states – strict eligibility criteria combined with fewer low income people,
  low provider payments, limited optional services.
  -      $685 mil. available in ARRA Medicaid federal match increase for
        FY10, only $367 mil. available for FY11, $0 for FY 12.
• State GF K-12 education aid reduced 13 percent in FY10, but half of GF cut
  offset by temporary federal stimulus funds: FY 10 - $434 mil.; FY 11 - $296
  mil.; FY 12 - $0.
• State budget still not yet right-sized for new revenue reality – “one-times”
  used for over half of 2008-10 budget balancing.
• Transportation program also shrinking rapidly and big concern.            17
               GF Revenues Not Expected to
                Exceed FY 06 until FY 12
$ 16 , 0 0 0
                                             $ 15 , 7 6 7

                              $ 15 , 5 6 6

$ 15 , 5 0 0                                                                                           $ 15 , 3 8 9




$ 15 , 0 0 0
               $ 14 , 8 3 4

                                                                                         $ 14 , 6 18

$ 14 , 5 0 0
                                                            $ 14 , 3 15

                                                                          $ 14 , 0 7 9

$ 14 , 0 0 0




$ 13 , 5 0 0




$ 13 , 0 0 0

                 2006           2007          2008            2009          2 0 10         2 0 11        2 0 12
                                                                                                           18
                   Medicaid Expenditure Forecast
                  ($ Mil. at 7% Utilization growth)

                                                FY 2010        FY 2011         FY 2012


GF                                                 $2,273         $2,817        $3,427
Special Rev                                          $304           $301         $298
Federal*                                           $3,759         $3,661        $3,528
Total Medicaid @ 7% Growth                         $6,336         $6,779        $7,254


Medicaid GF as Percent of Total GF                 15.7%          18.8%         21.8%

ARRA Stimulus Funding *                              $685           $367               $0

* Assumes FMAP remains at 61.59% thru CY 2010 than returns to 50% in CY 2011




                                                                                  19
        Virginia Spends Significantly Less on
             Medicaid Than Other States
                         Medicaid
                                            Enrollment     % of   Medicaid Expenditures -
                                            Population - 2006           Per Capita FY 07

United States                                              20%                    $1,061
Virginia                                                   11%                      $639
Colorado                                                   12%                      $605
Georgia                                                    19%                      $736
Indiana                                                    16%                      $808
Maryland                                                   14%                      $967
Massachussetts                                             19%                    $1,592
North Carolina                                             19%                    $1,087
Tennessee                                                  25%                    $1,159
Washington                                                 19%                      $898
Wisconsin                                                  18%                      $882

Source: Kaiser Family Foundation, State Health Facts.Org                                20
                 Medicaid Expenditures by Identifiable Eligibility Category


         2500




         2000




         1500

$ mil.

         1000




         500




            0

                   1999    2000     2001       2002     2003     2004    2005       2006       2007    2008

                                                         Fiscal Year

         Blind/Disabled   Aged    Low Income Children   Pregnant Women   Low Income Caretaker Adults




  Source: Virginia Department of Medical Assistance Services                                                  21
Significant Additional General Funds
Will be Necessary to Maintain Current
Services When Federal Stimulus Ends
                      ARRA Stimulus Funding ($ Mil.)

                                  FY 10         FY 11     FY 11 GF       FY 12 FY 12 GF
                                ARRA*         ARRA*          Backfill    ARRA     Backfill

Medicaid                           $685           $367          $318         $0     $685

K-12 Public Education              $434           $296          $138         $0     $434

Higher Education                   $219            $36          $183         $0     $219

Sheriffs (Bryne Justice)             $23             $0           $23        $0       $23

SFSF General                       $109              $0         $109         $0     $109

Total                            $1,470           $699          $771         $0    $1,470

* Federal ARRA stimulus funds used by Virginia to offset general fund cuts

                                                                                             22
          Major "One Times" More Than Half of Strategies

                   to Close $5.5 Bil. 2008-10 Budget Gap

                                                           GF Millions $

Rainy Day Fund Withdrawal                                          $773

Sales Tax Acceleration/LPC Adjust/Tax Amnesty                      $186

Bonded Debt for GF Capital                                         $355

Delay 4th Q VRS Retirement/Benefit Payments*                       $135

State Employee Furlough*                                            $16

Sell Prison/Transfer Fire Programs Fund to GF                       $51

Enhanced ARRA SFSF Medicaid Match                                $1,059

ARRA SFSF - Flexible Funds                                         $219

ARRA SFSF - Education                                              $652

Total Major "One-time" Budget Strategies                        $3,446



* Includes NGF agency transfer to GF                                       23
        General Fund Tax Changes Over Last 10
         Have Neutralized 2004 Tax Increase
                                       FY Implemented   2008-10 ($ Mil.)

Car Tax Relief                             1999            ($1,900)

Historic Rehab Tax Credit                  1999              ($92)

Low Income Tax Relief                  2000 and 2007        ($125)

Land Preservation Tax Credit               2003             ($300)

2004 Tax Reforms                           2005             $1,600

Add'l Reduced Sales Tax on Food            2006             ($381)
Shift Insurance Premiums and
Recordation Taxes for Transportation       2009             ($352)

Estate Tax Repeal                          2009             ($311)

Total                                                      ($1,861)

                                                                           24
          New Debt Capacity Is Limited…
     If Virginia Wants to Keep its AAA Rating
               Total Debt Service as % of "Blended" Revenue
                     Prior to the August 19 Revenue Revisions

 6.0%


                                                       5% Debt Capacity Advisory Committee Policy
 5.0%


 4.0%


 3.0%


 2.0%


 1.0%


 0.0%

            2002        2003       2004        2005       2006        2007       2008       2009        2010       2011     2012

                                              Total Debt Service as a Percent of Revenue


Source: Evelyn R. Whitley, Director of Debt Management Presentation to Joint Subcommittee on Public Safety, May 21, 2009.
                                                                                                                                   25
           2010-12 Budget Outlook
2010-12 GF budget FA outlook assumes FY 2010 current services
appropriations with four exceptions:

1)   A seven percent utilization growth rate in Medicaid funding.

2)   Rebenchmarking increases in public education funding
     (Did not restore support position funding; July preliminary: $60
     mil. FY 2011; $79 mil. in FY 2012)

3)   Planned GF debt service cost increases

4)   General funds necessary to offset loss of federal stimulus funding




                                                                        26
                       GF Budget Outlook ($ Millions)
                                                              FY 2011           FY 2012
Aug. 19 Revenue Forecast (3.8%, 5.3%)                          $14,618           $15,389
Transfers                                                          $329             $339
Total Est. GF Available                                        $14,947           $15,728

Current Service Appropriations:

K-12 Direct Aid (incl. rebenchmarking)                          $5,346           $5,661
Higher & Other Education                                        $1,805           $1,842
Medicaid (7% annual growth)                                     $2,817           $3,427
Other HHS                                                        $1,566           $1,566
Public Safety                                                    $1,710           $1,710
Car Tax                                                            $950             $950
Planned GF Debt Service                                            $600             $630
All Other **                                                     $1,645           $1,645

Total Expenditures                                             $16,439           $17,430


Projected Budget Gap                                           ($1,492)         ($1,702)

** All Other includes Legislative, Executive, Judicial, Admin, Finance, Commerce & Trade,

   Nat. Res., Capital, Central Appropriations                                               27
State and Local Revenue Shortfalls Make It
    Likely K-12 Policies Will be Altered
• There are seven key components to the SOQ funding formula:
  -    Number of students
  -    Staffing ratios for teachers and other funded positions
  -    Salaries of teachers and other funded positions
  -    Fringe benefit rates
  -    Standard and prevailing support costs
  -    Inflation factors
  -    Prevailing federal revenues related to support costs

 Approximately 79 percent of SOQ funding is for salaries and benefits
 FY10 state budget reduced support cost funding by $341 mil. Not
  likely to be restored in 2010-12.

                                                                     28
                      Sources of Funds for K-12 Expenditures
                                    (Projected FY 09 to FY 12)

$8,000,000,000

                                                                                                                               Local

$7,000,000,000



$6,000,000,000


                                                                                                                              State
$5,000,000,000



$4,000,000,000



$3,000,000,000



$2,000,000,000                                                                                                           Federal
                                                                                     Charges for Services

$1,000,000,000



           $0
                 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012




                                                                                                                               29
Shrinking NGF Transportation Program
• FY 10 transportation budget has declined 23 percent since 2008
  causing $3.1 billion in cancelled highway and transit improvements.
• 23 percent decline in FY 10 state public transit budget since 2008.
• Eliminating all state and federal funds flowing through primary,
  secondary and urban formulas
• Cutting VDOT employment by 1,000 full-time and 450 part-time
• Closing at least one-third of VDOT residencies and equipment shops
• Reducing annual maintenance spending growth from 4 to 3 percent
  including local street maintenance payments
• Implementing reductions in mowing, safety service patrols and ferry
  service
• Closing 19 rest areas
• Additional budget reductions announced in November. Adequate
  secondary road maintenance funding no longer available if all
  federal funds are to be matched.

                                                                        30
             Policy Alternatives
• Reduce local school funding and seek local
  government/school district efficiencies (e.g. merge
  functions HR, finance, transportation maintenance, etc).
• Allow increased local flexibility in using state aid.
• Include car tax reimbursements as part of any “flexible”
  state aid reduction base.
• Revisit tobacco taxes, sales tax dealer discount, and prior
  tax reductions.
• Increase local option tax authority.
• Hope for new federal aid initiatives for Medicaid and
  education!

                                                                31

				
DOCUMENT INFO