VACo analyzes Governor’s proposed biennium budget

January 4, 2016

Budget

By Jim Regimbal | Fiscal Analytics

Governor Terry McAuliffe introduced a revised FY 2016 and new FY 2016-2018 biennium budget proposal on December 17. A total of $592 million in increased FY 2016 revenues were available due mostly to a higher base from the FY 2015 surplus. The FY 2016 revised budget also included net new General Fund (GF) spending of $171 million – primarily for $167 million in unanticipated Medicaid utilization and inflation and $18 million in Children Services Act (CSA) spending. After adjusting for the new proposed spending, a $426 million GF balance forward is available to spend in the FY 2016-2018 biennium.

Spending in the FY 2016-2018 biennium is proposed to increase by almost $2.8 billion GF over the revised base budget spending in FY 2016 of $18.9 billion. While this may seem large, GF resources underlying the proposed budget are forecast to increase by a relatively modest 2.8 percent in FY 2016, 2.9 percent in FY 2017 and 3.6 percent in FY 2018. In addition, the proposed resources available over the next three years have been decreased by $841 million due to a number of forecast adjustments and policy changes. The largest reduction is a $564 million adjustment equal to 1 percent forecast each year to conservatively reduce income tax non-withholding collections currently growing above prior trend levels. Other major policy proposals include a $64 million corporate income tax rate reduction from 6 percent to 5.75 percent; the partial removal of the accelerated sales tax payment requirement ($64 million); an increase in the personal income tax exemption from $930 to $1,000 ($42 million); and $30 million in various economic development tax incentives.

The relatively conservative revenue growth forecast and policy adjustments resulted in the ability of the Governor to propose only modest changes in general fund spending for the 2016-18 GF budget. In addition, it is likely that the General Assembly will reject the Governor’s proposal to expand Medicaid through the use of a hospital provider tax. This would eliminate $160 million in savings dedicated to: the corporate tax reduction and personal exemption increase ($106 million); the Growth and Opportunity Fund ($12.9 million); the Global Genomics and Bioinformation Research Institute ($16 million); the Massey Cancer Center ($8.5 million); the Department of Social Services Unisys mainframe ($6.7 million; the Commonwealth Center for Advanced Manufacturing ($4 million); and the Jamestown-Yorktown Foundation ($3 million).

Direct Aid to Public Education

K-12 education comprises about one-third of the $2.8 billion in new spending, or $930 million over its FY 2016 base budget. This is roughly equivalent to the current 30 percent K-12 receives of total general fund spending. The 5 percent annual increase in new K-12 spending is primarily for:

  • Normal Standards of Quality rebenchmarking ($429 million).
  • $139.1 million to hire 2,500 additional instructional positions. Maintenance of effort required and cannot be used to support existing or central office positions.
  • $83.3 million for the state share of a 2 percent salary increase in FY 2018, contingent on available revenues.
  • $55 million to fund 100 percent of the recommended VRS rates in FY 2018 (e.g., increases teacher rate from 14.66 percent to 16.32 percent)
  • $49.7 million for additional at risk student funding based on numbers of free lunch students, and contingent on applicable schools submitting any required corrective action plans.
  • $40.6 million to restore PD8 COCA for support positions in FY 2018.
  • $30 million GF to decrease the Literary Fund transfer for teacher retirement.
  • $6.9 million to expand VECF grants.
  • $4 million to update career and tech education equipment.
  • $3.8 million in FY 17 for “no loss” funding.

Other 2016-18 biennium spending proposals of particular interest to localities were relatively modest and included:

Department of Housing and Community Development

  • $25.5 million to establish the GO Virginia Initiative to foster public‐sector growth and job creation through state incentives for regional collaboration by business, education, and government. Specifically, this amendment is for $5.5 million in FY 2017 and $20 million in FY 2018 for the three components of the Virginia Growth and Opportunity Fund: capacity building, regional population‐based allocations, and competitive regional allocations.
  • $12 million to provide additional support for the Housing Trust Fund.
  • $10 million for a healthy food financing program to encourage the development of supermarkets and other healthier food retail in underserved communities or “food deserts.”
  • $5.7 million for the Virginia Telecommunication Initiative to enhance broadband infrastructure

Compensation Board

  • $12.3 million to address salary compression for sworn and non-sworn employees of sheriffs’ offices and regional jails.
  • $6.9 million to support career development programs for eligible constitutional officers.
  • $4.1 million to support the staffing costs of jail expansion projects (Pamunkey Regional Jail and Central Virginia Regional Jail).

Children’s Services Act

  • $18.5 million to provide assistance and services for children in foster care or adoptive homes in the Commonwealth and protective services to children and child support enforcement services to families.
  • $4.2 million to support growth in the Early Intervention – Part C program operated by the Department of Behavioral Health and Developmental Services.

Other

  • $6.7 million each year for increased HB 599 Aid to Police, representing a 3.9 percent increase above the FY 2016 base.
  • $5 million to establish pilot programs in local and regional jails to provide assistance to offenders needing mental health services.
  • $3.2 million and 19 positions to establish pilot re-entry programs in local and regional jails.
  • $61.7 million from the FY 2015 surplus for the mandatory Water Quality Improvement Fund deposit.
  • $24 million for the Land Conservation Fund.
  • $59 million in bond proceeds for DEQ to address wastewater issues.
  • A 2 percent salary increase for state supported local employees.

VACo Contact: Dean Lynch, CAE

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