VACo PRESS RELEASE: State reports revenue surplus; time to strengthen county budgets

July 15, 2013

RICHMOND (July 15, 2013)—Gov. Bob McDonnell presented welcomed news late last week when he announced the state closed FY 2013 with a $261.9 million surplus from general fund revenue collections. Total revenue collections rose by 5.3 percent in FY 2013, above the revised revenue forecast of 3.6 percent growth.

The Virginia Association of Counties applauds the efforts of the governor and the Commonwealth for strengthening our state economy.

But there is much work to be done. The $261 million surplus in state general funding is achieved through funding shifts to local governments.

Local governments are still stinging from previous state funding reductions in Aid to Localities. Reductions since 2009 encompass public education, health and human services and the comprehensive services act.

Additionally, programmatic changes in the Line of Duty Act (LODA) program have shifted responsibility from the state to localities, which have incurred financial liabilities in excess of $15 million.

Pension reform changes created mandated salary increases for local employees. The 5 for 5 initiative proved burdensome for many localities that were struggling with lower real property assessments and revenue reductions. Amendments to the Virginia Retirement System pension program in 2012 mandated that local governments provide short-term and long-term disability benefits to local employees. This fiscal mandate had previously been optional.

Constitutional officer liability insurance has shifted from the state to local governments, which are assuming 100 percent of the cost and are mandated to purchase the insurance from the state risk management program (VARISK).

With the state enjoying a surplus, now is the time to reverse the shifting of state programs to localities and reinforce county budgets.

LODA should be returned to the Commonwealth and state pension reforms should not be mandated on local governments. Localities should not be mandated to purchase risk insurance from the state when comparable insurance at a lower cost can be purchased through competitive bidding.

The adopted FY 2014 state budget mandates general funding for the VRS Board approved rates for teachers. This state cost is estimated to be $160 million in FY 2014. A growing problem for localities is the past unfunded teacher pension liabilities. In previous years the state budget reflected funding for lower rates thus leaving the teacher program with a growing liability. The state should assume its fair share of these liabilities that have grown in recent years.

For VACo, it’s a matter of simple accounting. Currently, the state pays localities its portion of the unfunded teacher pension liabilities and localities pay VRS. If instead the state paid VRS its portion directly, the Commonwealth would continue to share the unfunded liabilities responsibility with local governments. Accordingly, localities could reduce the risk of a downgraded bond rating.

The Governmental Accounting Standards Board Statement No. 68 requires localities to claim all unfunded liabilities for teacher retirement plans after June 15, 2014. VRS reported that this unfunded liability stands at $15.2 billion in Virginia. It is estimated that the shift in liability to localities will cause 2 percent of localities nationwide to be downgraded by bond rating agencies.

VACo stands ready to work with Gov. McDonnell and the General Assembly to identify fiscal solutions to further strengthen Virginia’s economy.

VACo exists to support county officials and to effectively represent, promote and protect the interests of counties to better serve the people of Virginia.

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Contact Dean Lynch for more information.

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