With the 2012 General Assembly Session quickly approaching, Governor McDonnell is preparing to submit his first full two-year budget. The 2011 fiscal year ended in June with 5.8% more revenue than the previous year ($311 million more than official estimates). However, the General Fund still hasn’t fully recovered from the Recession, and, therefore, important funding decisions will soon have to be made. Here’s a look at some issues that will need to be considered in the budget.
Virginia introduced the Accelerated Sales and Use Tax in June 2010 to allow the state to receive tax revenue before the end of the fiscal year. This system requires certain businesses to pay the tax they collect for the sale of goods (5% sales tax) early. (The rule requires these businesses to pay 90% of their expected tax collections for next fiscal year by the end of this current fiscal year.) Eventual elimination of this program is a goal. It has already been reduced to an extent; however $190 million is still needed to completely eliminate the collections. The Virginia Retirement System was set up as a retirement system for state employees. It is a pension, so when a state employee retires after 20 – 30 years of service, he/she gets a certain percentage of their pay every year they are alive. The employee pays a portion, and the state pays a portion. In order to insure that there is enough money in the pension fund to pay for all these employees, actuaries analyze life expectancies, and financial analysts analyze the stocks and bonds held in the fund to see if it has enough money. If it does not, the State puts more money into the fund. State contributions to this system were postponed as a means to cope with the budget crisis created by the ongoing recession. The VRS deferred contributions will need to be repaid over a 10-year period, with interest. As an aside, this pension is unaffordable. I have supported a bill to kill it for all new hires and give these new state employees a more traditional 401K type of retirement.
Education: In addition to the above strategies, the 2012 session will also have to address numerous other funding issues. In relation to education, the Standards of Quality (SOQ) costs will need to be adjusted based on the costs incurred by school divisions over the last two years. The SOQ’s are a set of minimum standards each school must provide (e.g. class sizes, quality of classrooms, number of books, etc.). The costs to maintain and improve these standards are assessed every two years. K-12 schools are funded through a combination of state and local government money. The state money is set as a portion of the SOQ’s. So if the SOQs increase, the state has to pay more money to the local governments for the schools.
Medicaid Funding: Medicaid is basically health care for people that can’t afford it. It is a program that is funded by a combination of State and Federal Funds. The Federal government sets certain minimum standards. So if their standards change, if more people qualify and if medical costs go up, then the state share is increased. Every year, the State has to reassess these funds.
Adding to this, if the federal government health care reform bill is upheld by the Supreme Court, the State will have to enroll thousands upon thousands of new people. This is going to cost hundreds of millions. And to be totally honest with you, I have no idea where this money is going to come from.
These issues will be discussed much more in depth when I head down to Session in January, but I wanted to let everyone know a summary of what are expected to be big issues. If you have any questions, please email me at email@example.com.