Summary of Governor McDonnell’s Proposed Budget

Below is a summary of Governor McDonnell’s Budget Proposals. This budget plans to set priorities and reallocate funds within existing revenues, not by raising taxes. The goal of this is to make state government run more efficiently, without making it bigger. The 2010-2014 budget equals $84.9 billion.  Over the past two years, we have eliminated $6 billion in shortfalls within our previous budgets. On the discretionary side of the Budget known as the “General Fund”, Virginia has cut government dramatically. We are now spending at 2007 levels. With this budget plan, the Rainy Day Fund should double in size by the end of the 2014 fiscal year, with continued revenue growth exceeding $600 million. With current revenue funds, the following issues were specifically addressed in the budget proposal.

VRS Funding: As I mentioned earlier, the Virginia Retirement System is a pension plan for state employees, so when one retires after 20 – 30 years of service, he/she gets a certain percentage of their pay every year they are alive. 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. The VRS has been underfunded over the past several years because the state has delayed their contributions to the system due to the Recession. For this budget, McDonnell has proposed the largest state funding for state employees and teachers in the VRS in state history, with payback of deferred contributions for state employees ($67.1 million) and teachers ($197.4 million). These funds are meant to improve the stability of the system.

State Employee Compensation and Benefits: McDonnell has proposed a gain-sharing bonus of 3% for state employees similar to that in 2010. To qualify for this bonus, certain performance requirements must be met, such as agencies meeting set savings goals and performance evaluations, among others.

Fee Increases: The budget will require a few fee increases but these will be decided based on a three part test. First, fees cannot be raised if they have already been done recently. Second, the fees must be related to the service it pays for and third, the money gains from these fees must not exceed the cost of the service.

Economic Development: The proposed plan will continue to phase out the Accelerated Sales Tax I discussed in an earlier blog. Under this budget, 95.6% of retailers will now be exempt from this tax. Since 2010, over $5.5 billion in private capital investment has been committed to the Commonwealth and about 62,000 new jobs have been created. The new budget also plans to invest $40 million in funds to continue economic development in various fields.

K-12 and Higher Education: The budget provides an additional $438 million (including Lottery proceeds) in new funding for public education. The funding recognizes the rising costs of the Standards of Quality and demonstrates our commitment to making significant investments in teacher’s retirement. This funding will require school divisions to spend a percentage of these funds on instructional purposes, helping put more focus of funds in the classroom. The budget also proposes transitioning to a performance-based evaluation of our schools. This will reward teachers based on effectiveness on their teaching.

The proposed budget will provide $200 million in new funding for Higher Education with the goal of making college more affordable and accessible to Virginia students. For universities to have access to this funding, they will have to meet certain performance criteria determined by the state.

Health and Human Resources: Mandates from the federal government are having a strong influence on state spending decisions in the area of health care. State Medicaid spending has increased by almost 80% in the last decade and with federal health reform, Medicaid enrollment is expected to increase by 1.7% by FY2013 and up to 40% by FY2014. At the present moment, spending doesn’t seem able to afford such increases. However, $6.7 million in new funding has been set aside to address the new federal mandates. In the area of intellectual disabilities, effort has been made to move towards more community based services in order to decrease our reliance on institutional forms of care.

Transportation: The proposed budget will increase the percent of the dedicated sales tax allocated towards transportation from .5% to .75% over the next 8 years. It will be increased by .05% over the next two years, and expected to create $100 million for transportation maintenance. Also, $97.2 million will be allotted to the Virginia Transportation Infrastructure Bank from the 2011 surplus.

Natural Resources: In terms of preservation, the proposed budget will dedicate $50.3 million to the Water Quality Improvement Fund, $5 million to the Virginia Land Conservation Fund and $2 million to the Civil War Site Preservation Fund.

I know this is a lot of information, and only offers a brief summary on a number of budgetary issues. If you have any questions about the issues, please don’t hesitate to email me at dave@davealbo.com

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