Thursday, September 18, 2014

Special Session Resumes: Where do we stand?

As Special Session I, which began on March 24, continues, we can count our blessings.  Headlines such as “BUDGET AGREEMENT TO REDUCE SPENDING UP TO 3.5 PERCENT, SPARES K-12 EDUCATION” seem to say it all.  It appears that the Governor, the House and the Senate are in agreement regarding House Bill 5010, which will amend the current biennial budget (Chapter 2 of the Acts of the Assembly of 2014).  They had to adjust the budget to address a biennial deficit expected to be $881.5 million dollars greater than what was anticipated by the budget adopted when the regular session ended in early March.
The good news is that public school funding was not cut, and the cuts to localities were held to $30 million per year.  That is less than 0.3%.  Local governments will actually have to send that amount back to the state (reversion).  The determination of where these cuts are made on the local level is a matter of local discretion.

Thanks to our Governor, to Senators Stosch and Colgan, and to Delegate Chris Jones for these actions which will spare our schools from additional cuts.
But, let’s step back and ask a few questions.  First, is this shortfall indicative of a tax structure in need of revision?  It appears that our tax system lacks adequacy, reliability and (when one with an income of $18,000 pays that same rate as one with an income of $1 billion) fairness.  When we are relying on the Rainy Day Fund to balance the budget in a time of economic growth – something is wrong.

These stories of sparing public education from cuts mask the reality that even without cuts, we are spending $227 less per pupil now than we did in 2009, and if you adjust for inflation, it’s more like $907 (2016) less.  And does this story, which is not in the headlines, relate to another headline you may have seen, “MORE THAN 30% OF VA. SCHOOLS FAIL TO WIN ACCREDITATION”?
It’s interesting to see the many explanations for more schools failing to win accreditation.  The standards have become tougher.  The state’s demographics are changing.  I even heard too much texting and too little reading.  There are so many variables at play that no one can point to a single cause with certainty.

But, I wonder if we are avoiding what may be two significant variables.  Virginia ranks 38th in state per-pupil support and 37th in teacher pay.  As funds have been cut, classes have grown larger, elective courses have been eliminated, and after-school programs have been eliminated.  We are doing very little to attract and retain the best teachers to our classrooms.  Is the disinvestment in the education of the next generation and our failure to support the teaching profession beginning to take its toll?

Monday, August 18, 2014

As School Starts, Where Do We Stand? Education Funding Update

The Governor addressed the money committees of the General Assembly Friday morning.  He detailed the revenue shortfall faced by the Commonwealth.  The total budget reductions required after tapping the $846 million in budgetary reserves included in the current budget, and withdrawing $705 million from the Rainy Day Fund, total $882 million, $345.5 in FY 2015 and $536 million in FY 2016. 

Finance Secretary Brown outlined the steps ahead:

Budget actions will be identified and implemented to address the reduction in the fiscal years 2015 and 2016 forecast.
Prepare and review of agency-developed reduction plans.
Implement agency budget reductions to address the shortfall in the current fiscal year.
Make recommendations in the 2015 amended budget bill for additional items that require General Assembly approval.

The Governor pledged to try to protect public education, transportation, and health care.

As details regarding reductions are revealed, we will send them your way.  We anticipate that any cuts to public education wont be large, but our schools are dying the death of multiple small wounds since 2004 when we last saw a significant increase in funding.  We have lost all that we gained then.

In the short term, maybe lawmakers should heed the advice offered by the editor of The Virginian Pilot:

This is going to be rough, and it may well necessitate the kind of draconian cuts undertaken six years ago, at the start of the Great Recession. But it doesn't need to be as bad as it's shaping up to be, particularly if lawmakers come to their senses and accept the piles of federal tax dollars sent to Washington by Virginians and available for return to the commonwealth. (Medicaid expansion)

But, in the meantime, this shortfall should lead thoughtful observers to question the adequacy of Virginias tax structure.  One of the things our Governor said on Friday was, “This past fiscal year marks the first time that general fund revenues have declined in the Commonwealth other than in a national recession.”  As a consequence, we will be dipping into the Revenue Stabilization Fund (Rainy Day Fund) when our states economy and our nations economy is [sic] expanding. 

This begs two questions.  First, if we are dipping into this fund when times are good, will there be a sufficient balance to protect core services when we hit the next recession?  Second, do we need to examine the adequacy of our tax structure?  Is our tax structure providing sufficient revenues to support core services?

In short, Virginia faces fundamental change.  For decades, our economic growth has been driven by ever increasing federal defense spending in Northern Virginia and Hampton Roads.  This funding has been cut, and it appears that more cuts are on the horizon.  The consequence of these cuts and an expanding economy is high dollar defense related jobs replaced by low paying jobs in the service sector.  This drives down income tax revenues.

This leads to the most interesting passage in McAuliffes speech:

… we have already seen the damage sequestration has done to our economy so far. 
And the Secretary of Defense has indicated, if no changes are made by 2016, an additional $50 billion in defense cuts will have to be made.  
We all know of Northern Virginia’s economic reliance on the Department of Defense, and in Hampton Roads, military spending accounts for 42% of the area’s Gross Regional Product. 
If I have learned anything after more than 40 years in business, it’s that you don’t sit idly by when your largest customer cuts spending. You get out there and hustle to find new sources of revenue so that you can keep your business healthy. 
That is why we must work together to build and maintain the best public infrastructure system anywhere in the world, so that we can attract the next generation of jobs in cybersecurity, biosciences, data analytics, aerospace and other industries that are building the economy of tomorrow.  
Whether it’s the Pentagon, a Fortune 500 company or a small business, when decision makers start looking for a new location, they look at which state offers the best public schools, the strongest transportation networks, the highest quality health care, the safest communities, and the cleanest environment.  
These are all enormous strengths for Virginia that contribute to the quality of life that our families enjoy. But if we are going to out compete 49 other states and Build a New Virginia Economy, we cannot afford to be complacent. 
The Governor is right, we cannot afford to be complacent, but Virginia has a record of complacency when it comes to supporting public education and the other core services.

On the same day the Governor gave his speech, our friends at the Commonwealth Institute (CI) released an infographic detailing Virginias declining investment in the education of her children.  CI accurately asserts that, School funding per pupil is down 16 percent compared to 2009, after adjusting for inflation.” 

Virginia can do better, and must do better if we are to, as the Governor said, “Build a New Virginia Economy.”

Where do we stand now?

39th in state per-pupil funding, pre-K-12
37th in teacher pay
13th in state corrections expenditure per offender
10th in wealth
46th in state and local taxes as a percent of personal income

Virginia can do better.  Our politicians talk a good game, but the truth is in the numbers, and the numbers reflect that public education is a low priority.  Does this reflect the will of the people of Virginia?  Absolutely not!  The most recent Commonwealth Education Poll (2013-2014) reveals that, “Virginians remain strongly supportive of funding for the public schools.  Almost two-thirds of Virginians (65%) say that Virginia schools do not have enough funds to meet their needs ….”

We have a governor who is inclined to help us, but, at this point, his ability to advance an agenda is compromised by the fact that his party controls neither the House nor the Senate, and I suspect that even he will need a serious push if we are to see bold action.

As Shakespeare said, Timing is everything.  There is little opportunity for meaningful progress in the short legislative session of 2015, but 2016 will be a budget year, and there is an election for all members of the General Assembly in November of 2015.  Starting with the end of the 2015 session, February 28, 2015, we will need to start making noise.  We should follow the advice of Laura Goren at the Commonwealth Institute:

Virginians who care about the quality of their local schools should be asking their state legislators, local elected officials and school boards some tough questions about how we can all bring to the table the resources that Virginia’s kids need. 

Wednesday, June 25, 2014

"Not with a bang but a whimper"

As far as VEA is concerned, it appears that Special Session I has essentially concluded.  The remaining issue which could have a long range impact on education funding, Medicaid Expansion, may be decided by the judicial branch.

From a legislative perspective, we did make some gains in 2014:
  A-F School Grading Delay

  SOL Reform

  Pension Funding

  From 5 to 10 Days to Contest Dismissal

  Lactation Support

From a budget perspective the high point of the session was Governor McAuliffe’s introduction of his budget, which used the $225 million in savings achieved by expanding Medicaid, in part, to provide the state share of a 2% salary increase for teachers and support personnel and included language to allow local school divisions to participate in the state’s health insurance program.
Economic projections tanked, Senator Puckett’s resignation changed the balance in the Senate, and the House successfully, at least for now, blocked the Medicaid Expansion, which would have freed up General Fund dollars for education.  So the session, which at points had raised hopes, ended “Not with a bang but a whimper.”

One House member, as he left the Capitol yesterday, shared his assessment that education had done well, as the $404.2 million for the rebenchmarking remained in the final budget.  I guess it’s a matter of perspective, but we will still be running our schools on less than we had in 2009.  Our average teacher salary is 37th in the nation, $7,456 behind the national average, and our state per-pupil funding for PreK-12 ranks 39th.  We are the 10th wealthiest state in the nation, and our per-capita state and local taxes as a percent of personal income ranks 46th. 

The General Assembly seems all about balancing the budget and little about support for our public schools.  Virginia can clearly do better, and, as this session ends, we need to prepare to keep up the fight in the 2015 session.
Click here for a detailed report on the budget including funding for each division.

Senator Puckett’s resignation changed the balance of power in the Senate, and the Republicans reorganized the Senate last night.  Click here to see the new Senate Committee assignments.


Friday, June 13, 2014

We Have a Budget

It’s not over until it’s over, but only judicial appointments and the veto session keep the 2014 Special Session I of the General Assembly from being over.

Tumult preceded yesterday’s session, which ended well past midnight.  A botched revenue forecast put the state $1.55 billion behind projections.  Senator Philip Puckett resigned, returning the Senate to Republican control, and Representative Eric Cantor was upset by Tea Party upstart David Brat.

These three events created a perfect storm which led to a very disappointing budget outcome last night. 

Hastened by the anticipated revenue shortfall in the next biennium and the need to pass a budget by June 30 to access the “Rainy Day Fund” to partially offset this shortfall, the General Assembly worked frantically to pass the 2014-2016 biennial budget.  This budget includes a $847.5 million revenue reserve fund and anticipates a $707.5 million withdrawal from the “Rainy Day Fund” to achieve balance.

The good news is that rebenchmarking and VRS funding were not cut.  The bad news is that we lost the teacher and support staff salary increases and the language allowing school division participation in the state health insurance program.

Had Medicaid Expansion been included in the budget, the resulting $225 million in savings could have offset some of the shortfall and consequently have reduced the cuts.

The new Republican Senate majority, empowered by Puckett’s resignation and fearful of Brat-inspired Tea Party primaries, inserted Senator Stanley’s amendment thwarting any effort by the Governor to expand Medicaid without the approval of the General Assembly.

Will the Governor sign the budget, line-item veto this section of the budget, or will he veto the entire budget and send the General Assembly back to work?

Tuesday, May 20, 2014

If there is no budget by June 30th, will Virginia’s public schools shut down? Part II

Yesterday, the House Appropriations Committee heard a report from David Rosenberg and Mark Vucci, Senior Attorneys with Legislative Services, regarding what power the Governor would have in the event of a failure on the part of the legislative branch to produce a budget by June 30.

I believe they presented the case most to the advantage of the legislative branch – indicating that the Governor would have no power to spend funds.  Among the “Key Take Aways” was the statement, “In the absence of an appropriations law, the Governor could declare an emergency but moneys will not be available to address the emergency conditions.”

I’m a bit skeptical of this view.  Should the Governor declare an emergency and keep the jails in operation and keep the State Police on duty to protect public safety, would the Supreme Court rule against him?  I think not.

They also offered a very narrow interpretation of Article 10, Section 7, presenting a view that the ”two years and  six months” has already expired.  I’m thinking that this will be subject to the interpretation of the courts.

The one thing that they said that I know to be true is that if a budget is not produced we will be in uncharted waters.

Equally sobering was the assessment from Secretary of Finance Richard D. Brown when he was asked how failure to produce a budget might affect Virginia’s bond rating:   “If we go past June 30th it puts us in a different posture with them [bond rating agencies].  If we go past June 30th it will change the perspective from which they view Virginia.”

All this talk of uncharted waters leads me to reject Santayana’s “Those who cannot remember the past are condemned to repeat it.” in favor of Allen Ginsberg’s “There is nothing to be learned from history anymore.  We’re in science fiction now.”

Wednesday, May 14, 2014

If there is no budget by June 30, will Virginia’s public schools shut down?

“If there is no budget by June 30, will Virginia’s public schools shut down?” This is the $7 billion dollar a year question. To my knowledge we will be entering uncharted territory.   If a budget is not adopted by July 1, the Governor has said publicly that he will not allow the government to shut down.  His authority to keep the government going will surely be questioned.  I can't find much in the Constitution of Virginia to grant the Governor spending authority beyond December 11, 2014.  However, Code provisions appear to empower the Governor.

The period of July 1 through December 11st is covered by Article X, Section 7:

No money shall be paid out of the State treasury except in pursuance of appropriations made by law; and no such appropriation shall be made which is payable more than two years and six months after the end of the session of the General Assembly at which the law is enacted authorizing the same.

This passage is certainly subject to interpretation.  If the budget bill references two years, is the Constitutional language relevant?  If so,  when does the 30 month span begin?  Delegate Bob Marshall, who is an astute scholar of the Virginia Constitution, asserts that it begins on June 11, 2012, when the General Assembly last amended and the Governor signed the biennial budget bill.   Could this provision, intended to allow the payment of invoices still outstanding, be used to fund the government at the level established by the 2012-14 biennial budget until December 11?

If a 2014-2016 budget is not enacted prior to December 11, our focus shifts to other portions of the law.  The second sentence in Article V, Section 7 reads as follows:

The Governor shall be commander-in-chief of the armed forces of the Commonwealth and shall have power to embody such forces to repel invasion, suppress insurrection, and enforce the execution of the laws.

This section of the Code of Virginia is also relevant (§ 44-146.17.): 

(7) Whenever, in the opinion of the Governor, the safety and welfare of the people of the Commonwealth require the exercise of emergency measures due to a threatened or actual disaster, he may declare a state of emergency to exist;

Up to this time conventional wisdom has been that his power would allow the Governor to keep governmental operations related to public safety in operation, such as police protection and continued operation of the jails.  However, the cessation of services such as foster care, support services to the disabled, public hospitals, public education, and road repairs are just a few examples of what could be viewed as an emergency. 

Would the Governor cite "the execution of laws," and, for example, say that the Standards of Quality are laws enabling him to keep the schools running under the funding level of the previous budget?  Would he declare a state of emergency?  In either case, the Attorney General will likely be asked to weigh in, and this would then head to court, as members of the legislative branch would assert that only funds which are appropriated can be spent.

If the court were to side with the Governor, the ruling could take the pressure off of future legislatures to produce budgets on time.  If the court were to side with the legislature, we'd have at least a partial shutdown.  I'm sure the courts would specify that the operation of jails and law enforcement would continue.

The specter of this issue appearing before the court would certainly put great pressure on the General Assembly to act.  We would be in a Constitutional crisis, and the court's ruling might alter the balance of power between the three branches of government.  It would be extremely unwise for the legislature to sit back and take this risk.

School boards could try to keep things going in the short-run with local funding - this may be easier for Alexandria compared with Lee County.  Local governments can pass a budget without having all the cash on hand, and the decisions regarding appropriations obviously will affect the ability of the school board to keep schools going.

We should keep our ears to the ground on this, but if anybody other than a Virginia Supreme Court justice tells you with certainty that they know what will happen, should this issue come their way, take it with a grain of salt.

Tuesday, April 8, 2014

The Games Continue

SB 5003 passed the Senate today on a 22-15 vote, and was communicated to the House.  The House referred it to the Appropriations Committee, but did not schedule a meeting of the committee.
The House budget bill, HB 5002, lies dormant in the Senate Finance Committee.

Both chambers adjourned with no future sessions scheduled.  The Senate was told to be on 48 hour notice, and the House was told that they would next meet on the call of the Speaker.
The games continue, and there is no sign of progress on the budget.

What a mess!