Category Archives: Budgets

Trump Budget Bullet Barely Grazes NoVa

President Trump’s proposed budget would cost the Washington metropolitan region up to 24,600 jobs and billions in lost salaries and procurement spending, according to a new analysis by regional economist Stephen Fuller.

But Washington’s Virginia suburbs would get off easier than Maryland and the District of Columbia, reports the Washington Business Journal. The district would lose 14,000 to 15,000 jobs and Maryland would lose 5,500 to 6,000. But in Northern Virginia, where cuts to the federal bureaucracy would be partially offset by an increase in defense spending, would lose only 500 to 3,600 jobs.

Overall federal spending in the Washington region would drop between $4.2 billion to $5 billion, reducing growth in the region’s gross domestic product by 1%. If GDP tracks job losses, the impact on Northern Virginia will be even milder.

Bacon’s bottom line: Trump’s budget will not be enacted as submitted. Congress will tinker, undoubtedly sparing some non-defense programs on Trump’s chopping block. (I’m rooting for preservation of funds for Chesapeake Bay restoration.) But assuming that Fuller’s projections are in the ballpark, it doesn’t look like Virginia has much to worry about. The loss of 500 to 3,600 jobs in Northern Virginia’s dynamic economy will cause no more than a burp in growth.

Maybe We Should Call It the “Cloudy Day” Fund

From rainy day fund to cloudy day fund.

From rainy day fund to cloudy day fund.

The General Assembly managed to close a $1.5 billion budget shortfall in the budget it just passed, but don’t credit legislators with a lot of fiscal discipline. More than a third of the gap was closed by drawing down Virginia’s Revenue Stabilization Fund, more commonly known as the “rainy day” fund.

The idea behind the fund was to have a reserve to draw upon during times of acute fiscal distress such as a recession. But the economy, though tepid, is growing, employment is increasing, incomes are rising, and state revenues are climbing — just not as rapidly as forecast.

Michael Cassidy, president of the Commonwealth Institute for Fiscal Analysis, has written the best analysis I’ve seen of how lawmakers closed the revenue shortfall.

By far the biggest piece of the pie comes from drawing down the maximum allowable amount from the rainy day fund. That alone covers more than a third of the shortfall.

It is certainly preferable to draw $567  million from the rainy day fund than to make $567 million in additional cuts to core services. At the same time, it’s important to remember that this fund is intended to help Virginia get through tough economic times.

Also important: The average amount of time between U.S. recessions since 1945 has been five years. We’re now almost eight years into the recovery from the last recession. And by the end of the budget period, the fund will be less than one-quarter of the size it was before that recession, even before accounting for inflation.

Make no mistake: There will be another recession — and Virginia needs to be better prepared for it. The state can’t keep drawing from the rainy day fund instead of dealing directly with its structural revenue problems.

Bacon’s bottom line: I couldn’t have put it better myself. While Cassidy and I might disagree on the remedy, we are 100% in accord about the problem. Given current economic growth prospects, Virginia’s budget has deep structural issues, and drawing down the rainy day fund today will make the pain even more acute when a recession hits, as it inevitably will.

One approach to dealing with the structural issues is to raise taxes. Well, we raised taxes during the Warner administration, and raised them again during the McDonnell administration. While those tax increases papered over the structural budget imbalances for a time, revenue gaps inevitably re-emerged. Unless we want to slide down the slippery slope of raising taxes every five or six years until we look like New York or New Jersey, we need to fundamentally re-think the way we deliver government services.

Tweaking the system won’t hack it. We need fundamental change. I will continue to explore alternatives — from reforming land use patterns to enacting school vouchers to Uber-izing the transportation system — on this blog.

No Magical Solutions for Trump

Says Rep. Tom Cole, R-Oklahoma: Trump’s numbers don’t add up.

Someone in the national press corps is finally focusing on an issue less ephemeral than Donald Trump’s tweets: the fiscal disaster that looms if all of the president’s programs are enacted. Writes Rachel Blade and Josh Downey in Politico:

“I don’t think you can do infrastructure, raise defense spending, do a tax cut, keep Medicare, Medicaid and Social Security just as they are, and balance the budget. It’s just not possible,” said Rep. Tom Cole (R-Okla.), a senior member of the House Budget Committee. “Sooner or later, they’re going to come to grips with it because the numbers force you to.”

Duh.

If designed properly, tax cuts could be stimulative, but it takes a leap of faith to think that faster economic growth would recoup all the lost revenue. Carefully designed deregulation of the healthcare, banking, telecommunications and energy sectors could promote growth as well, although not without some offsetting risks and costs. Even if economic growth does rebound, it will likely trigger inflation and the Federal Reserve will raise interest rates. There are no magical policy levers that will allow the U.S. to fulfill all of Trump’s promises without running up deficits and the national debt.

My hunch is that the GOPs in Congress can water down the more fiscally irresponsible of Trump’s plans but won’t stop them all. Trump will blame the resulting deficits on Obama, just as Obama blamed his deficits on Bush. Words won’t change anything. Boomergeddon is coming. The only question is when.

More Hidden Deficits: Bad Bridges and Bad Metro

Virginia has its share of bad bridges.

Bad bridges. Image source: USA Today

Update on America’s hidden deficits: Nearly 56,000 bridges across the country are structurally unsound, according to the American Road and Transportation Builders Association (ARTBA), as reported by USA Today.

More than one in four of the bad bridges are at least 50 years old and have never had major reconstruction work, according to the ARTBA analysis. Thirteen thousand are along interstates that need replacement, widening or major reconstruction. Virginia falls in the middle tier of states where the percentage of bad bridges ranges between 5% and 8.9%.

Don’t county on the federal government for help — unless the Trump administration moves ahead on its fiscally unsustainable $1 trillion infrastructure spending plan. The U.S. highway trust fund spends $10 billion a year more than it takes in. The USA Today article did not say how much it would cost the country to remedy the structural deficiencies.

Bacon’s bottom line: Welcome to the American way of building infrastructure. Uncle Sam subsidizes the up-front costs and the fifty states eagerly jump on board. Forty or fifty years later, the bridges wear out. The states haven’t salted away any money to fix them, and the feds say,” So, sorry, we only fund construction, not maintenance and repairs.”

If you want to build roads, bridges, highways, airports, and mass transit, you need a plan for long-term financing. Otherwise, you’re just creating a huge problem for the next generation. Eventually, the bills come due. If we can’t afford to fix what we’ve already built, we have no business building new stuff we can’t afford.

But we build new stuff anyway. A case in point comes from Loudoun Now: New estimates suggest that Loudoun County’s payments to the Washington Metro could run as much as $27.9 million higher than expected — double what was expected. (The number may be somewhat overstated because it includes the cost of a bus service, which Loudoun is already providing.)

Loudoun doesn’t have a station on the Metro Silver Line yet, but it will in a couple of years when Phase 2 is complete, and it will have to start paying its share of operations and capital costs. Unfortunately for Loudoun — and this was entirely predictable because METRO’s fiscal ills have been well known for years — METRO needs much more money than in the past to compensate for decades of under-funding and scrimped maintenance.

METRO’s problem has been brewing for decades. Fiscal conservatives have been sounding the warning for years and years. Government officials been making financial projections that everyone knows, or should know, have no basis in reality. But everyone pretends everything is fine to keep the gravy train rolling.

If it’s any consolation, $28 million is no big deal in a county budget that runs $2.4 billion a year, says county finance committee Chairman Matthew F. Letourneau. who also represents the county on the Metropolitan Washington Council of Governments and the Northern Virginia Transportation Commission. “We’re the jurisdiction that’s building $35 million in elementary schools ever year.”

Hmmm…. I wonder if the county is socking away any money for maintenance, repairs and replacement of all those elementary schools. I would be astonished if it is.

Here’s an Idea — Let’s Impose Unfunded Mandates on Shrinking School Districts

Does it make sense to impose unfunded mandates on jurisdictions with shrinking school populations?

Dozens of Virginia localities have lost population since 2010. Does it make sense to impose unfunded mandates on jurisdictions with shrinking tax base and school enrollment?

There seems to be no end to the ideas that Do Gooders have to improve conditions in Virginia’s schools. And there’s always someone in the General Assembly willing to submit a bill to force Virginia school districts to adopt those feel-good ideas without providing any money to pay for them.

This year, the Do Gooders have backed unfunded mandates that would require every school in Virginia to hire a nurse and every school district in the state to hire a dyslexia adviser. I have no quarrel with the aspiration of employing more nurses and dyslexia advisers in our schools. But I do take issue with enacting bills that would impose those priorities over those of local school boards, many of which are grappling with shrinking budgets and all of which have a keener insight into local needs than anyone in Richmond.

Fortunately, the House Appropriations Subcommittee on Elementary and Secondary Education killed HB 1757, the nurse bill, recognizing that unfunded mandates create fiscal hardship for  local school divisions, reports the Richmond Times-Dispatch.

The Virginia Association of School Nurses said the state has one school nurse per 830 students. The bill would have mandated a ratio of one nurse per 550 students. Children need the service of trained professionals to deal with a host of medical conditions, the nurses argued. Ailments range from Type 1 diabetes to seizures, asthma and severe allergies. Some school districts put a nurse in every school. But some have other priorities. Small districts would be especially hard-pressed to meet the standard.

Another bill, HB 2395, would require every school district to staff a dyslexia specialist. The Dyslexia Research Institute contends that 10% to 15% of the U.S. population has the learning disability, but only one in twenty dyslexics are recognized and receive assistance. The syndrome interferes with children’s ability to learn how to read.

In this instance, reports the Times-Dispatch, the House Appropriations subcommittee approved the bill, which follows a law enacted last year that required new teachers to receive training in identifying and dealing with dyslexia.

Larger school districts already maintain dyslexia specialists. Here’s my question: What’s different between an unfunded mandate for hiring dyslexia specialists and an unfunded mandate for hiring school nurses? Perhaps the price tag is smaller — a single dyslexia specialist costs less than multiple school nurses. But the underlying principle is the same — the General Assembly is imposing its priorities upon local school boards.

While all this is going on, lawmakers are grappling with the financial problems experienced by shrinking school divisions. As coincidence would have it, the Demographics Research Group at the University of Virginia, has just published  its latest population data. As can be seen in the map above, dozens of localities have lost population since 2010. Presumably that population decline is matched by a decline in school population.

According to a third article in today’s Times-Dispatch, 39 localities have lost either 1,000 students or 20% of their enrollment between 2006 and 2016. Lower enrollments mean less state support for schools. The House Appropriations Committee is considering a bill that would scrape up $8.6 million to provide relief for those jurisdictions on the grounds that they are too small to offset the loss of state revenue by consolidating services and facilities.

In what world does it make sense to impose a new unfunded mandate — in this case, the dyslexia expert — upon these localities?

Thinking Sensibly about Virginia State Police Salaries

Lawmakers proposes big increase for Virginia State Police salaries.

Virginia State Police graduates. Lawmakers propose a big increase in starting salaries. Photo credit: InsideNova.com.

Virginia State Police troopers would receive a $7,000 pay raise — a 22.3% boost for starting salaries — under a budget proposal that also would provide a 3% pay raise for all state employees, reports the Richmond Times-Dispatch. The dramatic pay hike comes in response to deteriorating morale and a surge in state trooper departures.

Is such a big pay raise justified in the midst of a budget crunch in which lawmakers are forced to cut other programs?

Clearly, the state police have a massive problem. In November, the agency had 257 vacancies in a sworn force of 2,148, according to the Daily Press. Over the past few years, the state police averaged six departures monthly, reports the T-D. That number increased to 13 per month in last year and shot up to 22 in just the first 20 days of 2017.

By my back-of-the-envelope calculations, paying 2,150 officers an extra $7,000 each will cost the state about $15 million per year. That is a considerable sum. However, if the pay increase staunches the loss of manpower, it will be offset by a reduced training costs. The Times-Dispatch article notes that it costs the City of Richmond about $100,000 to get a recruit trained and on the street. Assuming that the cost to the state police is roughly comparable, and assuming the pay hike reduces the number of departures back to the pre-crisis norm of six per month, the state police will need to train 80 to 90 fewer troopers each year. That would represent a savings of $8 million to $9 million. (I have made several assumptions here, which undoubtedly can be refined, but you get the gist.)

Thus, while the $15 million departmental pay raise will not fully pay for itself through reduced turnover, the adjusted cost when taking training expenses into account will be considerably lower.

Are there other ways to offset the expense? Presumably, some state police functions are more critical than others, and some offer more law enforcement bang for the buck than others. Could the troopers be relieved of low value-added tasks that soak up manpower?

For example, lawmakers enacted a policy last year as part of a bipartisan compromise on gun control, in which state police conduct background checks at gun shows. Implementing that policy cost $300,000 annually to pay for three full-time civilian positions, as the Times-Dispatch reports here. In its first six months, the program resulted in only one person being denied the purchase of a weapon at 41 Virginia gun shows. The man was wanted for failing to appear before a grand jury in September. Was that one detention worth $300,000?

Six months may not be sufficient time to fairly judge the effectiveness of the program. But that’s the kind of question we need to be asking. Instead of stroking the state police a $15 million check, legislators should ask the top brass to enumerate all the tasks state troopers are called upon to perform. How much manpower do those jobs require? What value do they provide? Can we reduce the number of troopers on payroll without harming public safety?

It seems clear that we need to increase Virginia State Police salaries, and equally clear that the state will recoup some of that expense through reduced training expenditures. However, we should not assume that the only way to pay for higher salaries is to pump more money into the agency. Perhaps we can scale back tasks of marginal value. Unfortunately, I see no indication in the news coverage of this issue that anyone has even considered that alternative.

Virginia Higher Ed Faces Legislative Backlash

Virginia higher ed, and the University of Virginia in particular, are facing toughest General Assembly scrutiny in twenty years.

Virginia higher ed, and the University of Virginia in particular, are facing toughest General Assembly scrutiny in twenty years.

Frustration with Virginia’s higher education establishment boiled over during a press conference in the state Capitol building this morning as 15 senators and delegates from both political parties expressed their intention to curtail tuition hikes at public colleges and universities.

Legislators have introduced some 20 bills so far in the 2017 session addressing affordability and access at Virginia universities, and they expect more will be filed. A primary source of concern is how the state’s elite institutions are steering millions of dollars into financial aid to out-of-state students even as Virginians find the cost of attendance increasingly unaffordable.

Del. Tim Hugo, R-Centreville, a graduate of the College of William & Mary, decried the high percentage of out-of-state students at his alma mater. Referring tongue-in-cheek to William & Mary as “the College of New Jersey-Williamsburg campus,” he said, “We need more in-state students.”

The University of Virginia is spending $20 million to $30 million in scholarships for out-of-state students, said Del. Dave Albo, R-Springfield. He found that dispensation ironic given the fact that “for years we were told we needed out-of-state students to fund the schools.”

Another source of resentment was the accumulation of large financial reserves, particularly at the University of Virginia. UVa had cobbled together a $2.2 billion “strategic investment fund,” expected to generate $100 million a year in investment returns, even as the board of visitors raised tuition aggressively and lobbied for more state support.

The press conference followed the release of a poll released yesterday by Partners 4 Affordable Excellence @ EDU, a group created to fight runaway college tuition hikes (and a sponsor of this blog). That poll of registered Virginia voters found that a large majority overwhelmingly believe that the cost of college attendance is too high and support greater transparency of university budgets and decision-making.

Dr. James V. Koch, a former president of Old Dominion University and president of Partners 4 Affordable Excellence, opened the event with a review of data. Since 2000, he said, the Consumer Price Index had increased 35.2%. Over that same period the national Higher Ed Price Index had jumped 52.9%. In Virginia, the cost of in-state tuition and fees had shot up even faster, even as incomes have stagnated. The number of work-hours that it took a Virginian earning the median hourly wage to pay average tuition and fees for a four-year college increased from 227 in 2001-2002 to 438 this year.

Bills before the General Assembly would cap the percentage of out-of-state students at 25% at Virginia higher ed institutions, forbid colleges from using in-state tuition revenues to pay for financial aid, restrict the amount of out-of-state tuition that could be applied to financial aid, and limit tuition increases to the rate of inflation, among other measures.

University officials justify high enrollments of non-Virginians on the grounds that out-of-state students on average pay 160% of the tuition cost, in effect subsidizing Virginia residents. If lawmakers cut out-of-state enrollments, they will increase pressure on universities to jack up in-state tuition. Also, providing financial aid to some out-of-state students, they argue, is necessary to make attendance affordable for lower-income students and preserve socio-economic and racial diversity.

Del. Lionell Spruill, D-Chesapeake, was more concerned with helping poor, minority Virginia students. In Virginia, the percentage of students receiving Pell grants for low-income students is around 20%, the lowest rate in the nation, he said. The reason for the low participation, he explained, is that tuition, fees and other costs are so high in the Old Dominion that low-income students can’t afford to attend. Poor Virginian students should be first in line for student loans, he contended.

A similar argument was advanced by Del. Terry Kilgore, R-Gate City, who represents an district in far southwest Virginia. As unaffordable as costs are for a family in affluent, suburban Fairfax County, he said, they create an insurmountable barrier for many families in Appalachia.

While legislators at the press conference shared a common concern about the cost of Virginia higher ed, they indicated no agreement upon which bills to support. Indeed, the issue of financial aid may prove divisive. While Spruill and Kilgore focused on the need of their lower-income constituents, a disproportionate percentage of of whom rely upon financial aid, other lawmakers represented middle-class households who are tired of seeing some of their tuition money diverted to financial aid for others.

“The high tuition, high aid model is out of control,” said Sen. Bill DeSteph, R-Virginia Beach. Continue reading

Chesterfield Finds $83 Million Unfunded Liabilities

Somehow Chesterfield County schools missed $83 million in unfunded liabilities until late last year.

Somehow Chesterfield County schools missed $83 million in unfunded liabilities until late last year.

Our society is riddled with unfunded liabilities. Nowhere is the magnitude of short-term thinking more egregious than the federal government. As case in point, the U.S. military has put off maintenance and repairs to the point where we don’t have the money for the military we have, much less the military we would like to have.

“The Department of Defense “has breathtaking liabilities — as much as $88 billion a year — that ought to be addressed before procuring a single additional plane, ship, or tank,” says Tom Spehr, as quoted by Robin Beres in her Richmond Times-Dispatch op-ed today.

But Virginians can’t get sanctimonious. Not only do we have the example of Petersburg to to keep us humble, we now hear of scandalous inattention to hidden liabilities afflicts one of Virginia’s most populous jurisdictions — and one with the reputation, no less, of being exceptionally well run.

In Chesterfield County, school officials are grappling with massive unfunded liabilities for a supplementary teacher retirement benefit. Under the program, teachers can retire then get re-hired under the program working part-time, temporary jobs similar to their pre-retirement work. As incentive, they get a lucrative supplement to their normal Virginia Retirement System benefits.

In 2014, reports the Times-Dispatch, unfunded liabilities were found to be $58.7 million. Now they are $83 million.

Here’s the amazing part. The T-D quotes Donald Wilms, president of the Chesterfield Education Association, as being shocked when he learned of the program’s underfunding for the past five years. “Teachers were continually told that the program isn’t going away. So I think it was natural to assume that the program was healthy,” he said. “Nobody told you it was in danger.”

Nobody, that is, except for MGT America, which provided an efficiency review of Chesterfield schools in 2010 (!!!) and noted that the  supplemental retirement plan faced a large unfunded liability in the next few years as Baby Boomer teachers began retiring. “The increased number of participants will dramatically increase the cost of this program,” warned the report.

Somebody wasn’t paying attention.

Forget the federal government. Let Donald Trump and Congress worry about that. Here in the provinces, we need to worry about how we handle our own business. Do other school systems have supplemental retirement programs like Chesterfield’s? How many other unfunded liabilities, the existence of which lurk deep within Comprehensive Annual Financial Statements, are ticking time bombs? Is anyone paying attention?

You’ve Heard of Unfunded Pension Liabilities. Unfunded Infrastructure Liabilities Are Huge, Too

Lafayette, La., like many other U.S. cities, is running a huge hidden deficit in the form of backlogged infrastructure maintenance. Charles Marohn, founder of the Strong Towns movement, has done a brilliant job of illuminating the time bomb ticking away in municipal budgets around the country. This week he has honed in on Lafayette, a midsize city of about 125,000. His tale probably could apply to many Virginia localities.

In “The Real Reason Your City Has No Money,” he lays out the problem:

Lafayette had the written reports detailing an enormously large backlog of infrastructure maintenance. At current spending rates, roads were going bad faster than they could be repaired. With aggressive tax increases, the rate of failure could be slowed, but not reversed. The story underground was even worse. Ironically, this news had historically been the rationale for building even more infrastructure (theory: this is a problem that we’ll grow our way out of). …

When we added up the replacement cost of all of the city’s infrastructure — an expense we would anticipate them cumulatively experiencing roughly once a generation — it came to $32 billion. When we added up the entire tax base of the city, all of the private wealth sustained by that infrastructure, it came to just $16 billion. This is fatal. …

The median house in Lafayette costs roughly $150,000. A family living in this house would currently pay about $1,500 per year in taxes to the local government of which 10%, approximately $150, goes to maintenance of infrastructure (more is paid to the schools and regional government). A fraction of that $150 – it varies by year – is spent on actual pavement.

To maintain just the roads and drainage systems that have already been built, the family in that median house would need to have their taxes increase by $3,300 per year. That assumes no new roads are built and existing roadways are not widened or substantively improved. That is $3,300 in additional local taxes just to tread water.

That does not include underground utilities – sewer and water – or major facilities such as treatment plants, water towers and public buildings. Using ratios we’ve experienced from other communities, it is likely that the total infrastructure revenue gap for that median home is closer to $8,000 per year.

Freaking out? We haven’t even talked about schools and unfunded pension liabilities yet.

Can we find the information in local government’s Comprehensive Annual Financial Reports to make these same calculations ourselves? I don’t know. But every local government officials are living in La La Land if they can’t calculate the unfunded maintenance backlogs for their community.

There is a solution to the problem, by the way, but it isn’t raising taxes, and it isn’t unleashing infrastructure spending in Washington — it’s changing the land- and infrastructure-intensive pattern of development commonly called suburban sprawl. A few localities in Virginia get it. But most will have no appetite to make the necessary changes until they reach a Lafayette-level of desperation. Too bad.

How Budget Cuts Will Affect Virginia Colleges

Proposed budget cuts for Virginia's public institutions of higher education.

Proposed budget cuts for Virginia’s public institutions of higher education. Data source: SCHEV. Click for more legible image.

Proposed cuts in state support for higher education in Virginia next fiscal year will effectively wipe out the extra money the General Assembly had allocated to public colleges and universities at the beginning of the budget cycle, Peter Blake, director of the State Council for Higher Education in Virginia (SCHEV), told his board yesterday. “We’re back to where we started,” he said.

The cuts will come in two forms. In the face of the current revenue shortfall, Governor Terry McAuliffe has proposed a 5% General Fund reduction in appropriations for higher ed over the two-year budget cycle. Plus, the budget amendments would reduce institutions’ appropriations by $24.2 million to recover  adjustments to Virginia Retirement System rates for employees

Besides the cuts to individual institutions, as shown in the table above, the governor proposes cuts to SCHEV itself, the INOVA Global Genomics and Bioinformatics Research Institute, and other line items. The state also is clawing back $5 million in interest earnings and credit card rebates from the colleges and universities.

Blake said that legislators have told him that they will try to restore some of the funds, but added that there were no guarantees.

Marge Connelly, chair of the resources and planning committee, observed that Virginia’s higher education sector needs a more stable revenue stream from the commonwealth but offered no specific suggestions. SCHEV took no formal action in response to the data.

Blake said that the increased state contribution to higher ed in the current fiscal year made possible the lowest tuition hikes in years. Indeed, a legislative analysis presented to SCHEV in November found that state cuts accounted for about half the tuition increases over the past 20 years. However, that doesn’t include increases in fees, room, board and other expenses, so the state budget cuts explain only about 14% of the increased Cost of Attendance.