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Governor outlines budget changes

Gov. Robert F. McDonnell (R) began outlining his budget amendments for the 2013 General Assembly session this week.
McDonnell’s package includes hundreds of budget amendments that cut spending in some areas and increase it in others, for a net increase in state spending of about $211 million.
“The budget amendments that I am presenting today reflect the core priorities of government and our administration,” McDonnell told the General Assembly’s budget and appropriations committees Dec. 14. “They recognize the realities of this economy and the looming uncertainty that budget gridlock in Washington and the fiscal cliff are having on our economy.”
His proposals include slight upticks in spending on transportation and education, as well as restoring some previously planned cuts in state aid to localities.
For transportation, McDonnell is proposing reallocating a small percentage of the state sales tax revenue from other priorities to transportation, representing an estimated $48 million for fiscal 2014 — an amount the Northern Virginia Transportation Alliance called “a drop in the bucket.”
Fairfax County alone estimates that it needs about $300 million per year in state and federal funds to meet its transportation needs, in addition to the $280 million per year in county dollars it already spends.
McDonnell has said he plans to outline a more significant funding package in the coming weeks, although local legislators said they are not optimistic about such legislation passing during the upcoming session.
In the area of higher education, the governor is proposing a $31 million increase in funding for higher education, including additional tuition assistance grants and support for workforce development programs. McDonnell also proposes $263 million in additional bonding authority for state colleges and universities, to support construction projects on campuses around the state.
To support local governments, he proposes $45 million to eliminate a planned reduction in state aid to local governments and about $17 million in water quality improvements, to support compliance with updated Chesapeake Bay regulations. Another $200 million in bonds is planned to support local water quality projects, as well.
His proposed cost savings, which total about $524 million, include reductions in the extra funding provided to school districts with a high costs of living, like Fairfax County. Legislators restored the so-called “cost of competing” funding last year, when McDonnell proposed eliminating it for all educators. This year, he is proposing eliminating it for education support positions only, saving the state about $12 million.
Another $22 million in savings would come from Medicaid payments and $59 million from an assorted list of agency-recommended cuts. Each agency was asked to identify 4 percent in budget savings.
The General Assembly session begins Jan. 9.

Virginia managed its budget well through the nationwide recession and the subsequent lean years, according to a recent review of the state’s budget.

However, the state’s years of declining investment in education and infrastructure are starting to take a toll, and could have negative consequences for Virginia down the line, cautions Frank Shafroth, director of the Center for State and Local Leadership at George Mason University and contributor to the State Budget Crisis Task Force Virginia Report.

“They’ve done a good job on sort of the maintenance of where we are,” Shafroth said. “In terms of investing in the future ... they got very low grades on the report card.”

Former New York Lt. Gov. Richard Ravitch and former Federal Reserve Board Chairman Paul Volcker formed the State Budget Crisis Task Force in 2011 to look at fiscal issues facing states. Virginia is one of six states the task force looked at in preparing its July report on overall budget issues facing states. It released the Virginia-specific report this month.

“Compared to other states in the Task Force study, Virginia does not have a structural budget problem. But, it faces fiscal challenges,” the report concludes. “Virginia’s own projections show that general fund revenues will not be adequate to fund prior debt service and pension obligations, keep up with health care costs, restore cuts in local aid, improve health and education services, and maintain and improve transportation and other infrastructure.”

While it fared better than most other states during the recession, Virginia is the most dependent on federal spending of all 50 states, according to the report, which represents a significant concern as the federal government prepares for an onslaught of budget cuts.

Local governments have borne the brunt of the economic downturn to date, the report states, grappling with a combination of state budget cuts and lost revenues from declining home values.

“They have used up reserves; reduced benefits; frozen salaries; deferred capital and equipment purchases; and made deep cuts to local programs, including K-12 public education,” the report states.

State support for K-12 education has fallen from $5,274 per pupil in 2009 to $4,719 this year, and the state has not budgeted for teacher pay increases since fiscal 2008, ranking it at 31 in the nation in teacher pay.

“We can see that reduction in state assistance had an impact,” Shafroth said.

At the university level, the reduction in state funding has led to sharp increases in tuition and fees, affecting the ability of Virginia students to afford even in-state tuition at a public university, he said.

“We’re getting beyond what is remotely affordable,” he said.

There is a strong correlation between higher education and innovation, Shafroth said, so harming the state’s university system could impact the economy.

Another concern from a long-term economic perspective is the state’s lack of investment in its transportation system, Shafroth said. According to the Federal Highway Administration, about 44 percent of the state’s bridges are structurally deficient and 74 percent of state-maintained roads are below “good” condition.

The state’s sources of transportation revenue have long been considered inadequate by most involved; however, legislators have not been able to reach consensus on how to generate more revenue.

It’s hard to project in numbers what impact that has on businesses, Shafroth said, but it’s clear that the ability to easily move goods and a good quality of life for employees are important to businesses. And, he said, most companies have many options when deciding where to locate.

State leaders need to consider “what will make you want to be in Fairfax County rather than any other place in the world,” he said.