Governor Releases Proposed Budget With Focus On Transportation, Jobs Creation

Friday, December 17, 2010

Governor McDonnell has introduced his amendments to the current 2010-2012 biennial budget, which began July 1. The 2011 Virginia General Assembly will convene in January to review McDonnell's proposal for spending in the next year.

The budget includes funding increases by a total of about $4 billion for transportation and $123 million for job creation, education, behavioral health and the environment.

“The government I’m committed to running with you is one that performs its core functions well, does not reach into areas where it is not useful, and helps facilitate private sector job creation and economic growth,” McDonnell said Friday.

“Richmond does not need a monopoly over selling bourbon and vodka, nor do we need to continue to fund public radio and television programming. Richmond needs to build new roads, run great schools and keep Virginians safe and secure… Government must set priorities, encourage cost-savings and frugality, fund core functions well, set the right climate for job creation and economic growth, and then get out of the way.”

Transportation

“Virginians understand that our economy will not grow if they cannot move,” McDonnell said. “For years we have underfunded transportation.”

To address this issue, the Governor has suggested accelerating the sale of $3 billion in authorized bonds, which will generate $1.8 billion by capitalizing on the best road construction deals and exceptionally low interest rates.

He also proposes issuing up to $1.1 billion in tax-exempt bonds that are backed by federal dollars, which will not affect the state’s debt capacity.

These two proposals are just a couple of components of the plan, according to McDonnell, but they will maintain Virginia’s total 10-year average debt capacity at the self-imposed five percent revenue limit. VDOT has the funds necessary to make the debt service payments without taking money away from other general fund spending.

Employee retirement benefit

The state pension system is underfunded by $17.6 billion, according to the governor, due to significant investment losses. “As a triple-A bond rated state and national leader on fiscal responsibility, we have to act now to make our Virginia Retirement System solvent for future generations of retirees,” McDonnell said, which will require “shared sacrifice.”

That sacrifice includes a two percent increase in state contributions to VRS, and a five percent contribution to be paid by state employees hired prior to July 1, 2010 (this is already required for hires after that date).

To help offset the detriment to employees, the budget includes a three percent salary increase effective July 1, 2011, which will mean a two percent net employee contribution to retirement and a two percent decrease in take-home pay, but a larger income for calculation of retirement benefits.

The proposal extends the same deal to localities, allowing them the option of requiring the same five percent employee contribution, so long as there is also a three percent or more salary increase.

McDonnell is also recommending a one-time performance-based bonus for all state employees in December 2011 of up to two percent of their salaries.

Employer contributions for optional retirement plans will be reduced from over 10 percent to 8.5 percent.

“I know this proposal to require employees to contribute directly to their retirement is a major change,” McDonnell said. “However, Virginia’s approach to pensions is behind the times and economically unsustainable. Nearly every public and private pension plan in America requires employees to contribute something toward the cost of their retirement plan.”

Healthcare

Medicaid has seen dramatic increases in enrollment and spending, the Governor said, which is why he has suggested expanding managed care to everyone and every service in the program. Managed care is the coordination of medical services to control costs.

McDonnell expects this will save $3.5 million, though the state is currently studying different managed-care models to find which will be the most appropriate.

Other savings include reclassifying two types of health services under the Comprehensive Services Act which will cut $11.5 million each year, and elimination of all services not mandated by federal or state law, which will save $5 million.

The proposed budget also includes a $2.4 million expansion of behavioral health services for Tidewater/Eastern State Hospital and the addition of 275 intellectual disability waiver slots at a cost of almost $10 million.

Other spending includes $11.4 million to address community service deficiencies and crisis intervention programs and several million for other state-funded healthcare facilities.

Education

The proposed budget includes $50 million in spending to make college more affordable, $13 million for undergraduate financial assistance, $1 million for classroom technology, $3 million to expand online course offerings and $30 million to increase student enrollment, graduation and retention rates.

K12 education will see an additional $59.2 million due to additional sales tax revenue and federal funds totaling $249 million over the next two-year budget cycle. Due to the extra funds, the Governor suggests using some of the funds to help finance the state’s share of a two percent increase in teacher retirement rates.

Read more about the proposed state education budget in WYDaily today.

Job creation and environmental spending

McDonnell plans $54 million in job-creation spending, a program which he’s calling “Opportunity at Work.” The ideas came from the Governor’s Economic Development and Jobs Creation Commission.

This includes $25 million for a state research and development fund for emerging technologies, $5 million for small business financing, and a total of $5 million in tourism finding which includes two grant programs and a micro-loan program, almost $6 million in revitalization and regional cooperation programs, and $3 million for worker training.

The jobs plan also includes over $10 million in tax reforms, including a $5 million Virginia Port tax incentive and a $5 million research and development tax credit for start-up firms in targeted industries.

The proposed budget also calls for $39 million to support water quality and land conservation priorities.

“Virginians are blessed with an array of natural resources like scenic rivers, rolling hills, the Chesapeake Bay and historic battlefields,” the Governor said earlier in the week. “These key investments will support Virginia’s efforts to clean the Chesapeake Bay as well as continue to put us closer to meeting the goal of conserving 400,000 acres of land across the Commonwealth.

“In addition, it will provide extra support for our family farming community as they work to comply with water quality best management practices.”

The requested funding includes nearly $37 million for two Water Quality Improvement Funds, $2 million for land conservation easements, $400,000 for purchasing development rights, $100,000 for a renewable energy program staff position and $120,000 for a marine law enforcement program.