McDonnell's Education Funding Proposals Could Cost Localities

By Amber Lester Kennedy Saturday, December 18, 2010

Last year, education funding was hit with proposals of steep cuts when Gov. Bob McDonnell released his budget for the biennium. On Friday morning, McDonnell didn’t propose massive additional cuts, but did mention two specific budget trims that could have large impacts on local schools.

After the state filled budget holes by borrowing $600 million from the Virginia Retirement System last year, McDonnell is asking state employees to begin contributing to their pension plans. He is also asking the General Assembly to redirect funds set aside for the “hold harmless” provision on the local composite index score that determines how much money schools receive from the state.

In his speech, McDonnell said a recent report showed the state pension system is underfunded by $17.6 billion and would take a 44 percent market return to maintain the current contribution rates. “I will not pass a broken retirement system to another governor,” he said. He later went on to say, “Virginia’s approach to pensions is behind the times and economically unsustainable.”

Virginia’s employees haven’t paid toward their own pensions since 1983, when the state struck a deal to contribute to pensions in lieu of a pay raise. Most localities currently cover teachers’ VRS contributions. Last year, the General Assembly approved a plan to reduce the VRS rate temporarily, allowing localities to keep some extra funds knowing it would have to be repaid at a higher rate at the end of the biennium.

Under the governor’s proposed plan, the state would increase its share of contributions to pension plans by 2 percent. To cover the contribution to the teacher retirement plan, he is recommending the state use $57.6 million that had been appropriated in fiscal year 2012 for the state’s “hold harmless” on the Local Composite Index.

That “hold harmless” relieved localities, including those in the Historic Triangle, that would have been negatively affected by a routine change in the Local Composite Index scores. Last year, both York and James City Counties expected to lose millions in state funding if the scores changed; the LCI did change, but the hold harmless gave local governments a reprieve. If McDonnell’s proposal is approved, localities will have to find a way to meet a requirement that they match the state’s contribution of 2 percent for teachers’ retirement funds.

In his speech delivered to the General Assembly on Friday morning, McDonnell said the diversion of the hold harmless funds would make the teacher pension system stronger by reducing the level of unfunded liability, which is estimated to be only 57 percent funded by 2014.

WJCC’s Acting Superintendent Scott Burckbuchler, who prepared this year’s budget, said the elimination of the hold harmless was a concern because it would translate to WJCC losing $1.2 million the division expected to receive in fiscal years 2011/2012. In addition, the VRS proposal is a concern, he said, if it translates to a reduction in compensation for school employees.

McDonnell also proposes giving localities the option to require employees, which would include educators, to contribute 5 percent of their pay toward their pension plans. If localities chose that option, they would be required to offset the increased contribution with a raise of at least 3 percent.

McDonnell’s other amendments reflected the slowing growth in school populations and the increased sales tax revenue to school divisions. The rate of student enrollment growth has slowed from original projections, he said, which will result in savings in the state’s share of funding for education by $49.4 million in fiscal year 2011 and $43 million in fiscal year 2012.

At the end of the previous fiscal year, public school divisions received an additional $18.7 million from increased sales tax revenues. He said that going forward, the net increase in sales tax dedicated to public schools will be an additional $19.5 million in 2011 and $21 million in 2012, more than originally anticipated. He said the additional money resulted in his proposal to put more money toward teacher retirement funds.

For higher education, McDonnell reiterated his goal of seeing 100,000 more Virginians graduate with college degrees in 15 years (read more here). To that end, he proposes budget amendments that would devote $50 million to making college more affordable and accessible. Money would go toward undergraduate financial assistance, enhancing the use of technology in the classroom, expansion of affordable online courses, increasing student enrollment, graduate and retention rates and encouraging degrees in science, technology, engineering and math. He added that he expects institutions of higher education to “identify significant savings to help leverage the $50 million.”

He would like to see $13 million go toward undergraduate financial assistance at public colleges, with another $3 million devoted to increasing the average tuition assistance grant for Virginian students at private colleges in the state.

To read more about the governor’s proposed budget amendments, click here.