The Giesen Perspective

The Giesen Perspective – Through Crossover and to the Budgets

DATE:  February 17 and 19, 2006

THE FIRST PART OF THIS GP WAS COMPOSED ON FRIDAY AND SATURDAY PRIOR TO THE BUDGETS BEING REPORTED BY THE HOUSE APPROPRIATIONS AND SENATE FINANCE COMMITTEES ON SUNDAY, FEBRUARY 19.

Valentine’s Day and Crossover at the General Assembly

Valentine’s Day at the General Assembly Building has become a very colorful and festive occasion.  This year the fact that Crossover (remember that’s the day each house has to complete the work on its own legislation, except for appropriation, debt, revenue and VRS bills–there are all most always exceptions to any rule the legislators impose on themselves!) came on this special hearts day did not deter the legislators from sending a multitude of roses, carnations, tulips, and balloons.  Nor did it inhibit the staff people from decorating hallways and offices with streamers, cutout hearts, additional balloons, and on one floor oversize playing cards.  All of these decorations did lighten the mood.

Now whether it was because of the holiday festivities (let me tell you, “red” was the order of the day) or the “efficiency rules” which the House had adopted, the House finished their Crossover session in record time.  The Delegates were in session only one hour and eight minutes.  The Senate was the body with the longer session.  Having the Senate session longer than the House’s on Crossover day is also a rarity.

The Senators took a number of recesses to discuss SB 708.  The transportation bill, sponsored by Charlie Hawkins, was still in the Senate Finance Committee (it’s a revenue bill and wasn’t caught up in the Crossover deadline). Some wondered why negotiate during this particular session?  Timing is everything in the legislative process, so the Senate leadership felt the timing was right.  It worked  (see below).

Governor Kaine’s Cabinet Appointments

For three weeks the Senate Privileges and Elections Committee has been sitting on the resolution which would confirm Governor Kaine’s nominations to his cabinet.  SJR 176, as introduced, had the names of all the cabinet nominations AND those of the Governor’s Chief of Staff and the Assistant to the Governor for Commonwealth Preparedness. There was a delay because of the well known opposition to the appointment of Daniel G. LaBlanc as Secretary of the Commonwealth.  This appointment of a former President of the Virginia AFL/CIO and one who in the past has verbalized his opposition to Virginia’s Right to Work law is not sitting well with many of the more conservative members of the GOP caucus. 

While all of the appointees on the introduced SJR 176 serve on the Governor’s Cabinet, the Chief of Staff and the Assistant to the Governor for Commonwealth Preparedness are there only because the Governors have assigned them to the Cabinet.  There is no statutory language that places them in the Cabinet.  Thus the Governor’s advisors and the sponsor of the bill agreed to remove all three names (LaBlanc, Bill Leighty and Bob Crouch)  and SJR 176 is now moving through the legislative process.  There were rumors that several other Secretary appointments would be contested on the House side.  Most capital watchers don’t think their appointments will be challenged. 

It is most unusual in Virginia to have a Governor’s appointments challenged during the confirmation process.  It is particularly unusual for nominees to be contested on any basis other than competency.  As discussed in last week’s Giesen Perspective, most legislators in the past have felt the Governor should be able to chose the people to serve in his (or her) administration.  The only time an appointee has even been challenged in years past has been on the basis of competency, not on the basis of politics or philosophy alone.  Maybe the long shadows from across the Potomac are beginning to creep into the Virginia political landscape.  This DC mentality may be for better...or perhaps for the worse?

The Senators know how to compromise!

The Senate Finance Committee adopted a “substitute bill” for SB 708 (the money raising part of their transportation program) on Wednesday.  There were several major changes to the introduced bill.  Most of them were to help gain the support of several influential Senators and yet keep the revenue generated close to $1 billion per year.  The recess and behind the scenes negotiations paid off.  The modified bill passed the Senate Committee unanimously.

The changes included would reduce the increase in motor vehicle sales and use tax (the titling tax) from 5% to 3.75%; put in place an increase in the state grantor’s tax from 10cents per $100 of the sale price on real estate to 30cents, and allow localities to add an additional 10cents; eliminate the exemption for the sales and use tax on the wholesale price of gasoline, thereby applying the five percent tax (there is a provision which will allow drivers of non-business vehicles to apply to DMV for a rebate on the incremental fuels sales tax); increase registration fees for trucks weighing more than 10,000 lbs; and increase penalty fees for overweight trucks.

This session’s most interesting floor debate was held Friday when this revised transportation bill was before the full Senate.  Remember this is the marquee issue before the Assembly this year.  So after Senator Hawkins explained the changes in the bill, he gave an impassioned speech on the merits of the bill with its sustainable sources of revenue for transportation.

Now to understand what I mean by “impassioned speech,” you have to have heard Charles Hawkins when he gets wound up about an issue.  As chairman of the Senate’s commission which studied the transportation crisis, he experienced the traffic congestion in Northern Virginia and in Tidewater. He saw the needs of our ports and the mass transit systems in our medium size cities.  He traveled the roadways and byways of Southside, the Southwest and the Valley.  Charlie is passionate about the “transportation crises” and the need to pay for it NOW.  He let his fellow senators know his feelings in no uncertain terms.  He concluded his presentation with “The future belongs to those who plan for it.  If you want something in life you have to pay for it.”  He stressed, “Virginians have been known for paying our bills and we need to stand up for what we believe.”

On a major issue like this you do understand that every extrovert in the Senate had to express his or her position.  That means that about 90% of them spoke during the debate.  Come to think of it, since I couldn’t get in the chambers (there is no gallery in the temporary chambers in the Patrick Henry Building) and I didn’t watch the debate the full time (about two hours) maybe all 40 spoke!  I can assure you not one vote was changed by the debate, but there were lots of words for home consumption.  The legislative TV system tapes all of these debates, and the members can purchase copies for future use.  Do you suspect some might even use them for future campaigns?

One of funnier comments was from Senator Creigh Deeds from Bath County and the Democrat candidate for Attorney General last November.  He let all of the urban members know that “traffic congestion in Bath County is when you got behind a school bus in the morning or evening and can’t pass on our mountain roads.”  But he assured everyone he had learned about the major congestion faced by commuters in Northern Virginian and Tidewater during his travels around the state during his campaign and that every legislator should support the bill. 

All of the compromises, changes in revenue sources, and negotiations paid off--the bill passed 34-6!

Now the Senate will put this transportation plan in its budget and, of course, the House will do likewise.  The difference--the House will use over $800,000,000 in General Funds (GF) for its plan, and it has to take this money from some agencies which are funded ONLY by GF. 

State Revenues are still strong

The Governor helped ease the Delegates’ problem with using GF monies for their transportation plan.  His mid-February revenue report showed a growth of 10.5% over January of 2005 and for the first seven months of FY06 a growth of 11.2% in General Fund revenue.  His official estimate of new revenue in FY 06 was $163,000,000 over the previous estimate.

Rather than praise the Governor for this “good news,” one should really praise those buying goods and services in our retail stores around the Commonwealth (normally common wisdom says it is the female members of the species who spend this money –however, this December it may have been the male portion of the population doing a lot of contributing.  I understand that jewelry sales were up considerably!  Sales and use tax revenues were up 7.9% for January receipts, reflecting a significant December retail sales period.  This increase boosted the year-to-date figure to an increase of 5.2% against the forecast of a minus 4.6%.  Way to go you shoppers!  The members of the Virginia House of Delegates are proud of you and, I might add, grateful since you make it easier for them to claim new taxes are not needed for a transportation fix.

Net individual income tax revenues produced over a billion in tax dollars in January 2006. This is the first January that I can remember this happening   This source of revenue has been one of the driving forces in the historic trend the state has been experiencing.  The 9.5% increase is above the forecasted 8.6%.

Another of the sources which continues to surprise the experts is the Corporate Income Tax receipts.  The official growth estimated by the Administration and the advising economists and put in the budget just last December for is 17.1%.  The year-to-date growth has been a whopping 85.2%!  Part of this is due to the Tax Dept. delay in making some refunds.  Nonetheless, the performances of our Virginia business and manufacturing communities is confounding most of the experts.  They’re acting like our shoppers—trying to do their part!

Recordation tax receipts, paid on real estate transfers, have been a reflection of the red hot housing market. Here the prognosticators were more accurate.  Sales have slowed, and the taxes collected have done likewise. The year-to-date receipts have been above the estimates, but unless the spring activity picks up, the forecast may be over stated. 

The bottom line of the Administration’s report is that the forecasts are being revised upward by $163,000,000.  The Governor, however, has recommended that $102 million of this unexpected revenue be put into the “rainy day fund.” This amount is thought by some to be more than is needed.  If you were on the House Appropriations Committee and were looking for some additional $358.4 million in GF dollars to fund your transportation program, wouldn’t you want to look very closely at this potential “windfall?”  (The $358.4 million is the difference in the GF dollars needed in the House Republican transportation proposal compared to the Governor’s introduced plan.)

Is the Administration’s estimate accurate?

Some are taking exception to the “official administrative branch estimates.” The trend through seven months of FY06 has been UP by 11.2%.  The official expectations are for the annual growth to be 6.1%.  Let’s accept that there will be some adjustments, particularly in corporate income tax refunds and some slowing of recordation tax receipts.  Nevertheless, each 1% increase in revenue receipts over last year is an increase over the official forecast of $145 million dollars.  The Governor only revised the December estimates by $163 million and that amount includes an increase for both FY 07 and FY 08!  Even with some very serious, conservative adjustments, the $163 million appears to be very, very low.  A $290 million uncommitted balance (a surplus?) forecast, in my opinion, would be conservative.  But then what do I know?  I only served on the Appropriations Committee a couple of decades and watched various administrations adjust forecasts up and down depending on their goals!

SUNDAY, FEBRUARY 19 – THE MONEY COMMITTEES REPORT THEIR VERSIONS OF APPROPRIATIONS ACTS–HB 29/30 AND SB 29/30 – THE 29s ARE THE “CABOOSE BILLS” – Bills tweak the current FY 06 budget– AND THE 30s ARE THE 06-08 BIENNIAL BUDGET BILLS.

(The brief comments that follow are derived from the Subcommittee Reports made to the full Committees on Sunday afternoon.  The “half sheets” which give the details of each amendment accepted by the Committees will be available mid-week.  A more complete analysis will be done  in upcoming Giesen Perspectives.)

FROM THE HOUSE APPROPRIATIONS COMMITTEE

The most often heard words in most of the Subcommittee Reports were “…this strategy allows us to redirect almost $__ million of general funds to address transportation issues.”  Then the subcommittee filled in the blank.  How did these “redirections” impact the various “core services” funded by general fund dollars?  It depends, of course, on your perspective.  From the view of the Appropriations Committee Chairman, Vince Callahan, the Committee’s budget meets the most critical needs of these services. 

A quote from his comments to the listeners yesterday (Sunday, Feb. 19), “The Committee budget allocates over $4.4 billion in net new revenue, over and above the base budget, allowing us to meet the needs in the following areas…”  He goes on to list Public Education, Higher Education, Mental Health, the Health care “safety net,” and cleaning up the Chesapeake Bay as the committee’s high priority services.  The key to this quote is “…over and above the base budget…”  From the quote, one might conclude the Committee committed an amount of $4.4 billion above the Governor’s budget to these services.  In fact, the $4.4 billion of which Vince speaks is the total amount above the 04-06 budget.  Outgoing Governor Warner, with the support of the incoming Governor, had already recommended these and additional funds for these areas of service.

For instance, in the Health and Human Services area there were many shifts of monies, but the bottom line -- from this area the committee “redirected” $14.4 million from the 06 budget (HB 29) and $18.2 million from 06-08 (HB 30) to transportation.

The Capital Outlay Subcommittee did even more.  By shifting projects which met the Subcommittee’s criteria into a bond package and eliminating a number of the projects included in the introduced budget, this Subcommittee was able to redirect $325 million into transportation. 

In the Higher Education Subcommittee Report, it appears the members dealing with this area of the budget “redirected” about $32 million to transportation.  Most of this money came from the “distribution” of the House Research Package.  When you go institution by institution, it appears to me the research monies are $20 to $30 million less than the $102,365,766 million which the Administration had requested in the introduced budget.

With these redirected dollars and the revision in the revenue forecasts, the Appropriations Sub on Transportation was able to put $600 million of “General Funds for Specific Projects” in the budget for the House’s Transportation plan for FY 07.  The total “new” money in this plan for FY07 is $900.1 million.  In the out years, however, the “new money” drops to $360.9 in FY08 and $403.82 in FY09 and FY10.  As noted in past GPs, this amount is shy of the $1 billion per year which most of the experts indicated is the minimum needed to “fix our transportation crises.”

FROM THE SENATE FINANCE COMMITTEE

The Senators on the Finance Committee took a much different approach from the House Appropriation Committee.  Instead of addressing their recommendations from the point of view of the base budget, they addressed their amendments to the introduced budget.  This method of reporting makes it a whole lot easier to compare the changes being made.  The passage of SB 708 (described above) made it possible for the Senate to present its package in this fashion since the Senate’s Transportation Plan was set.  John Chichester’s opening report Sunday emphasized “…general funds cannot be used as a long-term solution to transportation, draining support from other crucial state services.”

So for Public Education, when a Senator talks about a net increase of $54.6 million, he/she is talking about NEW money above what the Governor’s introduced budget contains.  While there was some “redirection of revenue” within the reported SB 29 and SB 30, most of it was to cover priorities which the members want, not to cover the Transportation Package put forth by the Senate. The money for public education, for instance, covers another 1% increase for teachers (making the total 4%) effective December 1, 2006.  Other special projects over and above those in the introduced budget are also included. 

In the Higher Education area, the Senators did shift some funds from the Governor’s Higher Education Research Initiative by phasing the program in over a three year program.  This movement saved the general fund about $26 million dollars, which the committee redirected to other higher education purposes. 

There are other examples, but hopefully you get the picture of the differences in the approaches of the two committees.  The process is now for the staffs to get the paper work done by mid-week so the two bodies can reject each other’s budget and appoint the conferees, who must try to iron out the differences in time for the Assembly to adjourn on March 11.  With the Assembly entering the stage of the session which some of us call the REAL two party system of Virginia, (THE HOUSE vs THE SENATE) one has to ask, “Will the adjournment happen on time?”! 

It will take some honest effort on both sides to reach an acceptable budget for both houses. Compromise is difficult even when all parties are inclined to do so.  There are many indications that the majorities in both houses are not so inclined at this point in time.  Can the newly installed Governor broker a deal?  It seems highly unlikely.  It would appear an extension of the session or a special session is in the offering. Hopefully, the current legislators will surprise me!

                                                   2005 Eldon James & Associates, Inc.