Virginia’s Current Budget Issues

Virginia’s Current
Budget Issues
Presentation for the
FOCUS Conference
Richard D. Brown
Secretary of Finance
April 30, 2014
2012-2014 Operating Budget
General Fund vs. Nongeneral Fund
General Fund
40.8%
Nongeneral
Fund
59.2%
Data from 2013 Reconvened Session House Bill 1500 Re-enrolled
2
General Fund Revenues for 2012-2014
Economic trends are important because employment, wage gains, and
consumer spending account for about 87.4% of all general fund revenues.
2012-2014 general fund revenues = $33.4 billion
Individual
income tax
68.1%
Sales & use
taxes
19.3%
Corporate
income tax
5.0%
Other taxes
& revenue
7.6%
Data does not include transfers or balances. Data from 2013 Reconvened Session HB 1500 Re-enrolled
3
Nongeneral Fund Revenues
for 2012-2014
Federal grants account for over 37% of all nongeneral funds revenue
Institutional revenue
from higher education
tuition & fees and
hospitals 25%
Transportation 10.4%
Other revenue
27.7%
Federal grants
& contracts
37.1%
2012-2014 nongeneral fund revenues = $50.3 billion
“Transportation” includes fuel tax, sales tax, motor vehicle sales tax, and motor vehicle licenses.
Data does not include balances or bond proceeds. Data from 2013 Reconvened Session HB 1500 Re-enrolled.
4
Where the Money Goes
2012-2014 (All Funds) = $86.0 Billion
78.6% of the budget (all funds) goes to education, health and human
resources, and transportation
Other
3.8%
Transporation
11.8%
Public Safety
6.0%
Health and
Human Resources
28.9%
General
Government
9.4%
Commerce and
Trade
2.2%
Education
37.8%
“Other” includes legislative and judicial branches, technology, agriculture and forestry, natural resources, independent agencies and
non-state agencies.
“General Government” category includes administration, finance, executive offices, central appropriations and Veterans Affairs and
Homeland Security. Source: 2013 Session HB 1500 Re-enrolled (operating only)
5
Where the Money Goes
2012-2014 (GF Funds) = $35 Billion
78.9% of the general fund budget goes to education, health and human
resources, and public safety
$ in billions
General
Government
14.9%
Commerce &
Trade
1.0%
Other
$1.2
4%
Public Safety
10.3%
Education
40.2%
Transportation
0.4%
Health & Human
Resources
28.6%
“Other” includes legislative and judicial branches, technology, agriculture and forestry, natural resources, independent agencies and
non-state agencies.
“General Government” category includes administration, finance, executive offices, central appropriations and Veterans Affairs and
Homeland Security. Source: 2013 Session HB 1500 Re-enrolled (operating only)
6
Over 40% of the General Fund
Operating Budget Goes to Localities
Total GF Operating $35.0 Billion
$ in billions
State Programs
$9.9
28.2%
Aid to Localities
$15.1
43.1%
Debt Service
$1.2
3.5%
Aid to individuals
$8.8
25.1%
Public Education
$10.5
69.6%
Car Tax
$1.9
12.4%
Local Sheriffs
$0.8
5.4%
Other Aid to Localities
$1.9
12.4%
Source: Department of Planning and Budget April 2013. Data from HB 1500 Re-enrolled (operating only)
7
Calendar Effects Throughout Fiscal Year 2013
Led to a Roller Coaster for Monthly Revenue
•
Total general fund revenue collections exceeded the forecast by $263.6 million in fiscal
year 2013, a forecast variance of 1.6 percent. Total revenues rose 5.3 percent, ahead of the
revised annual forecast of 3.6 percent growth.
–
Adjusting for the accelerated sales tax (AST) program, total revenues grew 5.1
percent, ahead of the economic-base forecast of 3.4 percent growth.
8
Fiscal Year 2013 Revenues and Transfers
Finished $264.3 Million (1.6 Percent) Above
Forecast
Summary of Fiscal Year 2013 Revenue Collections
(millions of dollars)
Major Source
Withholding
Nonwithholding
Refunds
Net Individual
Forecast
$ 10,366.3
2,517.6
(1,791.3)
11,092.6
Sales
Corporate
Wills (Recordation)
Insurance
All Other Revenue
Total Revenues
3,248.8
820.9
336.5
255.6
666.6
3,219.8
796.7
377.5
262.2
688.4
$ 16,421.0
$ 16,684.6
66.6
222.8
134.5
68.0
221.4
135.2
ABC Profits
Sales Tax (0.25%)
Transfers
Total Transfers
$
423.9
Total General Fund $ 16,844.9
•
Actual
$ 10,251.3
2,807.7
(1,719.1)
11,340.0
$
Variance
% Growth Over FY12
Dollars
Percent
Forecast Actual
$ (115.0)
(1.1) %
3.3 % 2.1 %
290.1
11.5
6.8
19.1
72.2
(4.0)
0.4
(3.7)
247.4
2.2
4.5
6.9
(29.0)
(24.2)
41.0
6.6
21.8
$
263.6
1.4
(1.4)
0.7
(0.9)
(2.9)
12.2
2.6
3.3
4.1
(4.5)
4.5
1.1
(1.6)
1.6 %
2.1
(0.6)
0.5
424.6
$
0.7
0.2 %
$ 17,109.2
$
264.3
1.6 %
3.6 %
4.4
4.1
(39.8)
3.1
(7.3)
17.2
3.7
1.6
5.3 %
6.6
3.4
(39.5)
(15.4) % (15.3) %
Total revenues are 5.7% above the previous peak year of fiscal year 2008.
3.0 %
4.7 %
9
Why is Federal Fiscal Policy Important?
Virginia’s Ranking Among the States for Per Capita Amounts
of Federal Government Expenditures
Fiscal Year 2009
Category
Rank (Highest=1)
Retirement and Disability
5
Other Direct Payments
39
Grants
49
Procurement
1
Salaries and Wages
4
Total Expenditures
2
10
The Fall 2013 Consensus Forecasting Process
•
The Joint Advisory Board of Economists (JABE) met in October.
–
Members were presented the September standard economic outlook, a forecast that was
moderately weaker than the official economic forecast.
–
A majority of JABE members supported the standard outlook; however, most members felt
more comfortable lowering Virginia’s employment growth to 1.0 percent in FY14. The
members also unanimously approved of maintaining a key assumption that Virginia would
underperform the nation.
–
The October standard outlook was adjusted consistent with these concerns – specifically
lowering employment and wages and salary growth in FY14.15
Key Virginia Economic Indicators
Official and November Forecasts
Annual Percent Change
Fiscal Year
13
14
11
12
Employment
Official (Nov '12)
Nov Standard
15
16
1.0
1.6
1.2
1.3
1.4
1.0
2.0
1.5
2.0
1.7
Personal Income
Official (Nov '12)
Nov Standard
5.6
4.0
3.4
3.0
4.1
2.9
4.6
4.3
4.7
4.4
Wages & Salaries
Official (Nov '12)
Nov Standard
3.6
2.6
3.7
3.0
3.9
2.6
4.4
4.0
4.2
4.2
Average Wage
Official (Nov '12)
Nov Standard
2.5
1.0
2.5
1.7
2.5
1.6
2.3
2.5
2.2
2.5
As a result, the November 2013 Virginia Economic Outlook for FY14-16 remains a low
growth forecast that is weaker than last year’s official forecast.
11
A Concern in Withholding is the Softness in
Federal Contractors, Professional and
Business Services and the Public Sector
Withholding Tax Collections
Year-to-Date December
Industry (% of Total $ Amount)
Public Sector (19%)
Education and Health Services (7%)
Federal Contractors (5%)
Professional and Business Services (3%)
Finance (3%)
Investment (1%)
Manufacturing (2%)
Transportation (1%)
Energy (1%)
Other (4%)
# of Firms
in FY14
92
240
189
134
526
147
167
41
47
704
Millions of Dollars
FY12
FY13
FY14
$1,063.2 $1,106.0 $1,099.0
$439.2
$441.5
$450.3
$276.3
$274.2
$253.3
$142.0
$175.4
$169.6
$132.8
$156.5
$156.9
$76.3
$89.6
$102.4
$67.6
$73.8
$80.6
$55.3
$61.6
$65.3
$55.9
$50.5
$49.6
$249.7
$256.1
$252.1
Total Large Payers (45%)
2,287
$2,558.3 $2,685.3 $2,679.1
Total Small Payers (55%)
227,858
$3,135.6 $3,240.8 $3,401.4
Total All
230,145
$5,693.9 $5,926.1 $6,080.5
* Makes payments in excess of $110,000.
* Number in parentheses represents percent of total DOA withholding collections in FY13.
Percent Change
FY13
FY14
4.0%
-0.6%
0.5%
2.0%
-0.7%
-7.6%
23.5%
-3.3%
17.9%
0.2%
17.5%
14.3%
9.1%
9.2%
11.3%
6.0%
-9.6%
-1.9%
2.6%
-1.6%
5.0%
3.4%
4.1%
-0.2%
5.0%
2.6%
12
FY2014 January Year-To-Date Revenues
Percent Growth over Prior Year
Major Source
Withholding
Nonwithholding
Refunds
Net Individual
As a %
of Total
Revenues
62.4 %
17.6
(10.6)
69.3
Sales
Corporate
Wills (Recordation)
Insurance
All Other Revenue
Total
18.1
4.7
2.2
1.7
3.9
100.0 %
YTD
Annual
Feb-June Req'd Prior Year
Actual
Estimate
Variance
to Meet Est.
Feb-June
2.5 %
3.3 %
(0.8) %
4.4 %
(0.5) %
(3.8)
6.3
(10.1)
11.8
22.1
26.0
5.1
20.9
1.8
2.2
0.7
3.7
(3.0)
8.1
6.3
(3.8)
(14.5)
(11.2)
176.8
(1.9)
(4.4)
0.4
0.0
10.4
(3.8)
0.6
(14.9)
(11.2)
166.4
1.9
(5.1)
15.6
14.7
(13.9)
(5.4)
2.0
(18.2)
16.4
16.7
3.1
(0.5) %
1.7 %
(2.2) %
4.6 %
4.1 %
Sales (x HB2313)
1.4 %
1.6 %
(0.2) %
2.0 %
2.0 %
Total (x HB2313)
0.5 %
2.9 %
(2.4) %
6.1 %
4.1 %
13
The February Mid-Session Revenue Review
• The mid-session revenue review involves an analysis of two elements:
– Updated economic information; and
– Actual revenue collections for the first seven months of the current fiscal year.
Economic Outlook
• The January economic outlook remained one of modest growth.
– Slightly more optimistic than the November outlook, which underpins the revenue
forecast in the introduced budget.
• Real GDP is now expected to grow 2.5 percent in FY2014 vs 2.1 percent in November.
• Virginia employment growth is now expected to be 1.2 percent in FY2014 vs. 1.0 percent in November.
• Wages and salaries are anticipated to increase 2.3 percent in FY2014 vs. 2.6 percent in November.
– There are no significant changes to the economic outlook over the next biennium.
• The major downside risk is that the combination of unwarranted fiscal
tightening and a bleak global outlook could stall U.S. Economic
growth.
14
Mid-Session Revenue Review Conclusion
• Two consecutive months of disappointing national job
growth illustrate the fragility in the economic recovery.
• Bottom line, there is no compelling economic basis to
revise the revenue forecast upward.
• However, a collections-based analysis has led to a different
conclusion that the revenue estimate should be reduced.
15
February Mid-Session Forecast Revisions
Address Sources Trailing Their Targets
Summary of Reforecast for Fiscal Year 2014
(millions of dollars)
Major Source
Personal Income Tax:
Withholding
Nonwithholding
Refunds
Net Individual
Sales
Increase
No Change
-$35.0
-$60.0
$0.0
-$95.0
$0.0
Corporate
Wills (Recordation)
Insurance
All Other Revenue
Decrease
-$30.0
(Refunds)
$0.0
$0.0
$0.0
Total
-$125.0
•
Withholding and nonwithholding are trailing their annual estimates.
•
Corporate refunds in July to December exceeded expectations.
•
In total, year-to-date collection trends support lowering the December forecast by $125.0 million in
fiscal year 2014.

For the next biennium, downward revisions total $15.0 million in fiscal year 2015 in
withholding.
16
February Mid-Session Forecast Revisions
Lower Fiscal Year 2014 Withholding and
Total Revenue Growth Rates
A Comparison of Growth Rates
(percent change)
FY14 FY15 FY16
3.3
4.3
4.2
2.9
4.5
4.3
Withholding
December
Mid-Session
Nonwithholding
December
Mid-Session
6.3
4.2
7.4
9.6
5.9
5.9
Corporate
December
Mid-Session
0.4
(3.4)
2.1
6.1
0.7
0.7
Total Revenue
December
Mid-Session
1.7
1.0
4.2
4.9
3.9
4.0
17
Summary of Fiscal Year 2014 Revenue Collections
July through February
Percent Growth over Prior Year
Major Source
Withholding
Nonwithholding
Refunds
Net Individual
As a %
of Total
Revenues
62.6 %
17.4
(10.7)
69.3
Sales
Corporate
Wills (Recordation)
Insurance
All Other Revenue
Total
18.3
4.6
2.2
1.7
3.9
100.0 %
YTD
Annual
Mar-June Req'd Prior Year
Actual
Estimate
Variance
to Meet Est.
Mar-June
3.0 %
2.9 %
0.1 %
2.8 %
0.9 %
(2.7)
4.2
(6.9)
8.2
23.5
13.5
5.1
8.4
(0.2)
2.1
1.1
2.9
(1.8)
5.8
8.9
(4.9)
(10.8)
(14.2)
38.1
(0.3)
(4.4)
(3.4)
0.0
10.4
(3.8)
(0.5)
(7.4)
(14.2)
27.7
3.5
(3.5)
4.0
25.2
4.6
(8.7)
0.5
(14.4)
15.5
(4.6)
3.4
(0.8) %
1.0 %
(1.8) %
3.7 %
4.9 %
Sales (x HB2313)
0.3 %
1.6 %
(1.3) %
4.3 %
0.3 %
Total (x HB2313)
0.3 %
2.1 %
(1.8) %
5.2 %
5.0 %
18
Growth in Total General Fund Revenue Collections
FY14 Monthly and Year-to-Date
14%
13.0%
12%
10%
8%
6%
Forecast: 1.0%
2.8%
4%
2%
3.0%
0%
0.6%
0.7%
0.7%
-2%
-0.5%
-0.8%
0.0%
-4%
-6%
-8%
Monthly
Year-to-Date
-10%
Monthly Growth:
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
13.0%
-4.8%
2.6%
-5.4%
1.1%
0.8%
-5.9%
-3.4%
7.8%
Apr
May
Jun
•
Total general fund revenues increased 7.8 percent in March due to individual and
corporations making final payments for tax year 2013 ahead of the due date and fewer
individual income tax refunds being issued.
•
On a year-to-date basis, total revenues were flat, trailing the annual forecast of 1.0 percent
growth.
– Adjusting for AST and the HB2313 program, total revenues grew 1.1 percent through
March, behind the economic-base forecast of 2.1 percent growth.
19
Issues Affecting the Future
Looking Ahead
20
Total General Fund Revenues
Annual Percent Change
20%
15%
10%
5%
0%
-5%
-10%
-15%
80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 '00 '01 '02 '03 '04'05 '06 '07 '08 '09 10 11 12 13 14*15*16*
* February 10, 2014 Midsession Forecast (Excludes Transfers)
21
Growth in Total General Fund Revenues
Fiscal Year 1961 - Fiscal Year 2016
(Nominal - Actual Dollars)
FY
Total Revenues
Growth
FY
Total Revenues
Growth
61
230,998,887
-
89
5,478,912,000
8.4%
62
242,144,567
4.8%
90
5,494,884,000
0.3%
63
64
286,304,265
18.2%
91
5,471,879,000
-0.4%
298,033,919
4.1%
92
5,623,213,000
2.8%
65
323,213,412
8.4%
93
6,133,637,000
9.1%
66
365,129,776
13.0%
94
6,503,368,000
6.0%
67
414,755,644
13.6%
95
6,881,145,000
5.8%
68
533,597,744
28.7%
96
7,356,110,000
6.9%
69
706,254,374
32.4%
97
7,949,327,000
8.1%
70
743,721,322
5.3%
98
8,773,520,000
10.4%
71
807,954,651
8.6%
99
9,702,747,000
10.6%
72
922,653,686
14.2%
00
10,788,482,000
11.2%
73
1,054,469,443
14.3%
01
11,105,275,000
2.9%
74
1,168,562,871
10.8%
02
10,678,954,000
-3.8%
75
1,303,178,893
11.5%
03
10,867,149,000
1.8%
76
1,428,421,157
9.6%
04
11,917,867,000
9.7%
77
1,636,301,819
14.6%
05
13,687,252,000
14.8%
78
1,923,085,084
17.5%
06
14,834,298,000
8.4%
79
2,115,211,522
10.0%
07
15,565,827,000
4.9%
80
2,344,928,934
10.9%
08
15,766,951,000
1.3%
81
2,579,663,941
10.0%
09
14,315,060,000
-9.2%
82
2,796,458,741
8.4%
10
14,219,477,000
-0.7%
83
2,975,687,935
6.4%
11
15,040,200,000
5.8%
84
3,397,710,261
14.2%
12
15,846,665,000
5.4%
85
3,790,816,000
11.6%
13
16,684,600,000
5.3%
86
4,131,778,000
9.0%
14*
16,845,900,000
1.0%
87
4,590,434,000
11.1%
15*
17,671,100,000
4.9%
88
5,054,382,000
10.1%
16*
18,373,300,000
4.0%
*February 12, 2014 Midsession Forecast (Excludes Transfers)
22
General Fund Revenue
$ in Millions
Fiscal Year
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Revenue Growth
10.5%
2.9
(3.8)
1.8
9.7
14.8
8.4
4.9
1.3
(9.2)
(0.7)
5.8
5.4
5.3
1.0
Total
Revenue
$10,721.5
11,105.3
10,679.0
10,867.1
11,917.9
13,687.3
14,834.3
15,565.8
15,767.0
14,315.1
14,219.5
15,040.2
15,846.7
16,684.6
16,849.4
Nonwithholding
$1,669.7
1,806.8
1,459.5
1,402.7
1,562.8
2,073.5
2,530.2
2,782.0
2,861.2
2,310.4
1,906.8
2,178.6
2,357.9
2,807.7
2,926.0
% of Total
15.57%
16.27%
13.67%
12.91%
13.11%
15.15%
17.06%
17.87%
18.15%
16.14%
13.41%
14.49%
14.88%
16.82%
17.37%
23
Trends in Withholding Compared to
Individual Nonwithholding
Percent Change
Percent Growth Over the Prior Year
50
40
30
20
10
0
-10
-20
-30
-40
86 87 88 89 90 91 92 93 94 95 96 97 98 99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13'14*'15*'16*
* Forecast
Withholding
Nonwithholding
24
Mandatory Deposits into the Revenue Stabilization Fund Will
Triple the Size of the Fund Between the End of FY2010 and
FY2016, Approaching $1.0 Billion by June 30, 2016
Revenue Stabilization Fund – June 30 Balance
FY1995-2013 Actual and FY2014-2016 Forecast
(millions of dollars)
$1,189.8
$1,200
$1,064.7
$1,014.9
$948.5
$1,000
$939.1
$800
$715.6
$689.0
$575.1
$574.6
$600
$482.3
$472.4
$361.5
$400
$299.4
$295.2
$224.3
$156.6
$200
$340.1
$440.0
$303.6
$247.5
$80.1
$85.0
$0
• Mandatory deposits of $244.6 million in fiscal year 2014 and $243.2 in fiscal year 2015 are
required. There is no deposit required in fiscal year 2016 based on official revenue projections.
25
Budget Driver: Medicaid
Medicaid Enrollment & Expenditures, FY 2008
Aged
Blind & Disabled
Adults
9%
20%
20%
16%
47%
Children
Aged
55%
10%
23%
Recipients
Department of Planning and Budget, 2008.
Blind & Disabled
Adults
Children
Expenditures
26
Budget Drivers FY 1985
All Other
$1,078,603,451
28.7%
K-12
$1,355,514,703
36.1%
Medicaid
$202,916,420
5.4%
Corrections
$276,877,715
7.4%
Per CH 221
Mental Disabilities
$212,605,320
5.7%
HEd
$627,012,547
16.7%
27
Five Budget Drivers Make Up 70 Percent
of the FY 2012 General Fund Budget
Corrections
$1,218.0
7%
Medicaid
$3,258.4
20%
CarTax
$950.0
6%
Mental Health
$709.5
4%
DebtService
$583.2
4%
All Other
$4,813.7
29%
Higher Ed
$1,538.1
9%
Other
$3,280.5
20%
K-12
$5,010.2
30%
Per Chapter 890, 2011 Virginia Acts of Assembly
28
Comparison of Total Medicaid Projected
Spending (DMAS only)
6,500,000,000
6,000,000,000
5,500,000,000
2015 introduced
spending level
No expansion
5,000,000,000
Expansion
4,500,000,000
4,000,000,000
2015 2016 2017 2018 2019 2020 2021 2022
29
Net New Savings from Medicaid Pilot
Provide $225 Million in Resources
Medicaid Pilot Amendments
Agency
Title
FY 2015
FY 2016
790: Grants to Localities
Reflect Medicaid expansion savings at Community Services
Boards
($8,500,410)
($29,144,262)
602: Department of Medical
Assistance Services
Reflect savings for the involuntary mental commitment fund
from Medicaid Expansion
($526,112)
($1,302,286)
602: Department of Medical
Assistance Services
Reflect additional woodwork costs for FAMIS from Medicaid
expansion
$483,307
$776,121
602: Department of Medical
Assistance Services
Reflects savings for indigent care and other public coverage
programs resulting from Medicaid Expansion
602: Department of Medical
Assistance Services
Fund additional woodwork costs for the Medicaid children's
health insurance program from Medicaid expansion
602: Department of Medical
Assistance Services
Fund administrative costs related to the expansion of Medicaid
765: Department of Social
Services
Fund administrative costs of expanding Medicaid
799: Department of Corrections Capture savings resulting from Medicaid expansion
TOTAL FOR MEDICAID PILOT AMENDMENTS
($53,125,686) ($121,618,603)
$135,019
$216,337
$15,539,457
$13,163,607
$2,934,706
$708,125
($14,576,472)
($30,435,674)
($57,636,191) ($167,636,635)
30
Funding Comparison for Higher Education
Biennial Amounts (millions $)
Governor
HB/SB 5003
House Bill
5002
Senate Bill
5003
150.7
189.8
99.5
Financial aid-public institutions
32.5
3.1
45.5
Salary/bonus increases*
30.9
26.0
31.8
$214.1
$218.9
$176.8
Higher Ed-related operations
*Governor McAuliffe provides 2% salary increase by April 2015; House Bill 5002 provides
1% bonus by January 2015 and 1% salary by June 2015; and Senate Bill 5003 provides 2%
salary increase by April 2015 and includes graduate teaching assistants in its salary
calculations.
31
For more
information on Virginia’s
budget, visit:
www.DPB.Virginia.gov
www.Finance.Virginia.gov
32

Download Report