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=============== News Archive ==============
NATIONAL DEBT AND CREDIT RATING
I am very concerned about what has been going on at the national level in recent years. I am sure you aware of the recent wrangling over the national debt limit in Washington. The two sides finally agreed on a compromise to raise the debt limit to more than 16 Trillion in exchange for some small spending reductions now and the promise of more latter.
Soon after the deal was passed, Standard and Poor’s, one of the major credit rating agencies, downgraded the US credit rating from AAA to AA+. This is the first time that the US has ever been downgraded. Other credit rating agencies have put the US on a watch list for potential downgrade if the US does not reduce its long term debt.
Part of the fallout of these actions is that the credit agencies are now looking at the ratings of businesses, agencies, and even states that rely on federal funding or that have a large number of federal employees and contractors, like Virginia. So Virginia’s AAA credit rating could be in jeopardy because of Washington’s continued fiscal irresponsibility.
Spending in Washington has been out of control for years, but has exploded since 2008. Now more than 40 percent of the federal budget is borrowed. Spending at this level is unsustainable and puts the country’s economic future at risk. Washington must get spending under control and balance its budget!
The Virginia balances its state budget every year. The reason for this is that the state constitution requires the state budget to be balanced. Not only that, but it also requires state government to maintain a reserve fund that can be tapped in the case of recessions or emergencies. These are sensible and fiscally responsible provisions that should be adopted in Washington.
A person can live high on the hog by running up credit cards for a while, but eventually the bill comes due. Washington has been living off of credit cards for years and I am afraid that the bill will be coming due in the near future unless significant cuts are made soon!
VETO SESSION REPORT
The Veto or Reconvened Session as it is officially called was a busy and grueling day as it took us nearly nine hours to act on all of the Governor’s vetoes and amendments to bills that passed during the 2011 session. In all, Governor McDonnell sent down amendments to 134 bills and vetoed four bills. Governor McDonnell addressed a variety of issues in his amendments and vetoes, including amendments to reduce the unfunded liabilities in the Virginia Retirement System (VRS) and strengthen funding for state troopers and local sheriffs.
The General Assembly upheld three of the governor’s four vetoes of legislation, including his vetoes of an unfunded mandate on local school districts to provide 150 minutes of physical education instruction per week and several new burdensome environmental mandates and fines on agriculture and business.
House Supports Governor’s Amendments to Strengthen Virginia’s Retirement System
As I have said before, the biggest threat to our state’s prized AAA bond rating is the VRS’s $17.6 billion in unfunded liabilities. During this year’s session, the House advanced a number of reforms designed to reduce the VRS unfunded liability and ensure its solvency moving forward. Unfortunately, some of the proposals advanced by the House were defeated in the State Senate.
Like the House, Governor McDonnell understands the serious threat the VRS unfunded liabilities pose to the fiscal strength of VRS and our bond rating. McDonnell proposed a number of amendments designed to strengthen the fiscal integrity of the VRS by reducing the unfunded liabilities. Specifically, Governor McDonnell proposed the following amendments to strengthen the VRS:
• Increase the state’s contribution into the VRS by $27.8 million.
• Speed up monthly payments into the Virginia Retirement System to encourage more timely investments.
• Create an optional defined contribution plan for interested state employees. One way we can lower the VRS’s unfunded liability would be to give state employees an opportunity to enroll in an optional defined contribution plan. A defined contribution plan is less costly to the state compared to a defined benefit plan that is currently offered. A defined contribution plan would appeal to younger workers who are less likely to stay with the state for a long period of time because they could take their built up contribution with them to their next job.
The State Senate went along with the first two of the Governor’s recommendations, but they again rejected the proposal to create an optional defined contribution plan for state employees. I am pleased that we were able to make some changes to strengthen the VRS, but I know that there is still more work to be done to ensure the long-term solvency of the VRS.
Supporting Our Police and Sheriffs
Governor McDonnell proposed two amendments to increase funding for our local sheriffs and state troopers. McDonnell provided an additional $7.4 million to help our local sheriffs. I was especially pleased to see Governor McDonnell include an additional $3 million to pay for overtime for state troopers. The net effect of this funding will be to put the equivalent of 82 full time troopers on duty at a fraction of the cost of creating new positions. Both of these amendments passed the General Assembly and are now a part of the final budget.
We have been in session for the last week or so to develop new district lines for the General Assembly and Congressional districts. Every 10 years we are required to redraw district lines based on the numbers from the Census, primarily in order to balance the populations between districts. Lines for local County Supervisor, City or Town Council, School Board, and precincts will be drawn by the local governing body. For the first time in Virginia history, redistricting was a truly bi-partisan process because any plan must pass both the House (which is controlled by Republicans) and the Senate (which is controlled by Democrats).
Due to population growth most districts in our area and Northern Virginia were over in population, while many districts in other areas of the state were under populated. This required the creation of three new House districts in Northern Virginia and the loss of three House Districts in other parts of the state. One of the proposed new districts includes parts of North Stafford and southern Prince William Counties.
The House of Delegates redistricting proposal passed with broad bi-partisan support by a vote of 86 to 8. The State Senate plan was more contentious and it passed on a 22 to 17 vote. Both plans now go to the Governor for his review.
The House also passed a Congressional Redistricting plan by a 71 to 23 vote. That plan has been sent to the State Senate for their review and action.
You may review the text of the current House of Delegates and State Senate plan at the following web site:
The Congressional plan that passed the House may be viewed at:
Once the plans have passed and been approved by the Governor, they will then go to the US Justice Department for review.
COLE COMPLETES SUCCESSFUL SESSION
-- 9 Bills and Resolutions Patroned by Cole Pass --
Richmond, VA – The General Assembly session ended one day behind schedule on February 27th as final compromise budget amendments were approved. During this year’s session the General Assembly completed action on hundreds of bills and resolutions. Nine bills and resolutions patroned by Delegate Mark L. Cole (R-88th District) have passed the General Assembly including two bills that were combined with similar legislation that passed. Additionally, as Chairman of the House Privileges and Elections Committee, Cole guided the committee as it considered 91 bills and resolutions including reviewing the Governor’s appointments to various boards and commissions.
Chairman Cole’s House Bill (HB) 1437 passed and deals with the Business, Professional, and Occupational License (BPOL) tax and would allow localities to decide to impose on business's taxable income instead of gross receipts. The BPOL tax was originally imposed as a way to raise funds to pay for the War of 1812. “It is a very unfair tax because it is based on a business’ gross receipts not on income or profits; so a company could be struggling or losing money and still have to pay the tax,” Cole explained. “BPOL can become a job killer, especially for small business. Basing it on taxable income instead of gross receipts would make the tax less burdensome and a little fairer.”
HB 1507 moves the June 14, 2011, primary date to August 23, 2011, in anticipation of the redistricting process and adjusts various deadlines for filings and election preparations to accommodate the new primary date. HB 1843 moves the 2012 presidential primary date from the second Tuesday in February to the first Tuesday in March. “This is needed to accommodate changes in national political party rules and only affects the presidential primary,” Cole said. “It should save the taxpayers some money as well, because it aligns the presidential primary date with the primary date for city and town elections that have May elections.”
Cole carried two other bills that were part of Governor McDonnell’s efforts to streamline state government. HB 1666 and HB 1842 both deal with boards and commissions, repealing a redundant one and making other changes to make them more effective.
HB 1508 prohibits a member of a local electoral board from being the immediate family member of a candidate for or holder of an elected. This is intended to avoid any potential conflict of interests on the local electoral board.
Two of Delegate Cole’s bills were combined with similar legislation which passed: HB 1866 which implements the state constitutional amendment that was recently approved by the voters dealing with real estate tax relief for senior citizens and the disabled, and HB 1471 which updates some of the bankruptcy exemptions.
Delegate Cole sponsored legislation to limit the growth of government and Washington’s authority to regulate business in the Commonwealth (HJ 539 and HB 1438). While both passed the House, they were defeated in Senate subcommittees. “The Senate seems to have no interest in limiting government,” Cole said. “A big government, big spending mentality still rules in the Senate of Virginia.”
Additionally Delegate Cole co-patroned important legislation that passed including: House Joint Resolution (HJ) 693 which would amend Virginia’s Constitution to strengthen private property rights; HB 1761 authorizes the state Human Resource Department to offer TRICARE supplemental health coverage to military retirees; and Senate Bill (SB) 1271 which requires the Auditor of Public Accounts to review collection of local retail sales and use tax to ensure that proceeds are going to the appropriate locality.
Of course the focus of most of the session has been on making amendments to the state budget. The House had adopted budget amendments to control spending, reduce fees on businesses, phase out the accelerated sales tax, and reform the Virginia Retirement System (VRS). The Senate went in the opposite direction with their budget amendments, increasing fees and spending, and doing nothing to reform VRS. After weeks of negotiations, House and Senate negotiators were able to come up with compromise amendments that did not raise fees and included some VRS reform. “There are always things you like and do not like in every budget,” Cole said, “But overall I think these budget amendments move us in the right direction.”
With all the talk in Washington about cutting the Federal budget, I thought I would give you a brief update on Virginia’s state budget. Virginia’s state budget is divided into two main categories: the General Fund and the Non-general Fund.
The Non-general Fund makes up about 58 percent of the overall state budget and consists of funds set aside for specific purposes. For example, motor vehicle and gasoline taxes are earmarked by law for transportation programs, student college tuition and fees must support higher education, fees for hunting and fishing licenses go to support the Department of Game and Inland Fisheries, and federal pass through funds are designated for specific programs. The legislature’s hands are somewhat tied when it comes to Non-general funds, because previous legislatures set-up specific taxes or fees that are supposed to be dedicated to specific programs or activities.
The General Fund makes up the other 42 percent of the budget and is used for a variety of government programs; these are the funds that the Governor and the General Assembly have the most discretion to spend. The General Assembly has reduced General Fund spending significantly in recent years. While Washington is talking about rolling back their discretionary spending to 2008 levels, Virginia’s discretionary spending (the General Fund) has already been rolled back to 2006 levels.
About a third of the state's total budget (both General and Non-general Funds) either goes directly to local government for locally operated programs or is spent by the state on behalf of localities for specific programs. The majority of the money that the state sends to localities goes to operate public schools. The state also directly shares with local governments the revenues from certain sources, such as recordation taxes and profits earned from the sale of wine and alcoholic beverages. In addition, the state shares a portion of its revenue with localities that have police departments.
Education spending is the largest portion of the state budget, accounting for about 40 percent of all expenditures; Health and Human Services is next with about 28 percent of the budget; Transportation is a little over 12 percent of the budget; Public Safety makes up about 7 percent of the budget with the remainder going to other areas of government.
Virginia’s Constitution requires us to keep the budget balanced. This does not mean that the Commonwealth has no debt; we do use debt in the form of bonds to finance construction projects. However, Virginia does not use debt to pay for ongoing operations like Washington does. Also, Virginia has a long standing policy to keep debt payments as a small portion of the budget, which has earned the Commonwealth the highest bond rating (AAA) from all three major bond rating agencies. This allows us to qualify for the lowest interest rates.
GOVERNOR’S TRANSPORTATION PROPOSAL
The Governor’s transportation proposal has generated some controversy. There are two parts of the Governor’s proposal dealing with the issuance of bonds. The first deals with the issuance of bonds backed by state funds and the second deals with bonds backed by federal funds.
In 2007 the General Assembly approved $ 3 Billion in transportation bonds; $ 300 million to be issued each year for 10 years. Governor Kaine did not issue any of those bonds during his tenure. Governor McDonnell began issuing those bonds last year. Governor McDonnell has not proposed increasing the total amount of bonds authorized, what he has proposed is accelerating the issuance of those previously authorized bonds from $ 300 to $ 600 million per year.
The reason for this is to take advantage of near record low interest rates as well as lower construction costs. Construction costs are approximately 20 percent less than they were a few years ago. If the economy continues to recover, interest rates will rise and construction costs will increase. The Governor contends that issuing the previously authorized bonds now will save the Commonwealth millions of dollars over the life of the bonds and allow us to get more work done for a lower price.
The second part of the Governor’s proposal is not really new; it simply continues something Virginia has been doing for years, and that is using about 10 percent of our Federal transportation dollars to issue bonds; it just uses a different Federal program to issue the bonds.
The House passed a modified version of the Governor’s proposal, which was slightly scaled back to ensure that we stay under the recommended debt capacity limit. It did NOT authorize additional debt; it just accelerates the issuance of previously authorized bonds to take advantage of lower interest rates and construction costs. It actually reduces the amount of federally backed bonds authorized from a total of $ 1.2 Billion to $ 1.1 Billion.
While budget issues will receive most of the attention in news pages during this session, we’re considering a lot of other legislation as well. Among the hundreds of bills that will be considered by the General Assembly are several that I am submitting. Here is an overview of some of the legislation I am sponsoring:
House Joint Resolution (HJ) 539 would amend the Virginia State Constitutional to require a three-fifths majority vote to raise or impose any new tax or fee by state or local government. If you are going to reach deeper into people’s pockets with taxes or fees, I think it is appropriate to require more than a simple majority vote to do so. It is too easy for politicians to spend other people’s money. Amending the state constitution is a three step process. The proposed amendment must pass the General Assembly twice, and then be approved by the voters.
HJ 540 is a companion amendment to HJ 539 dealing with state and local government spending. It would require a three-fifths majority vote to increase spending by more than the estimated population growth plus inflation.
HJ 613 would amend Virginia’s Constitution to require a two-thirds majority vote to issue new debt (bonds) if the debt service exceeds an average of five percent of revenues. Virginia has had a policy of not allowing debt service to exceed five percent of revenues, but the limit has never actually been incorporated into law – so the limit could be easily exceeded if a majority decided to do so. This would place the limit into the Constitutional and make it difficult to exceed it by requiring a two-thirds majority vote.
House Bill (HB) 1438 provides that goods and services made, sold, and retained in Virginia, shall be the jurisdiction of the Commonwealth and not the Federal government. The US Constitution gives the Federal government the ability to regulate interstate commerce, commerce that crosses state boundaries. The original intent was that states would regulate commerce within their borders. Over the years Congress and the Courts have expanded Federal reach to all commerce whether it crosses a state boundary or not. It is time for the states to begin pushing back and restrict the Federal government to its original mission. The states are perfectly capable of regulating commerce within their boundaries without Federal intrusion.
HB 1437 deals with the Business, professional, and occupational license (BPOL) tax. The BPOL tax is a very unfair local tax on businesses because it is based on their gross receipts and not on profits or income. So a company could be losing money and still have to pay the tax. My bill would allow localities to impose the tax on State taxable income, making the tax a little fairer.
HB 1507 moves the June 14, 2011, primary date to August 23, 2011, in anticipation of the redistricting process and adjusts various deadlines for filings and election preparations to accommodate the new primary date.
HB 1843 moves the presidential primary date from the second Tuesday in February to the first Tuesday in March. This is needed to accommodate changes in national political party rules and only affects the presidential primary.
HB 1508 prohibits a member of a local electoral board from being the spouse or other relative of a candidate for or holder of an office filled in whole or in part by voters in the jurisdiction of the electoral board. This is intended to avoid any potential conflict of interests on the local electoral board.
HB 1560 would require anyone who shows up at the polls on Election Day without ID to cast a provisional ballot. Currently, if someone comes to vote without ID, they have to sign a sworn statement identifying themselves and then can vote. This could lead to someone coming to a poll early casting a vote in someone else’s name; then when the actual voter shows up later to vote they are denied the right to vote because they are shown to have already voted. Casting a provisional ballot would allow the electoral board to retrieve the illegal ballot while allowing the real person to vote.
HB 1666 streamlines the oversight of our veterans care centers.
HB 1842 makes policy improvements and clarifications to several state boards, commissions, and councils. This bill is part of the Governor’s effort to streamline and reduce government.
HB 1865 was requested by Spotsylvania County and would provide additional flexibility to localities in transportation districts, like VRE, such as not requiring the locality to impose the two percent gas tax as a condition of membership.
HB 1866 authorizes a local government to cap real property taxes of the elderly and permanently and totally disabled, at an amount equivalent to a percentage of their income, as determined by the local government. The bill is in response to the Constitutional Amendment approved by the voters last November.
HB 1867 expands gang-free zones to include any school bus stop or public building.
HB 1472 provides that a vehicle need not display special license plates issued to certain disabled veterans in order for such veteran to receive the discount on registration and annual fees so long as such veteran qualifies to receive that plate.
GENERAL ASSEMBLY SESSION STARTS
The 2011 General Assembly is now in session. Thousands of bills and resolutions will have to be expeditiously dealt with in a matter of weeks. These bills and resolutions will include everything from mundane technical corrections or updates to the Code that will hardly be noticed by most Virginians, to broad policy issues that could affect the pocketbooks of every family and business.
It is probably no surprise that our biggest challenges this session will be money related. Fortunately for Virginians, our state Constitution requires us to keep the budget balanced, no running up huge deficits or printing money as they do in Washington.
Virginia’s economy has shown some signs of recovery, which has led to a small increase in tax revenues; the first such increase in two years. Unfortunately the recovery has been anemic and not produced the amount of revenues that were projected. This will require us to reduce spending by nearly $ 150 million. While that is significantly less than the nearly $ 4 Billion shortfall we had to close last session, it still presents challenges in light of previous spending reductions and the budget priorities outlined by Governor McDonnell.
Governor McDonnell’s budget proposal includes cost-savings strategies for state agencies, targeted use of tax dollars where there’s a solid potential for return on investment and innovative reforms to government. Economic development and job creation will remain a primary focus. The Governor is hoping to improve Virginia’s competitiveness to encourage companies to invest and expand here. A continued commitment to fiscal discipline, government reform and business-minded solutions should create an environment that speeds economic recovery and provide greater prosperity for all Virginians. Keeping taxes low is essential to grow the private sector.
One of the Governor’s key priorities to expand economic opportunities for Virginians is to increase access to a college education, focusing on science, technology, engineering and math degrees, and encouraging colleges and universities to operate more efficiently. The Governor’s $50 million proposal is driven by his desire to award 100,000 more degrees in the next 15 years. In the 21st century economy, more Virginians will need affordable access to quality higher education to help them find and keep good-paying jobs.
Transportation continues to be a high priority, especially for our area. Prior to the economic recession, the General Assembly, spearheaded by the House of Delegates, had significantly increased transportation funding; yet it seemed the more we spent, the further behind we fell. We were getting little bang for the taxpayers’ bucks. This spurred the House to push for additional scrutiny of VDOT’s use of funds including an audit; which was one of the first things that the McDonnell administration did.
The performance audit revealed $1.4 billion in previously authorized funds that were not being spent on needed highway maintenance and new construction. Many of these dollars are being redirect to long overdue transportation projects. Another positive development came when Governor McDonnell announced $1.1 billion in construction and maintenance projects for the first six months of Fiscal Year 2011.
More recently, the Governor unveiled an ambitious $4 billion transportation initiative as part of his budget and legislative package. With interest rates and construction costs at record lows, many believe now may be the best opportunity to get roads built in modern Virginia history. The challenge here will be balancing the need for additional roads financed by bonds, with the Commonwealth’s debt burden.
In order to preserve our AAA bond rating, Virginia has maintained a relatively low limit for debt payments. The temptation is strong for politicians to run up debt when times are hard. Doing so would be penny wise but pound foolish if it were to hurt our bond rating.
VIRGINIA RETIREMENT SYSTEM (VRS)
VRS will be one of the toughest challenges faced next session. The state retirement fund, which was more than fully funded a few years ago, now faces a $ 17.6 Billion dollar shortfall after the market crash of 2008/2009. While the state failed to make its recommended payment to the system this year - something that Governor McDonnell now admits was a bad idea and that I opposed - that is not to blame for the bulk of the shortfall (even if the state had made its full payment the shortfall would still be around $ 17 Billion).
Public retirement funds are heavily invested in the stock market, just like IRAs and 401Ks, and are subject to market fluctuations and adjustments. When the market is booming, as was the case several years ago, the fund appears to be in great shape; when the market is in decline, the fund needs help.
It would cost more than $ 6,500 per household to make-up this shortfall. Obviously it would be unfair to ask the taxpayers to make the system right. What is needed is long term reform of the system.
We took the first steps towards reform last session when we lowered retirement benefits for new employees hired after 1 July 2010 and required them to contribute 5 percent of their pay to their fund. Further reform is needed to keep the system solvent.
Governor McDonnell has proposed increasing state employer payments to VRS while requiring all state employees to contribute 5 percent of their pay to the fund, something that has not been required of them since 1983. While this will help the fund’s balance sheet, the long term solution is to transition away from the current defined benefit plan and move towards a defined contribution retirement plan for new employees.
Defined benefit plans have become costly dinosaurs that are nearly extinct in the private sector, being replaced by defined contribution plans such as 401Ks where both the employee and employer can contribute to an individual fund. These funds are not only less costly but are portable and can be transferred to a new job with the employee without loss of value or vesting.
One of the first things Governor McDonnell did after taking office was to initiate an independent audit of the Virginia Department of Transportation (VDOT). The audit found $ 1.45 Billion in unspent funds! I am not surprised that unspent funds were found; I am surprised that the amount is so large (it is roughly equivalent to about one third of VDOT’s annual budget). The McDonnell administration is currently re-programming the money to spend it on urgently needed transportation projects.
In recent years we had significantly increased funding for transportation, but we saw little results from those increases. We pushed for an independent audit of VDOT for years. Unfortunately Governor Kaine did not support an independent audit and legislation requiring an audit would pass the House, but die in the Senate. In my opinion the reason for this was primarily political. Governor Kaine and his allies in the Senate were demanding tax increases for transportation and assumed that traffic gridlock would help their cause. This is why I believe the Kaine administration dragged their feet when it came to spending transportation funds authorized by the General Assembly.
My hat is off to Governor McDonnell for moving forward with the audit so quickly. Just goes to show you what can be done when you have a Governor who is more concerned about getting things done, instead of just reaching deeper into our pockets!
RECENT ACTIONS TO ADDRESS TRANSPORTATION
While we are on the subject of transportation, I wanted to make you aware of steps the General Assembly have taken in recent years to try to address this problem that are rarely reported in the mainstream media:
- 2005, we increased transportation funding by more than $ 1.4 Billion, the largest increase in nearly 20 years, including $ 850 million in funding to reduce congestion on major thoroughfares like I-95. The House of Delegates had proposed $ 1.2 Billion for congestion relief, but the state Senate and then Governor Mark Warner wanted significantly less, so we had to compromise on $ 850 million.
- 2006, we directed an additional $ 568 million to transportation.
- 2007, the General Assembly financed largest transportation investment in two decades by providing nearly $ 500 million in ongoing, new transportation funding and authorizing $ 3 Billion in transportation bonds.
- 2008 we restored $180 million in transportation funding that former Governor Kaine had diverted to other programs.
As stated above, we authorized additional transportation bonding authority in 2007; however, Governor Kaine had declined to issue any of these bonds. This year Governor McDonnell announced that he would begin issuing these bonds in order to take advantage of record low interest rates and jump-start needed transportation projects.