Some Sequester Effects Still Under the Radar

While Congress recently rushed to give the Federal Aviation Administration flexibility to avert employee furloughs and airport tower closures caused by automatic spending cuts, there are many other victims of Congress’ blunt approach to deficit reduction, known as sequestration, who aren’t as lucky. Most of them are barely blips on Congress’ radar.

Like the kids in Head Start, for example. Head Start provides comprehensive education, nutrition and health services to low-income preschoolers, toddlers and infants. The federal program serves nearly 15,000 Virginians. The White House and the Office of Head Start both estimate that the program will serve 70,000  fewer children nationwide because of the  sequestration cuts. This will translate into 1,000 Virginia children losing Head Start services. Head Start programs can try to make other cuts to reduce the number of kids turned away from the program, but that could mean going to a shorter school year or from a full-day program to a part-day program. That would leave working families in a lurch and children with less help getting ready for kindergarten.  

Low-income seniors get hit, too. Federal funding for meals on wheels has already been slashed due to sequestration and Virginia seniors will soon feel the effects. The Daily Press reported recently that Senior Services of Southeastern Virginia, a meals on wheels provider, lost $220,000 in funding from sequestration cuts. Another provider that covers Alleghany, Roanoke, Botetourt and Craig counties is reducing the number of people that receive daily meals and plans to scrap most emergency meals including canned foods that are distributed before storms. These cuts may impact thousands of meal deliveries, rides to the doctor, or home health care across the region.

People in need of affordable housing are also losing out. Over five million lower-income Americans, including more than 100,000 lower-income Virginians, use Housing Choice Vouchers to afford modest, but decent, rental housing. While it is still unclear how many Virginians will lose vouchers, there are signs of trouble ahead. Last week, the federal department that manages the vouchers  announced that it will be closed on seven business days over the next three months. But this is just the beginning. Nationally, nearly 110,000 lower-income families are expected to lose access to Housing Choice Vouchers by the end of 2013, according to the Center on Budget and Policy Priorities. Of those, about 2,250 are Virginia families. Without the vouchers, families that could once rely on charitable organizations for below-market rental units are being turned away, as these organizations cannot afford to serve a population with that low an income.  

While Congress’s quick turnaround on the FAA cuts shows that it may address sequestration problems if they are too visible or politically damaging, many low-income Americans are facing the brunt of sequestration with cuts. 

—Ben Paul, Program Assistant

Virginia’s Stake in Online Sales Tax Collection

While Virginians await the final outcome of congressional haggling over legislation that would allow states to require online and catalog merchants to collect sales taxes from their customers, it’s worth remembering that a substantial portion of the revenue for  the state’s new transportation funding package relies on passage of that legislation.

If implemented in the way Virginia lawmakers intended, the transportation funding package would result in more than $6 billion in new funds for transportation over five years. But $978 million of that amount would be generated only if Congress passes its online sales tax collection (or remote seller) bill.

To help cushion the potential blow if Congress doesn’t act, Virginia’s new transportation law would increase the sales tax on the wholesale price of gasoline to 5.1 percent from 3.5 percent in 2015. While this would bring in about $783 million over five years, it would not fully replace the $978 million the remote sales tax was estimated to raise from 2014-2018.

Transportation funding would take another $220 million hit if Congress does not enact remote seller legislation by 2015. That’s because the amount of sales tax revenue that the state is allowed to divert from the general fund – which funds schools, public safety and other services – to the transportation fund would be capped at the 2015 amount instead of rising as planned.

All told, a failed bet on federal remote seller legislation could reduce the state’s planned transportation investment by over $400 million by 2018.

But there’s another thing to keep an eye on as this debate unfolds: Even if federal legislation is enacted, given the strong opposition to any tax increase by many members of Congress, there is a risk that it would include some offsetting limit on states’ ability to raise other kinds of revenues. For example, the legislation could be amended to include a change in other aspects of state taxes that would lead to revenue losses in Virginia.

While lawmakers passed a transportation funding package, whether we’ll get enough revenue remains a roll of the dice.

—Sara Okos, Policy Director

Coming This Fall: New Opportunities for Health Care for Thousands of Virginians

Starting October 1, over 620,000 low-to-moderate-income Virginians will have new options to find out how to  access  quality, affordable health insurance, according to a recent report from Families USA, a national nonprofit group that promotes expanded access to health care. And a whopping 88 percent of them come from families where at least one family member is employed.

The help will come from the new health insurance exchange – a marketplace for private insurance plans and consumers – being set up under the Affordable Care Act. Open enrollment is scheduled to begin in October for coverage that will start in January 2014. In addition to helping consumers find coverage, however, the exchange is also set up to help people pay for coverage. Tax credits are available to people with incomes between 100 percent and 400 percent of the federal poverty level (FPL) – about $19,530 and $78,120, respectively, for a family of three.

Just how much financial help will people get to pay for insurance through the exchange? The amount will vary based on income – the lower your income, the bigger your credit, and vice versa – and on the annual premium of the plan purchased. The tax credits are calculated so that individuals pay no more than a certain percentage of their income towards the cost.

Let’s use a hypothetical annual premium of $5,000 for a single adult to illustrate how the tax credits will work and the amount of help available.

Individuals who make $11,490 per year (100 percent of FPL) will generally be expected to pay no more than two percent of their income – about $230 per year for a health plan with an annual premium of $5,000. That works out to less than $20 per month for health insurance. That means their credit is worth $4,770. At the other end of the spectrum, individuals who make $45,960 per year (400 percent FPL), would receive a credit of $630 on the same plan. That leaves them paying $4,370 per year or $364 a month – 9.5 percent of their income.

—Massey Whorley, Senior Policy Analyst

Losing Ground: Despite Positive First Quarter Job Growth, Current Pace Won’t Fill Jobs Hole

You might think that adding almost 10,000 jobs in the first three months of this year would be good news for Virginia, but when you find out that the size of the working-age population grew by more it puts a damper on the data.

That’s the upshot of the federal Bureau of Labor Statistics report on the first quarter of 2013.

Let’s start with the good news: Virginia added 9,900 civilian non-farm jobs in that period, according to seasonally-adjusted data released last week. Virginia’s unemployment rate fell to 5.5 percent in the first quarter, down a couple of ticks from 5.7 percent at the end of 2012 and 5.9 percent a year ago.

But when you compare these numbers to the faster growth of the state’s working-age population, the good news ends.

Virginia’s working-age population has grown 8.1 percent since the start of the recession. Had job growth in Virginia kept pace with population growth, the state would have a little over 4 million jobs today, but unfortunately it did not. Instead, we have just 3.75 million jobs. That leaves a gap of about 323,000 jobs between what we have and what we need get our economy back to strong employment levels.

To close this gap within the next three years while keeping up with more expected growth in the state’s working-age population, Virginia would have to add over 13,000 jobs every month.

The bad news is that we’re not even close to meeting this goal. From January through March, Virginia added an average of just 3,230 jobs a month. That’s less than one-fourth of the number of jobs the state needs to start climbing out of this hole.

These latest numbers are a reminder of how we need to continue to invest in the things we know support a strong economy, like education and health care, and that form the building blocks for real job growth for Virginians.

—Laura Goren, Policy Analyst

Changing the Station: Sales Tax is Now the Leading Source of Transportation Funding

As we noted in our report on the new transportation funding package, less than 10 percent of the new tax revenue is from driving-related sources, such as the gas tax, shifting the responsibility for funding transportation away from those who use the highways the most. Just how big of a shift does this represent? Turns out, it’s pretty big.

Currently, nearly 70 percent of the state’s transportation revenue comes from driving-related sources. (See note below.) But under the new funding package, that share drops to around 60 percent.

Now that may not sound like a lot, but consider that in the process the gas tax drops from the leading revenue source for transportation to third place; and sales tax moves into first.

Here’s how it happens. While there are a lot of moving parts in the package, two components are driving this shift: the conversion of the gas tax and the changes to the sales tax.

Let’s look at the gas tax first. The new transportation legislation converts the existing 17.5 cents per gallon gas tax to a 3.5 percent tax levied at the wholesale rate. As a result, gas tax collections will be about $134 million lower per year by 2018 — when all the components of the funding package are fully phased in — than if Virginia stuck to the existing gas tax.

How does the new law make up for the lower gas tax revenue? This is where the sales tax comes in. To close the gap, three things happen. First, the law diverts more of the existing sales tax to transportation, leaving less for [education, public safety, and everything else the state pays for]. Then the law raises the sales tax three-tenths of a percent and gives ALL of that new revenue to transportation. Finally, it banks on Congress allowing Virginia to collect sales tax from online retailers and divert 3.5 percent of that revenue to transportation.

Taken together, these tax changes constitute a major change in who pays for our roads.

The bottom line is this: while the new funding package provides a needed boost for Virginia’s transportation investments, it weakens the link between costs and benefits of our transportation system by shifting the responsibility for paying for our roads away from those who use them the most.

—Sara Okos, Policy Director

Note: For the purpose of this analysis, we look solely at transportation revenues from state sources. These are the same taxes and fees included in the November 2012 GACRE report’s section on Non-General Fund Revenues. In addition to those revenue sources included here, federal, local and toll revenues also finance Virginia’s transportation program. They are not included in this analysis because, as mentioned in the GACRE report, those sources “do not determine the fiscal capacity of the state’s transportation program.”

Trending: Virginia’s Slow Revenue Growth

The recent announcement that state general fund revenue declined six percent in March compared to the same month last year might be of little concern were it not part of a larger trend for Virginia. The troubling fact is it’s been almost four years since the official end of the recession and state revenues are running only about seven percent above 2009 levels.

How slow is that? At this same point after the 2001 recession, Virginia’s revenues were running about 27 percent above pre-recession levels.

State revenues recovered more quickly after the 2001 recession  because the downturn was less severe and Virginia lawmakers enacted a tax reform package in 2004 – just two years after the official end of the recession – that boosted revenues to meet the state’s needs for funding education, health care, public safety and other services – which, in turn, strengthened the economy.

This time around, the downturn was markedly deeper and lawmakers did little to boost revenues until this year’s transportation legislation that raised sales and excise taxes – four years after the official end of the recession. And since almost all of that money is earmarked for transportation, rather than services such as health care and education that are funded by the state’s general fund, even it will do little to bring Virginia’s general revenue growth up to a reasonable post-recession growth rate.

The slow pace of this economic recovery has meant fewer dollars to support the growing needs of a growing state like Virginia. It’s clear that lawmakers need to consider other revenue sources to keep us from falling further behind.

—Laura Goren, Policy Analyst

New Interactive Map Shows Virginians Eligible for Medicaid Expansion in Every Locality

With a state commission on Medicaid expansion about to begin its work, the lawmakers on the commission need to be accountable to the thousands of Virginians in their districts – and across the commonwealth – who lack health insurance.  Namely, to make sure the Medicaid reforms Virginia is undertaking before expansion begins – such as making benefits more like those available through commercial insurance – are carried out.

We’ve created an interactive map that shows how Medicaid expansion will benefit Virginians in every locality, including many in the commission members’ districts. This map complements tables we created during the legislative session showing the number of uninsured adults in each House and Senate district who could get health care coverage if Virginia took the federal dollars already allocated and expanded Medicaid coverage in our state.

The level of support for Medicaid expansion varies significantly among the commission members. Some have agreed that while Medicaid reforms are important, expansion should move forward. Others have expressed concern about expanding Medicaid coverage to more working Virginians. In fact, Speaker Bill Howell suggested that the House delegates on the commission were chosen specifically for their opposition to expansion.

The 10 members of the Medicaid Innovation and Reform Commission (MIRC) are:

Delegate Johnny Joannou (D-79th; Portsmouth)
Delegate Steve Landes (R-25th; Augusta)
Delegate Jimmie Massie (R-72nd; Henrico)
Delegate John O’Bannon (R-73rd; Henrico)
Delegate Beverly Sherwood (R-29th; Winchester)

Senator Emmett Hanger Jr. (R-24th; Augusta)
Senator Janet Howell (D-32nd; Fairfax)
Senator Louise Lucas (D-18th; Portsmouth).
Senator Walter Stosch (R-12th; Henrico)
Senator John Watkins (R-10th; Powhatan)

The commission’s first meeting is in June. With many reforms already under way, the members need to do their homework so they can hit the ground running and hundreds of thousands of Virginians can get the coverage they need to stay healthy and productive.

—Massey Whorley, Senior Policy Analyst