Willful Ignorance

Members of the House Appropriations Committee are ignoring one simple fix – closing the health coverage gap – to a new wrinkle in the state’s financial woes.

At a committee meeting yesterday, lawmakers learned that the Department of Corrections (DOC) needs an additional $45 million to cover inmate health care costs this year and next. The shortfall stems from a combination of switching the state’s private inmate health care contractor, treating Hepatitis C, and rising costs for health care that inmates get at outside hospitals and doctors’ offices.

There’s an easy way to fix much of that problem: Using available federal funds to cover inmates’ inpatient hospital costs could save the state more than $30 million a year and upwards of $235 million over the next eight years. All lawmakers have to do is end their stubborn refusal to close the coverage gap. Medicaid would then cover inmates’ inpatient hospital care.

Despite all of the budget troubles the state has faced in the last six months, and this emerging problem with DOC, closing the coverage gap was conspicuously absent from the DOC presentation and follow-up by the committee, which is controlled by opponents of closing the coverage gap. But after the meeting, DOC Director Harold Clarke told Richmond Times Dispatch reporter Michael Martz, “It stands to reason that the cost is going to be lower if you’re going to expand” Medicaid.

And there’s more savings to be had beyond that from closing the coverage gap – about $160 million a year. That’s because allowing low-income Virginians to have access to affordable health coverage would greatly reduce the need for state-funded care for the poor at the University of Virginia and Virginia Commonwealth University hospitals, local mental health and substance abuse services, and other programs that serve vulnerable populations.

The savings from closing the coverage gap could help DOC and the rest of the state deal with the shortfalls that have already resulted in reduced services and layoffs. But from the looks of it, most members of the House Appropriations Committee would rather hear what they want to hear, and disregard the rest.

—Massey Whorley, Senior Policy Analyst

Virginia Among Top States in Education Funding Cuts

Virginia’s near the top of a new list. But it’s not a good one.

Turns out only seven other states have cut the amount of state money they spend on each  K-12 student as deeply as Virginia since the start of the recession, based on the findings of a new report.

And it gets worse. Per-student spending in Virginia actually peaked during the 2008-2009 school year, a bit later than the time frame in the report. So looking at how far we’ve fallen from this peak, we’re in dire straits in the Old Dominion.

During the next school year, Virginia will spend nearly 17 percent less on each student than it did during the 2008-2009 school year, after adjusting for inflation. That translates to an average cut of $947 in state funding per student, in 2013 dollars.

State cuts mean that local governments have to pick up the slack. But not all localities have the wherewithal to make up for these cuts. When they can’t, kids get hit with larger class sizes, fewer support staff, or decaying facilities.   

The consequences reach far beyond the classroom. Chronic underinvestment in our students hurts Virginia’s economic competitiveness. Without an educated workforce that can adapt to the rapidly changing demands of a global economy, there’s no way that Virginia can keep up.

We need to be making strong investments for the economic health of our state, and education is one of the most crucial investments. Lawmakers need to stop the cuts and budget tricks that are hurting our students and quietly undermining our prosperity. 

—Mitchell Cole, Research Assistant

Learn more about the consequences of underinvestment and why budget cuts matter at The 2014 TCI Policy Summit, Nov. 12. More here.

VIDEO EXPLAINER: Virginia’s Troubled Budget (16 min.)

Today’s announcement by the administration of a series of cuts to state agencies is just the latest reminder of the key budget challenges facing Virginia. This video presentation provides critical background on what’s going on, how we got here, and what you can do about it.

Losing Ticket

Virginia lawmakers did not protect K-12 education in the budget agreement passed back in September, despite the budget writers’ assertions.

In fact, they cut general funds for K-12 education by more than $43 million this school year, while bandaging that wound with $15 million from the state’s Literary Fund and $28 million from the Virginia Lottery.

While this may look like a dollar-for-dollar trade, it isn’t. Only rarely can lottery profits and the money in the Literary Fund be spent on anything but education. They’re dedicated funds, and that’s spelled out in Virginia’s constitution. Lawmakers have little choice on where that money gets spent. In other words, that money would have gone to education anyway, so schools are still $43 million poorer.

But lawmakers did have a choice about how they use the general fund, and they chose to reduce how much goes to education. That’s a cut.

It’s like scratching a winning ticket and then being told that the amount of your winnings will be deducted from your other income. But, hey, congratulations. You won!

The situation is particularly bad when combined with the $30 million in annual cuts it inflicted on localities, which spend more than half of their budgets on schools.

Sadly, this switcheroo is nothing new. Budget writers regularly raid the Literary Fund to help offset reductions in general fund support for teachers’ retirement. It’s perfectly legal, but still just disguises a cut in state general funds devoted to our schools.

Voters were told that the state lottery would boost funding for K-12 education when they approved its creation in 1987, but year after year those profits have been used to mask reductions in other state education funding. And that does nothing to help our schools.

By June 2015, state aid per K-12 student will have dropped 17 percent from 2009 levels, partially as a result of budget gimmicks like this.

It doesn’t have to be this way. A more balanced approach to budgeting that includes new forms of revenue could go a long way toward helping our schools and avoiding some of the state’s perennial budget woes.

But as long as lawmakers rely on this cut-and-switch approach to make ends meet, they are gambling with our schools, our children’s futures, and our economy. Instead, lawmakers should focus on real ways to stop the cuts for our students. That would be a winning ticket.

 —Mitchell Cole, Research Assistant

The Budget Fix That Fixed Nothing

Virginia lawmakers balanced the state budget last month largely with a mix of rainy day funds and directives to state agencies, colleges, universities and local governments to live on less and cut their budgets.

But another maneuver they used flew mostly under the radar. And it is a perfect illustration of why lawmakers need to come up with a permanent revenue source to meet Virginia’s needs rather than muddling through from one crisis to the next.

Specifically, the budget deal delays part of an earlier transportation funding package that called for ramping up the transfer of sales tax revenue to the Highway Maintenance and Operations Fund (HMOF). Instead, that money will stay in the general fund, which pays for schools, health care, and most other state services.

The increased diversion of sales tax dollars to the highway fund was supposed to take place over several years, starting in fiscal year 2014. But lawmakers hit pause on that back in June, delaying a portion of the planned increase for FY 2015 with a promise to pay it back next year. As a result they got to keep $30 million in the general fund for the state’s other priorities.

But, facing an unexpected budget shortfall, lawmakers decided in September to delay all of the planned FY2015 bump up for transportation and keep almost $50 million in the general fund for other priorities. They also eliminated the promise to pay back the money to the highway fund next year.

Few Virginians noticed the maneuver at the time, with media attention focused on the impact of the budget cuts and the legislature’s continued inaction on closing the health care coverage gap. The scant recent coverage has focused only on the need to make sure lawmakers didn’t undermine the state’s ability to issue bonds to finance transportation projects.

But the problem is bigger than that: The maneuver simply papers over the fact that lawmakers have not addressed how to find the revenue it takes to build the economy and invest in the future.

The June and September delays in the ramp-up of the sales tax diversion kept critical resources for the general fund for this year’s budget, but they are not a long-term solution to the state’s revenue needs. That $50 million we’re retaining won’t be available in future years unless, of course, legislators decide to further delay the ramp up of transportation funding.

Rather than undoing part of the transportation package that the 2013 General Assembly worked so hard to pass, legislators should consider ways to come up with enough permanent revenue to meet Virginia’s needs. That’s the real problem they need to fix. 

—Laura Goren, Policy Analyst

Learn more about the fiscal and other policy challenges facing the state at Inform + Engage: The 2014 TCI Policy Summit. More here

Contributing to the New Economy: New data show immigrants continue to be an asset to Virginia’s economy

Immigrant households are significant contributors to Virginia’s economy and help the state outperform the country as a whole in education, labor force participation, and household income.

Almost 40 percent of foreign-born Virginians age 25 or over have a bachelor’s degree, according to recently released 2013 American Community Survey data. That’s a much higher share than among adults in the U.S. as a whole, whether native-born or foreign-born.

The high educational levels of foreign-born Virginians, combined with that of native-born residents, helps attract more of the well-paying, knowledge-economy jobs that Virginia needs to make up for a decline in well-paying jobs in federal contracting and other government services during this era of federal belt tightening.

And Virginia immigrants put their talents to work in our economy at high rates. Over 70 percent of foreign-born adult Virginians either were working or looking for work in 2013. Many immigrants have created jobs in Virginia through starting or operating small businesses. In fact, foreign-born residents drove 40 percent of the growth in entrepreneurship in Virginia between 2000 and 2010.

The high levels of education, labor force participation, and entrepreneurship among immigrant Virginians pays off. While immigrants in the U.S. as a whole tend to have lower incomes than native-born households, those in the commonwealth have higher median incomes than non-immigrant Virginia households: $68,585 compared to $62,028.

These key trends are illustrated in this updated infographic that uses data from the 2013 American Community Survey on the state of immigrants in Virginia’s economy.

Of course, as with other Virginians, not all immigrants in the commonwealth are able to find secure work that pays them enough to support their families and invest in their children’s future. But it’s worth remembering in this era of conflicting views about immigration policy that Virginia’s immigrant workers and families bring high levels of skill, education, and entrepreneurial energy to the state’s economy, and that benefits all of us, no matter where we were born.

—Laura Goren, Policy Analyst

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School Funding, Part II: Division Fact Sheets

Since the recession, state spending on K-12 education in Virginia has not kept up with inflation and rising student needs. And many local school divisions are feeling the pinch. 

These updated infographics show key facts and figures in an easy-to-read format on some of Virginia’s school divisions, many of which are grappling with higher poverty and increasing enrollment at a time when state funding isn’t going as far as it once did. 

That has left many of these schools leaning more and more on their local governments for funding at a time when local governments are struggling too. In fact, the budget agreement that sailed through the General Assembly earlier this month cut $60 million in support for localities over the next two years.  

Virginia’s future prosperity relies on important investments in our workforce.  And that starts with giving every child access to a good education. 

That means that lawmakers looking for a way to create growth and opportunity for Virginians need to look no further than our state’s K-12 schools. 

—Mitchell Cole, Research Assistant

The Lion’s Share

Buried in national income and poverty statistics released last week is this nugget: A small sliver of Virginia households, the highest-income one-fifth, rake in over half of all income in the state — 50 cents of every dollar. And their share has grown in the past few years.

The four in ten Virginia households with incomes under $50,000 bring home just 12 cents for every dollar earned in Virginia, according to the Census Bureau data.

There’s nothing wrong with Virginia’s most highly-educated workers bringing home high incomes, and the trend isn’t confined to the commonwealth. But when a small share of households have the lion’s share of income, it becomes tougher for lower-income families to keep up with the cost of living, much less afford college, buy a home of their own, and save for the other things it takes to build wealth and opportunity.

A large number of Virginia households have very low incomes: While the top fifth of Virginia households brought in an average of $217,000 in 2013, the bottom fifth brought in an average of just $14,000, according to the Census estimates. (Both these income numbers are likely to be somewhat understated, since the survey does not collect data on earnings above $1.1 million or on capital gains — a significant source of income for high earners — or the value of non-cash transfers, such as food assistance, for low-income households.)

For Virginia to have a strong economy with a prosperous future, everyone needs an opportunity to find useful work that pays a fair wage. The Census figures are a sobering reminder that, at a time when many hard-working Virginia families struggle to make ends meet, more and more of Virginia’s income pie is being served to a relatively few households.

—Laura Goren, Policy Analyst

Losing Our Edge

Virginia is stuck in neutral.

Median household income in Virginia remained virtually unchanged in 2013, according to new data released today by the Census Bureau, while the median household income in the country as a whole rose slightly. And the share of Virginians who are living in poverty remained at 11.7 percent, well above pre-recession levels. Child poverty also remains stuck at high levels in Virginia, while it’s starting to fall from recessionary highs in the country as a whole.

There are some good economic signs in Virginia. The number of very high-income households and families — those earning over $200,000 — rose in 2013,  after adjusting for inflation, and now account for over one in 10 Virginia families. Virginia also continues to be a very attractive place for highly educated professionals to live and work, offering many high-paying opportunities for those with the right skills, experience, and connections. We remain among the top 10 states in terms of median household income and among the 10 with the lowest poverty rates.

But even positive trends like a growing number of high-income families create challenges. Lawmakers must ensure that the state has the resources and political will to  continue improving the high-quality schools, infrastructure, and environment that draw these highly educated professionals to Virginia from the rest of the country. At the same time, they can’t ignore other Virginians who need access to  education and other resources to thrive in today’s economy.

We need ladders of opportunity for today’s workers, a high-quality education for tomorrow’s workers, and thriving communities to keep and attract the most highly educated and highly compensated families. Maintaining those things takes money and investment.

But as a recent report by Standard & Poor’s points out, maintaining adequate state revenue can be a challenge in an era when income is increasingly concentrated in the hands of very well-off households. High-income households generally pay a lower share of their income toward state and local taxes than do lower-income households. So if a greater share of a state’s income is going to the highest-income households, that means less revenue to maintain the infrastructure we all rely upon.

One way to break this trend is through the state income tax, which does a better job than other state and local taxes of keeping up when a larger share of income is concentrated in the hands of fewer Virginians, and is also generally a fairer source of revenue because, unlike other state and local taxes, people who have the ability to pay more pay a higher rate. In Virginia, however, the top income tax bracket kicks in at just $17,000, which means most Virginians, regardless of their income, pay the same marginal rate. Adopting a new top income tax bracket could help make the overall state and local tax system fairer while also helping Virginia maintain state revenue during these challenging times.

With sufficient political will, Virginian lawmakers may be able to adjust Virginia’s income tax system to help the state maintain adequate revenue to invest in our future without further burdening those households already struggling to keep up.

—Laura Goren, Policy Analyst

A River (of Money) Runs Through It

Turns out it’s not just state government that relies on federal money to deliver essential services to Virginians: federal resources bolster the budgets of every one of Virginia’s 134 localities, too. From Wise County to Arlington; Accomack to Winchester; and everywhere in between.

Throughout the ongoing debate over closing the coverage gap, a key talking point for opponents has centered on distrust of the federal government and its ability to hold up its end of the bargain in funding almost all the costs of providing people with health insurance.

Well, if lawmakers question Virginia’s reliance on federal funds going to the state, then federal funds flowing to the localities in their districts should be of concern, too.

After all, it’s a lot of money.

Knowing that more than 21 percent of the state’s revenue comes from Washington, we decided to take a closer look at how much federal funding supports Virginia localities. That info is found in an annual report from the Auditor of Public Accounts that pulls together revenue and spending data for the commonwealth’s localities. It shows that over $1.9 billion in federal resources a year go to Virginia localities to help cover the cost of education, health care, and other essential public services.

Click on the image below to view tables that sum how much goes to the localities associated with each Virginia House and Senate district.

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The fact is, Virginia relies on federal support for core services that people rely on at every level of government. So if lawmakers — or anyone else — were really concerned that the federal government can’t be relied upon to provide needed funding for closing the coverage gap, you’d think they’d also be busy shoring up education and all the other areas where federal funding helps cover the costs. But they aren’t. And why would they? The money is safe — just like the money Washington would spend to make sure more Virginians have medical care.

So who’s kidding who?

As lawmakers head back to Richmond Thursday for a special legislative session to debate expanding Medicaid in Virginia, it’s time to put the excuses aside and make the right decision on closing the coverage gap.

The deal before them is full federal funding of all the costs through 2016 and no less than 90 percent after that.

Too good to be true? Nope.

Too good to turn down? You bet.

—Sara Okos, Policy Director