2015 General Assembly Halftime Report

The 2015 General Assembly Session has just two full weeks left but there have been some big issues on the table so far. Below are the highlights of just a few key areas.

Just-in-time for the release of the respective House and Senate amendments to the fiscal year 2014-2016 state budget, a new revenue forecast arrived on the desks of the Governor and legislative budget leaders. The revisions provided an additional and welcomed $400 million. Key economic indicators including income tax withholding revenues, corporate tax receipts, income tax refunds, and insurance premiums taxes, suggest that Virginia’s economy may be turning a proverbial corner.

The new dollars allowed both chambers to fund across-the-board salary increases. Although the dollar amounts and timing of some of the increases vary, state employees, including State Troopers and college and university faculty, will receive near term increases. State-local employees, for example sheriffs and regional jails, and teachers may also see near term increases. The budgets also address the problem of salary compression for high-turnover, higher-risk state jobs. In his State of the Commonwealth address on Wednesday, January 14, Governor McAuliffe signaled his willingness to approve salary increases enacted by the General Assembly.

The House and Senate disagree on a several subject areas, including the use of cash or debt for specific capital projects, as well as the level of higher education spending. However and in general, the two sides are not far apart on several significant issues including Rainy Day or reserve fund transfers, accelerated state retirement system payments, mental health spending increases and public education or K-12 adjustments.
Technically, the House and Senate must enter budget negotiations no later than midnight next Wednesday, February 18. In reality, the two sides have been in regular communication about key spending priorities throughout this scheduled short session of 46-days and the respective and prospective budget conferees and their staffs began work this past weekend.

While House-Senate budget conference outcomes rarely are predictable, Kemper Consulting foresees a spending agreement prior to the scheduled Sine Die adjournment date of Saturday, February 28. In other words and unlike last year, conventional wisdom suggests that the General Assembly will not progress to budget “overtime.”

In response to the federal conviction of former Governor McDonnell this past year, both the House and Senate have passed major ethics legislation. While similar, the chambers’ proposals are not identical and likely will head to a committee of conference. The House and the Senate:
· Ban gifts over $100 and no longer distinguish between tangible and intangible;
· Create a mechanism for the Ethics Council to pre-approve legislative travel, similar to Congress;
· Include money for the ethics council in their budgets. The House appropriates $500,000 in FY16 and the Senate appropriates $300,000 in FY16;
· Ban gifts from individuals or companies seeking Governor’s Opportunity Fund Grants – economic development grants; and
· Include an event exemption to allow members to attend meetings, conferences and other events without concern of violating the gift ban.
· The House adds immediate family and spouse to the list of people who can’t receive gifts.
· The Senate raises the lobbyist registration fee from $50 to $100.
· The Senate also removes the disclosure forms from being prescribed in the Code, and instead gives the Ethics Council the power to develop the necessary forms.

After two legislative sessions with multiple transportation policy changes, the 2015 General Assembly has had fewer bills of note. After crossover relatively few bills have broad impact. Attempts to roll back the changes made last year to increase statewide and regional revenue were thwarted. Two bills of note this session are the administration’s Omnibus Transportation Bill and legislation codifying Public Private Transportation Act (PPTA) reforms. Both are carried by House Appropriations Committee Chairman Chris Jones.

The PPTA reform bill (HB1886) incorporates General Assembly members and others into a steering committee that assesses the risk-reward and determines whether a project is in the public interest at an early stage in the process. The bill assures more transparency and public involvement in the process at various stages. The bill is widely supported and has no notable opposition at this time.

The major transportation legislation of the 2015 Session is the Governor’s Omnibus Transportation Bill (HB 1887.) Its key provisions include providing local governments with transportation funds in a manner that encourages the full funding of projects, addressing repairs and reconstruction of aging bridges and pavements, increasing transit capital funding, and strengthening independence for the Commonwealth Transportation Board (CTB) and its members.

Notably, the legislation replaces the traditional CTB funding formula, which as a result of reduced funding and other factors, has not been operational in the manner that it was originally intended. The new formula is designed to get funds to local governments for approved projects, ensure a state of good repair for structurally deficient bridges and deteriorated interstate and primary pavements and result in a higher degree of transparency by allocating more money through a functioning formula. The new formula allocates 40% for state of good repair purposes, 30% for high priority projects and 30% for Construction District Grants beginning in FY2021.

High priority projects considered for funding will be projects on corridors of statewide or regional significance. Local governments will apply for funds within their district under the Construction District Grant Program.

The bill as introduced provides an additional $50 million to address transit capital needs statewide starting in FY 2017. Those funds are to be transferred from all the remaining modes of transportation including roads, aviation and the ports. The highway funding that was to be transferred has since been adjusted downward in the substitute from $37 million to $27 million reducing the overall total for the time being to $40 million dollars.

Utility Legislation
A. Incumbent Utility Rate Regulation
SB 1349 (Wagner)
SB 1349 would eliminate the current biennial State Corporation Commission (SCC) review of the base electric rates of Virginia’s two dominant utilities, Dominion Virginia Power and Appalachian Power. Currently, the SCC reviews the utilities’ rate structure every two years and, in recent years, the SCC has determined that both utilities have “over-earned” necessitating across the board customer refunds. Under SB 1349, the SCC could not review the utilities until 2020. During this period, base rates (which account for about half of a customer’s bill) would be frozen. The rest of a customer’s bill — including fuel costs; rate adjustment clauses, which pay for specific SCC-approved projects; transmission costs; and taxes — still could increase.

Dominion asserts that, under the requirements of the new EPA Clean Power Plan, it could be forced to close a number of coal-fired power plants, which generate 1/5th of its current Virginia capacity. These plants are currently valued at $2.1 billion and the cost of writing off these plants would be borne by customers through a significant rate hike without the legislation. Further, Dominion asserts that it will immediately file a plan with the SCC to reduce its fuel charge pass through resulting in a 5% decrease in residential bills and a 10% decrease in commercial bills.

B. Natural Gas Related Bills
HB 1475 (Ware)/SB 1163 (Saslaw)
The legislation allows Virginia’s certificated natural gas utilities to extend new service to unserved areas of their current certificated territory by using a rate rider system. Under the rider, only those receiving new gas services would pay the additional rider costs and existing customers would not subsidize the expansion of new gas service.

SB 1331 (Petersen)
The bill mandates that the SCC assign administrative costs attributable to a natural gas utility’s energy efficiency portfolio across all of the included program components and not to one individual program. Outreach and education costs would be allocated at the program level and not to each individual measure. The effect of these changes is that SCC approval of a broad range of energy efficiency programs will be made easier thus improving the public effectiveness of these programs.

C. Interstate Natural Gas Pipelines
HB 1696 (Bell)
The bill provided that public service corporations using eminent domain for new projects are subject to the Virginia FOIA statute.

HB 2352 (MARSHALL, D.)
The bill required any new interstate or intrastate pipeline that crosses the state border or more than one county to provide for co-location of broadband fiber optic cable.

SB 1338 (HANGER)
The bill repealed the “right of entry” survey statute for interstate and intrastate natural gas pipeline companies.

SB 1166 (HANGER)
The legislation provided that public service corporations using eminent domain for new projects are subject to the Virginia FOIA statute.

SB 1169 (HANGER)
The bill conditioned the “right of entry” provided to natural gas pipeline companies for surveying upon the formal adoption of a resolution by the local governing body endorsing the proposed pipeline.

Alcoholic Beverage Control
Just a few years ago the General Assembly rejected proposals to privatize the state’s liquor monopoly. This year, legislative proposals focused on updating or modernizing the state agency’s business and back office operations.

Legislation allowing the processing of license renewals online and allowing online sales has passed both chambers. Additionally both chambers have passed legislation reorganizing or converting the agency overseeing the Commonwealth’s liquor monopoly to an independent authority. As an authority, Alcoholic Beverage Control will have the independence to operate more like a business, increasing annual profits for the state, i.e. putting more money back into the state’s General Fund. Legislation also has passed the House that simplifying the way restaurants calculate their food and mixed beverage ratio. It would lower the existing ratio by six 6 points allowing more flexibility for restaurant owners all over the Commonwealth. Its fate in the Senate is uncertain.

While the 2014 General Assembly Session was dominated by discussions surrounding Medicaid expansion, Medicaid expansion has been little more than an after thought during the 2015 General Assembly Session. The major health care discussion this yea has centered on Certificate of Public Need (COPN) reform and potential deregulation.

This debate has left the health care community somewhat divided. While some health care institutions have pushed for select deregulation, others have opposed all deregulation unless it is comprehensive and thoroughly vetted with all stakeholders. The bill that has passed the House (HB177) and the bill that passed the Senate (SB1283) simply modifies the COPN requirements for non-medical capital projects. It also requires Secretary of Health and Human Resources to convene a workgroup to review the current COPN process and recommend changes. While no significant reforms have been adopted by the General Assembly, this has been the most serious discussion around COPN in several years.