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.

Budget
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.”

Ethics
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.

Transportation
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.
– STATUS: PASSED THE SENATE

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.
– STATUS: PASSED THE HOUSES OF ORIGIN

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.
– STATUS: PASSED THE SENATE

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.
– STATUS: KILLED IN COMMITTEE

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.
– STATUS: KILLED IN COMMITTEE W/ LETTER

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The bill repealed the “right of entry” survey statute for interstate and intrastate natural gas pipeline companies.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

SB 1166 (HANGER)
The legislation provided that public service corporations using eminent domain for new projects are subject to the Virginia FOIA statute.
– STATUS: KILLED IN COMMITTEE W/ LETTER

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.
– STATUS: KILLED IN COMMITTEE

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.

Healthcare
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.

Fred Helm Elected Chairman of the Virginia Lottery Board

Richmond – Today Kemper Consulting Vice President and Counsel, Fred Helm, was elected Chairman of the Virginia Lottery Board. Mr. Helm was appointed by Governor McDonnell in 2014 to a five-year term ending on June 30, 2018.

The Virginia Lottery Board consists of citizens and residents of the Commonwealth. Board members are appointed by and serve at the pleasure of the Governor. And like all Virginia Lottery enthusiasts, the board members strive to keep the Lottery at the top of its game!

Kemper Consulting is a full service government relations firm with offices in Hampton Roads and Richmond. Kemper Consulting provides government relations services to Fortune 500 companies, privates corporations, large trade associations, and local governments.

Gov McAuliffe Announces Amendments to FY15-16 Budget

This morning in Richmond, Governor Terry McAuliffe introduced his amendments to the current fiscal years 2015 and 2016 biennial budget.

As you remember, falling revenues lead to a biennial shortfall of $2.4 billion. Over the course of the last year, including unscheduled spring and fall budget actions, the Governor and General Assembly have addressed a large portion of that shortfall. However, an additional $882 million still needed to be addressed.

McAuliffe again proposes to expand Medicaid in accordance with the Affordable Care Act. However, projected state savings from the enactment of Medicaid Expansion are directed to the Commonwealth’s Rainy Day fund, i.e. they do not support proposed expenditures.

McAuliffe’s amendments can be categorized into four steps:

First, he identified a total of $954.7 million in savings, $72.5 million over the shortfall left to be addressed;

Second, he made technical adjustments leaving a balance of $67 million for new spending requirements;

Third, he identified $176.6 million in new spending; and

Fourth, he identified $114.3 million in new revenues by proposing increases to specific tax preferences.

These four actions leave an unappropriated balance of $7.6 million.

70 percent of McAuliffe’s revenue increases come from two sources, $57.8 million is generated by reducing the Accelerated Sales Tax threshold from $26 million to $2.5 million (retailers make an expedited transfer of their June sales tax receipts), and $22.4 million is generated by capping the maximum amount individuals can gain from the Land Preservation Tax Credit.

McAuliffe outlined six themes for his spending strategies:

· Invest in opportunities to grow a new economy;
· Hold public education expenditures constant – no reductions;
· Protect investments in higher education – no new reductions – and offer small increases in key areas;
· Provide adequate funding for core Health and Human Resources services;
· Support priority needs in public safety and for veterans; and
· Protect transportation funding.

Almost two thirds of the Governor’s new spending comes from ten proposed items. They include, increased health insurance costs for state inmates, proposed additional funding for the Governor’s Economic Development Opportunity Fund, mandated funding to house inmates in jails, and increased funding for the state’s intellectual disability and mental health facilities.

The General Assembly convenes its 2015 regular General Assembly Session on Wednesday January 14th. The legislature will act on the Governor’s budget proposals (bill). Kemper Consulting expects the chambers’ respective budget committees to release their suggested budget amendments on Sunday, February 8th.

We will continue reaching out to you on an individual basis as we find budget items of particular interest. As always, please let any of us know if you have any questions.

Kemper Consulting again named to U.S. News “Tier One” Firms

Norfolk, VA – Today Kemper Consulting was again named a “Tier One” firm in the Government Relations Practice area in the U.S. News & World Report and Best Lawyers 2015 “Best Law Firms” rankings. These two publications have issued the law firm rankings for the fifth consecutive year.

Firms included in the 2015 “Best Law Firms” list are recognized for professional excellence with persistently impressive ratings from clients and peers. Achieving a tiered ranking signals a unique combination of quality law practice and breadth of legal expertise.

“For thirty years, U.S. News has provided consumers with accurate, in-depth information and rankings of a wide range of institutions,” says Tim Smart, Executive Editor of U.S. News & World Report. “Law firms are an integral part of our rankings and a natural accompaniment to the law school rankings.”

The 2015 “Best Law Firms” rankings can be seen in their entirety by visiting bestlawfirms.usnews.com.

Kemper Consulting is a full service government relations firm with offices in Hampton Roads and Richmond. Kemper Consulting provides government relations services to Fortune 500 companies, private corporations, large trade associations, and local governments.

Virginia October Revenue Report

On Thursday October 16, the Senate Finance Committee met and heard two presentations regarding Virginia’s current budget. First, Secretary of Finance, Ric Brown, shared the full details of the September revenue report. While he expressed caution September’s revenues were strong, showing a 5.3% increase from FY14. On a year-to-date basis, total revenues increased 6.7%, ahead of the revised annual forecast of 2.9%. The original annual forecast was set at 5.4%. 

Historically YTD revenues through September represent 23.2% of the fiscal year’s total revenues. Secretary Brown indicated that while these numbers are good, we still have a long way to go when it comes to revenue collections. In relation to the current forecast, YTD revenues for FY15 account for 23.5% of the total revenues, slightly ahead of the historical average.

Next, Department of Planning and Budget Director, Daniel Timberlake, shared the details of Governor McAuliffe’s proposed actions to address the current revenue shortfall in FY15, a total of $345.5 million. Announced yesterday, the top ten agencies account for 74% of the total spending reductions of $92.4 million. Toping the list are the Department of Corrections and the State Police. Included in the reductions are 565 layoffs, 90% of which are in the Department of Corrections. Higher education is required to cut $45 million a year and local governments must cut $30 million a year.

The Department of Alcohol Beverage Control has been asked to generate additional revenue of $2.5 million, likely through a mark-up of state liquor sales. Entirely spared from cuts, K-12 education.

We will continue to update you as things develop.

September 18 Special Session

This afternoon and evening in Richmond, the House and Senate adopted legislation, HB 5010, encompassing the budget agreement agreed to by Governor Terry McAuliffe and senior legislators.

As reported by Kemper Consulting on Monday, September 15, the budget agreement and bill are intended to finalize the current fiscal year budget (FY 2015) and initially address necessary reductions in the second year of the current biennial budget (FY 2016).

The bill will be communicated to the Governor for his consideration.  Kemper Consulting expects him to sign it into law.

The Constitution of Virginia requires a balanced budget.  In August, Governor McAuliffe projected additional state general fund shortfalls of more than $345 million in FY 2015 and more than $535 million in FY 2016.  These reductions are in addition to the $1.5 billion shortfall forecasted and addressed in the adopted 2014-16 biennial budget.  Soon after the announcement of the new shortfalls, the Governor asked state agencies to prepare 5 percent reduction plans for FY 2015 and 7 percent reduction plans for FY 2016.  The Governor is in the process of reviewing and ultimately approving state agency reductions.

Key HB 5010 provisions:

  • Public Education (K-12): Protects from additional reductions at this time; and
  • Higher Education and Local Government: Reductions are lessened compared to additional state agency cuts of up to 5 percent in FY 2015 and up to 7 percent in FY 2016. (The Governor’s Office notes average FY 2015 Higher Education reductions of 3.3 percent – some institutions are lower and some are higher than 3.5 percent).

The agreement, but not the bill, requires an additional FY 2016 reduction of more than $270 million.  The Governor and General Assembly will address these additional budget cuts during the 2015 regular legislative session that convenes in January.

While the General Assembly adopted HB 5010 today, the House and Senate remain in session this evening.  Each chamber is considering health care proposals.  Prior to the announcement of the budget agreement, today’s session originally was called to address the issue of Medicaid expansion. The Governor, Democratic legislators and a handful of Republican legislators support the enactment of Medicaid expansion in Virginia while a significant majority of Republican legislators oppose federally authorized expansion.  In the near term, it is highly unlikely that the General Assembly will agree to accept the federal provisions and funding.

Kemper Consulting will continue to report on key legislative actions as they occur.

Sept. 15, 2014 Virginia Budget Agreement

Earlier today in Richmond, Governor Terry McAuliffe and senior legislators, including the House Republican leadership, announced a budget agreement that will be considered later this week when the House and Senate reconvene in special session. Until today, the General Assembly had intended to address only the issue of Medicaid expansion during Thursday’s special session. The details of the budget agreement may be released as soon as tomorrow when the House Appropriations Committee intends to act on the legislation encompassing the plan.

The agreement appears to finalize reductions for the current fiscal year (FY 2015) and begins to address necessary reductions in the second year of the current biennial budget (FY 2016). The preliminary outline of today’s plan:

· Rainy Day or reserve fund transfers: Agreement on additional withdraws for both years – $470 million in FY 2015 and $235 million in FY 2016;

· Public Education (K-12): Seeks to protect from additional reductions;

· Higher Education and Local Government: Reductions are lessened compared to additional state agency cuts of apparently 5 percent in FY 2015 and 7 percent in FY 2016 (the Governor’s Office notes FY 2015 Higher Education reductions of 3.3 percent);

· Governor McAuliffe’s A Heathy Virginia plan announced last week intended to expand healthcare services to over 200,000 Virginians: Seeks to protect associated new funding for the plan; and

· Additional FY 2016 reductions of more than $270 million (in addition to those announced today): The Governor and General Assembly will address during the 2015 regular legislative session.

The Governor and legislative leaders, including House Speaker Bill Howell, Delegate Chris Jones, Chairman of the House Appropriations Committee, and Senator Chuck Colgan, Chairman Emeritus of the Senate Finance Committee, hailed the agreement as including structural reforms (i.e. not only one time budget cuts), intended to protect the Commonwealth’s AAA Wall Street bond ratings. Delegates Kirk Cox, House Majority Leader, and Steve Landes, Vice Chairman of the House Appropriations Committee, stood with the Governor at his news conference.

In August, Governor McAuliffe projected additional state general fund shortfalls of more than $345 million in FY 2015 and more than $535 million in FY 2016. These reductions are in addition to the $1.5 billion shortfall forecasted and addressed in the adopted 2014-16 biennial budget. Soon after the announcement of the new shortfalls in August, the Governor asked state agencies to prepare 5 percent reduction plans for FY 2015 and 7 percent reduction plans for FY 2016. State agencies and institutions of higher education are in the process of submitting their reduction plans to the Governor.

Kemper Consulting Principal again named to Best Lawyers in America

Norfolk, VA – John-Garrett Kemper, Vice President and Counsel, at Kemper Consulting has been selected by his peers to be included in the 21st Edition of The Best Lawyers in America in the practice area of Government Relations by BestLawyers.com.

The oldest and most respected peer-review publication in the legal profession, Best Lawyers, is widely regarded as a significant honor, conferred on a lawyer by his or her peers. They have, over more than three decades, been respected as an unbiased source of legal referrals anywhere.

Congratulations to John-Garrett on this honor. The team at Kemper Consulting is a widely respected Virginia Government Relations firm with offices in Norfolk and Richmond.

Virginia’s Revised FY15-FY16 Revenue Forecast

This morning Governor McAuliffe presented the final revenue report for fiscal year 2014 and an interim look at the next two fiscal years, 2015 and 2016. As Kemper Consulting reported earlier this summer, the enacted Appropriations Act for FY15-FY16 assumed a total shortfall of $1.55 billion over the biennium. This included an inherited shortfall from FY14 of $350 million plus projected shortfalls from FY15 and FY16.

Back in May the large revenue decrease, mostly from non-withholding income, triggered a request from the Governor for a revenue re-forecast. On July 9th, the Joint Advisory Board of Economists (JABE) met and adopted their own JABE pessimistic forecast, a combination of the IHS Economics’ May Standard and other pessimistic outlooks. Then on August 1st, the Governor’s Council on Revenue Estimates (GACRE) met and adopted an even more pessimistic revenue projection, advising further caution, especially due to sluggish job reports and uncertainty surrounding capital gains tax revenue.

In turn, the GACRE Interim Revenue forecast reduces total general fund revenues from 5.2% growth to 2.7%, when compared to FY14. This equates to a $1.994 billion reduction in general fund resources for FY15 and FY16. Combined with the official shortfall from FY14 of $437.8 million, there is a total shortfall of $2.4 billion in the Appropriations Act.

Fortunately the General Assembly anticipated this downturn. The budget already includes $846.1 million in spending reserves and assumes $705 million in withdrawals from the Revenue Stabilization or Rainy Day fund. That brings the total new shortfall in the budget to $881.5 million, $345.5 million in FY15 and $536 million in FY16.

The Governor is authorized to make spending reductions up to 15% and indicated that he is currently working with the Department of Planning and Budget and all state agencies to find the $345.5 million needed to cover the shortfall in FY15. Chairman Jones also said this morning that the money committees will be working closely with the Governor’s office to make targeted spending cuts as soon as possible since by the end of this month, one sixth of FY15 is gone. Secretary Brown added that the Governor is hopeful for cuts in FY15 to be “base adjustments going forward,” which will make cuts in FY16 an easier task.

Both administrative and legislative decisions on future budget cuts can be anticipated in the coming months.  We will stay heavily involved in the development of the executive budget recommendations as that process unfolds.  This is the first budget development process for the new administration, and as such will involve a need for us to provide particularly detailed information.  Fortunately, the Department of Planning and Budget and many of the McAuliffe Adminstration personnel have experience with the state budget and provide a continuity that will be helpful in identifying cuts that are as sustainable as possible.   As we head into the fall budget season, we will keep you apprised of any developments, or plans for major cuts in spending as we become aware of them.

To read the full text of the Governor’s remarks click here and for the full revenue presentation by Secretary of Finance Ric Brown click here.

Virginia Ethics and Disclosure Update

As many of you know, 2014 General Assembly created a new Ethics Advisory Council.  The Council will issue opinions and receive disclosure forms submitted by both legislators and lobbyists. You should be aware of these specific changes and requirements:

1. Tangible and Intangible Gifts
– “Tangible gift” means a thing of value that does not lose its value upon the happening of a certain event or expiration of a given date. (Examples include a painting, award plaque, wristwatch).
– “Intangible gift” means a thing of temporary value or a thing that upon the happening of a certain event or expiration of a given date loses its value. (Examples: meal, ticket to a ballgame or theatre, travel expenses, lodging).

There is now a $250 limit on any one or combination of tangible gifts in any calendar year from:

– Registered lobbyists
– Lobbyists principals
– A person, organization, or officer of a company seeking a contract with a state agency

In addition, executive and legislative officials are now required to report any tangible or intangible gifts to members of their immediate family. “Immediate family” is defined as a spouse or any child who resides in the same household as the officer or employee and who is a dependent of the officer or employee.

2. Disclosure Filings

Currently the lobbying registration year runs from May 1 – April 30, with disclosures for the full year due on July 1. The registration year has not changed, May 1 – April 30, but the law now requires semi-annual disclosures:

– December 15 (May 1 – October 31)
– June 15 (November 1 – April 30)

Lobbyists and principals are still required to notify executive or legislative officials the summary of any itemized gifts or entertainment, but new deadlines are established:

– November 21 (May 1 – October 31)
– May 21 (November 1 – April 30)

In addition, principals may elect to waive their signature requirement on disclosure documents when their lobbyists register.

Moving forward, disclosures will next be filed on December 15, 2014; this filing will cover activities from May 1, 2014 – October 31, 2014.

Several operational details of the new Council have yet to be ironed out, including how and where the documents will be filed starting in December, 2015 plus the Council’s membership.  However, Kemper Consulting will keep you posted on recommendations and opinions of the Council, which effect you, as they are issued.

To read the entire legislation creating the new Council, click here.