Budget Issues

Virginia’s $4 billion budget deficit took center stage again this General Assembly session as Governor McDonnell and legislators struggled to balance the state budget that ultimately included no new revenue sources. Partisan policy battles defined the budget debate, leaving little room for other major legislative initiatives. The final budget reflects the differences in how each legislative chamber views the role of the government.

Education, social services, and public safety were major issues of debate. Many programs and services were cut both temporarily and permanently. The state was not able to backfill deficits with as many federal stimulus dollars as there were last year, resulting in dire economic circumstances. Some legislators sought new taxes and fees to generate additional revenue for the Commonwealth, but the policy ultimately adopted was to decrease state spending to 2006 levels and to levy no new taxes on Virginians. However, the budget did include new and increased fees for specific programs.

The final budget cuts $250 million from public education, uses $350 million in anticipated federal monies from the Federal Medicaid Assistance Program (FMAP) to restore cuts to Medicaid reimbursement rates, and borrows $620 million from the Virginia Retirement System to be repaid at a 7.5 percent interest rate.

Rainy Day Fund

In 1992, the General Assembly amended the Virginia Constitution to include the Revenue Stabilization Fund as a permanent part of the Commonwealth’s budgetary system. This fund was intended to provide the Commonwealth with financial security in the event of an unexpected economic downturn. Under the original legislation, the fund was capped at 10 percent of the average annual tax revenues for the three preceding fiscal years. This session, the General Assembly passed a bill proposing another constitutional amendment to increase this cap to 15 percent of the average annual tax revenues for the three preceding fiscal years, allowing the Commonwealth to save more money during good economic times. This constitutional amendment will be placed on the ballot in November 2010.

Economic Development Incentives and Jobs

Governor McDonnell presented an extensive and wide-ranging economic development legislative package this session and legislators from both parties served as patrons to bills that carried out his ideas on how to grow the economy and create jobs. Major business facility tax credits, small business incentive packages, and green jobs tax credits were among the main components of his $50 million job creation and economic development investment package.

Health Care Reform

In a move that has great significance this year, Virginia legislators passed a bill that allows Virginia to “opt-out” of federally mandated health care coverage. The bill, which prohibits the federal government from mandating insurance coverage, had bipartisan support. Supporters insisted that forcing Virginians to enter into private contracts for insurance is unconstitutionally broad under the Commerce Clause. It is still unclear what impact this bill will have on Virginians, especially now that the federal government has passed the Patient Protection and Affordable Care Act.

Mandated Health Benefits

An attempt to require insurers to expand coverage for autism beyond the current coverage for all medically necessary treatments failed again this year. The bill would have required coverage of a specialized autism treatment known as applied behavior analysis for children ages two to six, with a $35,000 cap on claims. It would have allowed an insurer to opt out of coverage if the premium increased by more than one percent for the cost of providing habilitative and rehabilitative care.

Opponents of the bill asserted that applied behavior analysis is an educational tool that should not be covered by health care, and that the caps within the bill would have violated federal mental health parity laws - ultimately resulting in no caps on coverage.

Charter Schools

The Virginia General Assembly passed a weakened version of Gov. McDonnell’s initiative to expand the number of charter schools in the Commonwealth this session. McDonnell advocated removing local school boards’ authority to veto charter school proposals in order to stimulate charter school growth in Virginia. Instead, the General Assembly passed legislation permitting the Virginia Board of Education to review and make recommendations on charter school applications, without removing local school boards’ veto power.

In addition, the General Assembly enacted legislation to require the Joint Legislative Audit and Review Commission (JLARC) to conduct a comprehensive study of the corporate income tax. Such a study has not been done in over 30 years.

Information Technologies Regulation

Legislation passed this session to allow greater oversight of the state’s current information technology outsourcing agreement. This legislation was a direct response to the controversy surrounding the Virginia Information Technologies Agency (VITA). As a result, the Information Technology Advisory Council (ITAC) was created to report directly to the governor, who is now accountable for the agency. The governor recently exercised his authority to appoint the chief information officer, who will serve as head of VITA, by selecting Del. Sam Nixon (Chesterfield) to the post.

E-Verify

Two bills and a budget amendment were introduced this session that would require, to varying degrees, the Commonwealth, public contractors, localities, and employers with 15 or more employees to enroll in the Eligibility Verification (E-Verify) program. E-Verify is a federal program that electronically retrieves a new hire’s employment eligibility. The program is run by the Department of Homeland Security (DHS), and operates by entering information from a new hire’s Form I-9 into a secure DHS website that then verifies the information against DHS and Social Security Administration databases. Concerns were raised about the system’s accuracy, cost to employers, and impact on legally authorized workers who are not natural born citizens.

Although all three measures were heavily debated, only one bill passed. This bill is much weaker than its counterparts, mandating that only the Commonwealth’s agencies must enroll in the E-Verify program commencing Dec. 1, 2012. The bill does not affect companies that contract with the state.

Gun Bills

The expansion/protection of gun rights was a hot topic this session. Although many gun bills were killed in a Democrat-dominated Senate subcommittee, three were ultimately passed by legislators. The first bill allows permit holders to carry firearms into restaurants or bars, so long as they do not consume alcohol on the premises. The second bill allows people who lawfully possess firearms to carry them in locked containers or compartments in their private motor vehicles. The third bill allows people to renew their resident concealed carry permits by mail.

Stormwater Management Regulations

A measure passed to delay impending stormwater regulations by the Department of Conservation and Recreation. These regulations establish local program criteria for water quality and water quantity across the Commonwealth. Because of its impact on construction and development, these regulations are delayed 280 days from the previously effective July 1, 2010 date or until Dec. 1, 2011, whichever is earliest.

This additional window of time allows the U.S. Environmental Protection Agency to complete its Chesapeake Bay-wide total maximum daily load allocations. The Virginia Soil and Water Conservation Board will then establish an advisory panel to review the regulation and provide recommendations on potential revisions.

Car Title Lending

Car title lending, a traditionally unregulated practice, will be subject to stricter requirements under a bill passed this session. The bill limits the term of such loans to one year, sets a maximum interest rate of 22 percent, and requires lenders to be licensed. In addition, these loans may not exceed 50 percent of the motor vehicle’s value.

Mortgage Lending in Virginia

Legislation passed during the 2010 session establishes the authority to allow Virginia mortgage companies to obtain unique identifiers from the Nationwide Mortgage Licensing System and Registry (NMLSR) and to continue selling loans to Freddie Mac and Fannie Mae. Due to a pronouncement from the Federal Housing Finance Agency, Virginia mortgage companies faced the prospect of not being able to sell their loans to Freddie and Fannie unless they obtained unique identifiers.

However, under current Virginia law, only individual loan originators could obtain the identifiers. Two bills passed this session that enable Virginia mortgage companies to obtain the unique identifiers and to continue participating in the federal loan purchase programs.

Changes to the Procurement Process

Three major bills that would alter the Commonwealth’s procurement process were introduced this session - two of which passed. The first bill restricts cooperative procurement construction, under which public bodies use procurement agreements negotiated by other public bodies without allowing private firms to compete. The bill limits such agreements to localities within 75 miles and to projects no larger than $200,000.

The second bill prohibits bidders, offerors, or private entities from making contributions to the governor (not local government officials) when the state is considering the award of a public contract of $1 million or more. Exempt from the requirement are bidders on a competitive sealed bid solicitation where the award is made to the lowest responsible and responsive bidder.

The third bill, which was killed, would have required preferences in procurement for small businesses owned by women, minorities, or the service disabled located in HUB zones.

*Please note that the General Assembly reconvened session is April 21, 2010, at which time the governor will introduce his amendments to bills from this session, including those mentioned here, and may exercise his power of veto.