Address to the Joint Money Committees on the Proposed Executive Budget for 2006
Chairman Chichester, Chairman Callahan, Chairman Parrish, and Members of the General Assembly:
Good morning.
I have come before you this morning to report on the state of our economy and to share with you the substance of the budget I am proposing for the 2006-2008 biennium, which will be introduced as House and Senate Bill 30 -- as well as the amended budget for the rest of the current biennium, which will be introduced as House and Senate Bill 29.
These bills meet our responsibility to balance our budget in a fiscally conservative manner that protects our core priorities and re-affirms our commitment to fiscal responsibility - not just for the present but for the long term.
I present this budget to you this morning mindful of all that we have accomplished together.
When I was hired for this job four years ago, my first priorities were to restore the fiscal integrity of Virginia, make government more efficient, and promote new economic opportunities for our people. At the heart of those priorities was a determination that our mutual efforts would show results that we could all take pride in. Because, ladies and gentlemen, the simple reality is that results do matter.
At the end of the day, people don't care if a good idea has a (D) or an (R) attached to it. And they care less than most people think about whether government is big or small. What they want is smart and efficient government.
Four Years of Accomplishment #Back to Top back to top
And so, let me take a few minutes to report just some of the positive results of the past four years. And let me be clear, none of this could have happened without our ability to work together.
Virginia's Economy
* Is outpacing the nation in employment and income growth.
* Has the second lowest unemployment among the 50 states.
* For the first time in more than a dozen years, not a single locality in Virginia has double-digit unemployment.
* We should take particular pride in Southside and Southwest Virginia where we have worked to create or retain more than 30,000 jobs.
In Education
* 92% of Virginia's schools are accredited under the state Standards of Learning (SOL) program -- up from 40% in 2001.
* 94.6% of 12th grade students graduated this year - no loss of ground, even with more rigorous graduation requirements.
* Virginia students posted the largest increase in math SAT scores in the nation.
* The number of students taking at least one AP course in Virginia increased by more than 20 percent from the 03-04 school year to now.
* And, the number of African-American students who took at least one AP test increased by 23.7 percent
.and the number of Hispanic students by 20.8 percent.
* We've almost doubled the number kids enrolled in the state-funded education program for 4-year olds.
* Since we partnered with NASCAR to start the "Race to the GED" in 2003, 35,000 Virginians -- an increase of 28 percent -- have gotten their GED.
In Higher Education
* In addition to enrolling more students, we've increased the number of degrees conferred by 5,700 since 2002.
* And, we've increased research expenditures at our public institutions from $517 to $717 million - an increase of 38 percent.
In Health Care
* 138,000 more children have health insurance than did 4 years ago - an estimated 98% of those eligible.
* Nearly 70,000 more Virginians have received access to quality public water in the past four years.
* Immunization rates for two-year old children have increased from 71% to 81% over the past 4 years.
In Mental Health and Mental Retardation
* We're continuing the shift from institutional to community services.
* We've added 32% more MR waiver slots (1,600) in the community.
* And in mental health, we've reduced the institutions' census by 14% (about 240), while serving 10,000 more people in the community.
In Public Safety and Preparedness
* Virginia and two other states have been recognized as the most prepared in the nation for their ability to respond to mass outbreak of disease, disasters, and bioterrorism.
* We've put 125 more troopers on the road than four years ago.
In Environmental Protection:
* 260 of 450 impaired water bodies have been removed from EPA's list.
* We've adopted the most stringent water quality standards in the nation for the Chesapeake Bay watershed.
* Through easements, acquisition, or donation Virginia has protected more than 175,000 acres during the last 4 years.
In Transportation:
* VDOT's construction program has gone from 20% on time and 51% on budget in 2001 to 86% on time and 85% on budget in the latest quarter.
* $867 million in accumulated project deficits have been paid off and future deficit financing has been prohibited.
* With Maryland and D.C., Virginia has reduced nitrogen oxide emissions from cars and trucks in the DC area by approximately 17% -- leading to no code red air pollution days in the summer of 2005.
In Government Operations:
* A two-year national review judged Virginia to be the Best Managed State in the nation.
* We have maintained our triple-A bond rating from all three rating agencies.
* We've leveraged the state's buying power using centralized purchasing tools, and savings and cost avoidance totaled more than $95 million in fiscal year 2005 alone.
* We've improved collection of receivables, producing over $110 million in additional collections annually.
* We've centralized management of our real estate portfolio, producing about $10 million in cost avoidance on recent transactions, with projected savings of more than $68 million over the next decade.
* We've undertaken school efficiency reviews in 9 school divisions, identifying $9.5 million in potential annual savings thus far - a figure that will grow as more divisions participate.
* And, we've undertaken a cutting-edge consolidation of technology functions statewide.
Some of these results have gotten headlines. Some have gone largely unnoticed. But they are the combined result of our collective efforts to bring business practices to state government - to provide better value for every dollar we spend and - to insist on accountability at all levels.
I firmly believe that what gets measured, gets improved. I want to publicly and sincerely thank you now for your support in making these results possible.
Does that mean that we should be satisfied with all that has been accomplished over the past four years? Of course not.
We need to keep the pressure on for greater innovation and continuing reform if we are to avoid slipping back into business as usual.
Challenges Remain #Back to Top back to top
As I stand here - with 30 days remaining in my term as governor - I see a number of areas where I wish we had done more - and where significant challenges still remain.
Education
There is no area where I've spent more time, energy, and effort to shake things up and produce results than in education. As proud as I am of our progress, let me tell you a story that I think speaks to why we must be relentless in our efforts.
Earlier this year, I went to India, leading a business delegation on a trade mission. As I visited that countrywhich is undergoing explosive changeI saw a number of things that speak to where we are as a state as opposed to where we need to be.
A dozen examples jump to mind. But the one that really stands out -- more than the Taj Mahal or the high tech industry that is being spawned almost overnight -- is a visit we made to one of the worst slums in Delhi.
Dirt floors . . . no running water . . . kids being sent out to beg to feed their families instead of going to school.
I was of course struck by the crushing poverty. But I also saw something the locals call the "hole in the wall."
It is a cinder block building covered by a corrugated tin roof, where computers have been placed into a hole in a concrete wall. No teachers. No instruction. Just put there. The computers were turned on in the morning and turned off at night. And, every day the kids wrestled over who would use the computers first.
You wouldn't have believed it. I met a kid named Sameer who asked me how to spell my name so he could "Google" me, so he could see whether I was somebody important.
He, and all the others, knew how to e-mail and IM. They were doing basically the same things on the computer that my girls do at home.
A lot of these kids are truly remarkable and I pray they do well.
This experience said a lot to me about what is going on in India -- a country poised between two worlds, between past and future -- between dire poverty and cutting-edge technology.
But where it really resonated is this.
It told me in a very real, very personal way that the race is on for the future. The central question is -- Who's going to own it? and who's going to get there first?
Ladies and gentlemen, we have to position ourselves to win the race to the future. At a minimum, that means that we need to place more emphasis on math, science, and engineering, and more emphasis on research and development. I'll have more to say on that a little later.
The point in all these areas is clear. As bright as our prospects are, Virginia faces continuing challenges in many areas. How we deal with these challenges -- when our economy is strong and our people are confident - will determine in large measure just how prosperous Virginia's future will be.
As you deal with these and other challenges -- this session and in the sessions beyond - I hope you'll stay focused on the future, and make decisions and investments that keep our people on a prosperous path.
Now, let me turn to the budget itself.
Budget Overview #Back to Top back to top
Over the past four years, no issue has demanded more concentrated attention than restoring Virginia's financial integrity. I do not need to recount for you the roots of the $6 billion budget shortfall, or the painful actions which were necessary to address it.
As we stand here today, 56 of 92 executive agencies are operating on smaller budgets than when I took office (excluding salary and benefit increases).
With the budget for the 2006-08 biennium, we have the opportunity to demonstrate that we learned from that experience, and that we are determined to avoid the choices which made that shortfall inevitable.
In approaching this budget, our most important objective has been to maintain the Commonwealth's fiscal stability over the long term. The budget we have crafted meets this challenge.
In this budget, we will not make spending or tax policy commitments whose cost will show up or escalate in the out years. We will not start major new programs. And, we will not casually assume that Virginia's revenues will continue to show extra-ordinary growth for the next two and a half years.
I want to thank Senator Chichester and Delegate Callahan for comments they have made in recent weeks that convey this same message.
Instead, we will propose more than $1.5 billion in one-time appropriations that are urgently needed or that represent smart investments in economic growth, or a better quality of life for Virginians - including a substantial investment in capital projects and facility maintenance using current revenues rather than bonds.
We will propose fully replenishing the state's cash reserves - providing $402.2 million in FY 2006 to take the Revenue Stabilization Fund to its constitutional maximum for the first time in history.
And for the first time outside a recession, we will propose a budget that includes lower operating spending in the second year of the biennium than the first year.
Revenue Outlook #Back to Top back to top
The formal revenue forecasting process that Virginia has relied on for two decades depends on the participation of the state's leading professional and academic economists, of senior business executives from across the Commonwealth, and of legislative leaders.
This year, the economists and senior business leaders collectively said that we should expect employment and income growth through fiscal year 2008 to continue at healthy but moderate levels.
Our experts expect Virginia's economy to out-perform the nation, with employment growth slightly below long-term averages, but with income growth slightly stronger than average.
We have based the revised revenue forecast for fiscal year 2006, 2007, and 2008 on the economic outlook that the economists and business leaders endorsed.
In our discussions, however, a group of business leaders whose primary activities are closely tied to housing were particularly pointed in saying that the risks for the housing industry are real, and that their own business plans anticipate a retrenchment in this area. We have heeded their advice, and incorporated that view into the revenue forecast for recordation taxes.
The revenue forecast on which the budget is based - including tax policy changes - projects growth rates of 6.1 percent for fiscal year 2006, 6.0 percent for fiscal year 2007, and 5.3 percent for fiscal year 2008. At those levels, revenue growth is expected to approximate what would be expected during a typical economic expansion.
We will use the projected revenues to meet the Commonwealth's commitment to education, health care, public safety, transportation, environmental protection, and other core services.
And, we will make targeted one-time appropriations in transportation, the Chesapeake Bay, research and development -- and which will produce positive measurable results.
Let me begin with education.
Public Education #Back to Top back to top
The Commonwealth's most basic commitment is to public education. My budget meets the state's commitment to the Standards of Quality, providing over $1.5 billion in additional funding for elementary and secondary schools. This investment strengthens our public schools, holds down property taxes, and invests in Virginia's future.
Included in that total is funding for about 11,000 additional students each year. The budget also includes $168 million for the state share of a three percent salary increase for teachers and other public school employees, effective December 1, 2006.
With this substantial increase and our shared commitment to standards-based education, I am confident that we will continue to see steady improvement in student achievement over the next biennium.
Higher Education and Research #Back to Top back to top
Improving education also involves our public and private colleges and universities. Few states prosper for long without a strong and viable system of higher education.
The significant step we took last year to fundamentally restructure the state's relationship with our colleges and universities, and in return, specify what we expect from them was a landmark change that will produce tangible benefits in the future.
But -- if we require our colleges to provide access, affordability, high academic standards, a broad range of programs, improved retention and graduation rates, a greater role with K-12 schools and in economic development, and a more effective partnership between two-year and four-year schools, we have an obligation to make sure they are funded appropriately.
The budget I am recommending proposes $518 million in additional general fund support for our public and private institutions of higher education.
The budget addresses faculty salaries, increases in enrollment and degrees awarded, student financial aid, new facilities coming on line, and targeted improvements at specific institutions. With this funding, I am optimistic that we can reach the goal of 10,000 additional degrees awarded each year by the end of the decade. Again, we're already awarding 5,700 more degrees that we were when I took office.
The budget also provides increases each year in the Tuition Assistance Grant provides to students attending private colleges.
While all these additional funds are important, the area that I think requires your most careful attention is research and development. Cutting-edge research provides the technological breakthroughs that have spawned new industries and new innovations over the past 50 years. It is literally the engine of tomorrow's economy. Every governor I talk to is making concrete plans to substantially increase their own support of research and development.
Ladies and gentlemen, the reality is that Virginia is lagging behind in this area. Let me give you just two statistics that tell the story. The University of North Carolina at Chapel Hill conducts as much federally funded research as the University of Virginia and Virginia Tech combined. And Georgia, Georgia Tech, and Georgia State conduct as much research as all of Virginia's institutions combined.
We cannot expect that 10 and 20 years from now that we will be at the forefront of economic prosperity if we neglect the driving forces which will make it possible. In 2003, a statewide research summit established a goal of $1 billion in research expenditures by the end of the decade. While we have made progress, significantly more remains to be done.
This budget takes the next significant next step to provide the investment that is needed. It proposes a total of $255 million to provide startup capital for research laboratories, recruit top researchers and graduate students to Virginia universities, create state-of-the-art research facilities, and acquire research equipment. The largest portion of this funding will be one-time.
State higher education institutions are committing up to $299 million to match that proposed allocation. In sum, the proposal provides a half a billion dollar boost to Virginia's research enterprise - focused in areas already recognized by independent evaluators as strong and productive.
These areas include:
* Disease treatment and tissue repair research at the University of Virginia, focusing on developing treatments for diabetes, Alzheimer's, and Parkinson's diseases.
* Advanced biomaterials engineering at Virginia Tech, developing advanced materials for drug delivery, advanced diagnosis, and injury/disease treatment using nanotechnology.
* Cancer research and neurological and metabolic disorders research at Virginia Commonwealth University focusing on improved diagnosis, treatment, and prevention of cancer, neurological diseases, diabetes, obesity, and other diseases.
* Bioengineering, neuroscience, and cancer biology research at George Mason University -partnering with private sector research institutes in Northern Virginia to study protein structures and infectious diseases.
I am also offering a package of budget proposals to broaden and build upon the growing modeling and simulation activity in South Hampton Roads. The package includes funds to recruit and hire additional faculty and staff to expand research and training programs in modeling and simulation at Old Dominion University (ODU), Eastern Virginia Medical School (EVMS), and Tidewater Community College (TCC).
This is an opportunity that may not come again. We have the resources, we have the commitment from the institutions to match state funds, and we have research programs at our leading institutions prepared to show a real return on our investment. I urge you to support it.
Transportation #Back to Top back to top
The budget I am proposing includes nearly $625 million in general fund support, including insurance proceeds, for transportation projects and programs over the next two years.
This plan completes my administration's commitment to restore financial health and accountability to Virginia's transportation program, while adding key investments in regional mobility and statewide economic development.
About $286 million of the recommended funding comes from the portion of the insurance premiums tax which was statutorily set aside for transportation. Nearly $229 million of that total will go to previously approved transportation bonds associated with highway improvements -- freeing up funds for other needed transportation projects across the state.
The remaining $57 million will support public transportation capital projects, and is the single largest ongoing contribution to transit capital needs in two decades. This will allow the state to finance more than 50 percent of all eligible public transportation capital costs. This complements the action we took last year to set up a dedicated funding source for rail.
The remaining $339 million is a one-time general fund appropriation that will meet three clear objectives.
A total of $142 million is used to provide the 20 percent match for all projects earmarked in the recently passed federal transportation bill. Without this supplemental funding, providing the match for federal earmarks from transportation funds would seriously reduce state funding for currently planned projects.
The hidden truth is that federal earmarks came from federal funds Virginia would have received anyway, without the strings attached.
Another $197 million will be used to substantially advance or complete projects that were identified by Congress as national priorities, or are essential to economic development, including:
* Metrorail railcar storage;
* Virginia Railway Express rolling stock;
* Statewide bus purchases;
* the I-66 westbound widening inside the Capital Beltway;
* the I-264/I-64 interchange in Hampton Roads;
* the Route 164 rail relocation in Portsmouth;
* the Route 460 Coalfields Connector in southwestern Virginia;
* an intermodal facility near Petersburg;
* the Route 58 Hillsville Bypass in Southside Virginia; and
* increased funding for telecommuting initiatives.
Mental Health Restructuring #Back to Top back to top
The budget also proposes the most significant step in decades to transform Virginia's mental health and mental retardation system into a coordinated continuum focused primarily on community-based services. This initiative begins with long overdue improvements to the state's system of residential treatment, and continues investing in the Commonwealth's network of community-based mental health services.
Specifically, the budget proposes replacing two outdated state hospitals and two aging state training centers with smaller, state-of-the-art treatment facilities -- located at or near the same sites -- that will provide quality residential care in facilities that meet current building codes.
These newer facilities will be more efficient to operate, but will not result in layoffs of any current employees. The four facilities are: Western State Hospital in Staunton, Eastern State Hospital in Williamsburg, Central Virginia Training Center in Lynchburg, and Southeastern Virginia Training Center in Chesapeake.
The combined replacement value of these four facilities is estimated at $290 million, which will be financed through a bond issue limited to these facilities alone. We will also entertain any public-private partnership proposals submitted to us for these projects.
Equally important, I have recommended significant new investment in community-based services. Proposed general fund support of $116 million will draw-down more than $52 million in federal funds, for a total of almost $170 million in new funding for community-based behavioral health services.
Let me again offer this assurance to advocates and family members. We believe everyone who needs a bed in a state facility will have one, but whenever possible, we will serve people in the community as our first option.
I want to thank the legislators and advocates who have come forward to voice their support for this long-overdue action.
Chesapeake Bay #Back to Top back to top
No environmental issue is more pressing to Virginians than the preservation of the Chesapeake Bay. As you all know, the 2000 Chesapeake Bay agreement places strict limits on the discharge of nitrogen, phosphorous, and sediment into the Bay.
After a two-year regulatory process, Virginia recently implemented new regulations which are the strictest in the nation and apply to all five tributaries in the Bay watershed. But the Commonwealth has a funding obligation as well.
And so, the budget proposes a $200 million, one-time appropriation for the Virginia Water Quality Improvement Fund -- to accelerate upgrades to 92 eligible wastewater treatment plants in the Chesapeake Bay watershed.
The funding is sufficient to reduce nitrogen discharges by 2.6 million pounds each year - two-thirds of the amount required in the 2010 tributary strategies agreement.
These funds will also keep wastewater charges at reasonable levels, providing a clear benefit to all communities affected by the new regulations. Funds will be allocated using the procedures and guidelines included in the WQIF legislation that you adopted last year.
This new funding will allow us to use the majority of the $56.6 million deposited in FY 2006 to achieve non-point source reductions.
The Chesapeake Bay is a national treasure and we will continue to work closely with Congress and our other Bay state partners to make its restoration a reality. I applaud members of the General Assembly who have advocated progress on the Bay, and have and will act responsibly to provide for it.
I have also included recommendations for $25 million in grants to local governments for point source projects located outside the Chesapeake Bay watershed; $7.5 million for combined sewer overflow projects in Richmond and Lynchburg; and $10 million for public drinking water projects throughout Virginia.
Early Childhood #Back to Top back to top
Let me touch on one other area that I think is truly important. It does not involve big dollars. But it does have a huge payoff. And that is in early childhood.
Research consistently shows that nearly 85 percent of the core structure of a child's brain develops in the first three years of life. To deal effectively with this fact, Virginia needs to develop a more comprehensive approach to addressing child care, education, and health services for our youngest children. Our neighbors in North Carolina have had tremendous success with similar early childhood programs.
For that reason, I have proposed establishment of the Virginia Early Childhood Foundation to help communities, public, and private organizations build and improve early childhood programs. It is modeled after the Virginia Health Care Foundation, which has been successful in matching limited state money with private contributions to make a difference in improving health care in Virginia.
I have included $8.6 million over the biennium for an early childhood grant program administered by the Foundation. This state funding, combined with contributions from the private sector, will be used for competitive grants to foster local public-private efforts that leverage and expand successful early childhood services and identify and fill gaps in current programs. The Foundation's goal is to generate at least a dollar-for-dollar private match for every public dollar invested in the program.
Compensation #Back to Top back to top
As I approach the end of my comments, let me take a moment to focus on a group of people who are very important to all of us - our state employees.
Virginia's state government functions as well as it does because of the knowledge, dedication, and commitment that state employees display. The same can be said about teachers in our public schools, sheriff's deputies, and other state-supported local employees.
I am therefore pleased to be able to recommend $137 million to support a three percent increase for classified state workers, effective November 25, 2006, and state-supported local employees, effective December 1, 2006.
The budget also provides an amount equivalent to one-half of one percent of salaries to allow agency heads to retain and recruit the best employees, and address salary compression issues in their agencies.
Finally, the budget includes sufficient funding to support the state share of the increased cost of health insurance, based on our health actuary's latest analysis.
Conclusion #Back to Top back to top
As a final thought, I don't think I'm overstating the case to say we have together, and with the willingness of an outstanding state work force, confronted some of the thorniest issues a state can face in the last four years.
We have successfully navigated the most serious fiscal crisis in at least two decades, we have come to the consequence point in our system of educational accountability - and held our ground on graduation rates while improving test scores, accreditation statistics, and participation rates in more rigorous curricula.
We have, together, taken on an extensive reform of our tax code, to promote fairness, and have serious discussion with our people about what they want from government, and what they're willing to pay.
This is not a new story for Virginia. We are after all, the Commonwealth that has held the Triple-A bond rating longer than any other state.
We have a strong tradition of good management, and a culture of professionalism in our government.
I may be the biggest cheerleader of the progress we've made together. But please be assured, I'm not the only one who's noticed.
As I travel the state, Virginians tell me - more than any specific mention of a program or a way we've touched their lives - that they are proud of what we've done - together.
I hope you are too.
We have not always agreed on every issue. But we have all pushed each other towards excellence.
And by almost any measure, our collective efforts have led to better jobs for our people, stronger schools, and a fiscally sound state.
Thank you for your good will, your leadership, your willingness to listen, and your friendship.
Thank you all - may God bless you - and I wish you the very best of holiday seasons.
http://www.governor.virginia.gov/Press_Policy/EventsandSpeeches/2005/BudgetSpeech-Dec05.htm