House Accepts Levy’s Tax Reserve Plan, Could Send $50 Million to Local Governments

The House of Delegates today accepted an amendment, offered by Delegate Murray Levy to the SB 141, the Budget Reconciliation and Financing Act (BRFA) that alters the use of income tax reserves.

The Governor had proposed, in the BRFA as submitted, to transfer $350 million in Local Income Tax Reserve Funds to the State’s General Fund for use in resolving the FY 2011 shortfall. The Senate had approved a second possible use of funds from this account, an additional $389 Million to cover costs of Medicaid if the federal government does not approve an extension of increased federal funding levels. Since these federal funds are presumed to be available in the Governor’s proposed budget, the Senate and House sought to create this contingent action to address those funding needs should they arise. The House Appropriations Committee had, until today, agreed with the Senate plan on these issues.

Following indications from the Comptroller’s Office that there may be insufficient funds to cover both transfers without affecting distributions of income taxes paid to local jurisdictions, Levy introduced the amendment on the House floor today, doing two things:

1) Reduces the amount the state can transfer (if the federal ARRA funds are not budgeted) to an additional $200 million, and

2) Stipulates that if the federal government does come through with the funds, $100 million from the Local Income Tax Fund would be distributed as follows: $50 million to the states reserve account and $50 million to the local jurisdictions.  This distribution is based on a pro rata share of the 2008 calendar year distributions from the Local Income Tax Reserve Fund

The Levy Amendment was accepted as “friendly” by the House Appropriations Committee, and adopted by the floor of the House.

Since this creates a difference in the Senate and House approaches to this issue, this will be among the topics sent to a joint Conference Committee, expected to work through next week, to be fully resolved for a final vote in both chambers.

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