DLS, Administration Agree To Replenishing Local Reserves

At today’s budget hearing on the State’s reserve fund in the Senate Budget & Taxation Committee, legislative analysts requested that David Brinkley, Secretary of the Department of Budget and Management, speak to the Administration’s plans to reimburse the Local Income Tax Reserve Account for funds raided in prior years.

The State funds the Local Income Tax Reserve Account with funds from local income tax revenues. From the Department of Legislative Service (DLS)’s analysis:

According to generally accepted accounting principles, the State is supposed to maintain a sufficient fund balance to pay future refunds realized during the fiscal year in case the income tax is no longer collected. In recent years, funds have been transferred out of the Local Income Tax Reserve Account so that the account now has a $716.8 million unfunded liability. The department should brief the committees on plans, if any, to reduce the unfunded liability in the Local Income Tax Reserve Account.

To reduce this unfunded liability, the Department of Legislative Services
recommends that the Budget Reconciliation and Financing Act of 2018 be amended to continue the annual $10 million repayment into the Local Income Tax Reserve Account indefinitely.

The Reserve Account has been raided four times since fiscal 2009 to plug in gaps in the State’s operating budget, leading to the hefty unfunded liability. DLS details the history.

Secretary Brinkley responded:

The Hogan Administration is committed to addressing the unfunded liability in the Local Income Tax Reserve Account. Our forecast of out-year spending includes funding to address the multiple repayments required under current law. The Administration is also hopeful that the repayment of funding to assist local governments with the Wynne decision will be honored at the appropriate time.

The Department of Budget and Management is supportive of the recommendation made by the Department of Legislative Services to continue the annual $10 million repayment into the Account indefinitely. In fact, the Administration would support an amendment increasing the annual repayment to $20 million a year beginning in fiscal year 2020.