SD37 - State/Local Relations and Service Responsibilities: A Framework for Change

  • Published: 1993
  • Author: Joint Legislative Audit and Review Commission
  • Enabling Authority: Senate Joint Resolution 235 (Regular Session, 1991)

Executive Summary:
Overall, Virginia's governmental structure is sound. In fact, Virginia has been widely recognized as a leader among states in its strong management. Several characteristics help account for Virginia's reputation. For example, the governmental structure is streamlined, with the State having substantially fewer units of government than most states. Further, compared to other states, Virginia has a higher than average tax capacity and a lower than average tax effort.

However, significant social and economic changes have occurred since many of the State's service delivery structures were implemented. As a result, some of the older service delivery structures do not always provide services in the most efficient and cost-effective manner today.

Further, service responsibilities of the State and localities have evolved over the years in a sometimes piecemeal approach. As a result, both State and local officials suggest that there is now an imbalance between services provided and revenue-raising ability.

As Virginia prepares for the next century, it is important for the State and local governments to determine how a proper balance can be achieved and maintained. Senate Joint Resolution 235 of the 1991 General Assembly Session requested JLARC to examine the assignment of service and funding responsibilities between the State and local governments to determine whether services are being provided by the appropriate level of government.

This report draws its findings and conclusions from a variety of sources, pulling together into one comprehensive document proposals from past legislative, executive, and judicial studies, with the expertise of State and local officials solicited through recent statewide focus groups and surveys. The report presents a long-term view of critical choices facing the Commonwealth in light of changing demographics, service needs, and revenue availability at the federal, State, and local levels. The recommendations generally identify long-range policy options or directions the General Assembly may wish to pursue in each functional area, along with some overarching concerns that should be addressed.

The options are not a "package," nor do they include all possible alternatives. Rather, - they are directions which could serve as a starting point in a dialogue with localities regarding the allocation of service responsibilities between the State and local governments. Any proposal or combination of proposals selected by the General Assembly for possible action would require further study and financial analysis.

Despite the need for additional study, the long-term trend seems to point to the State assuming a greater proportion of the overall costs of programs and services at the local level. As a result of federal cutbacks, localities now fund about ten percent more locally-provided services than they did a decade ago, despite maintenance of State-funded efforts over that same period. This trend suggests that a greater State role may be needed. Further, the increasing demographic diversity of the Commonwealth will require the State to continue to play a major role in distributing revenue to less affluent localities.

Social and Economic Trends in Virginia

Virginia's population and local economies have become increasingly diverse during this century. This diversity leads to complexity as the State tries to meet the varying needs of its citizens while ensuring funding and program equity. Key demographic trends in Virginia include:

• growing local economies and population, particularly in the "urban crescent" in contrast to declining population and eroding economic bases in the cities and rural areas;

• increasing elderly population;

• increasing school age population after a period of decline; and

• increasing racial and ethnic diversity.

These social trends have important implications for the delivery of services in Virginia. For example, the expanding population puts pressure on transportation and environmental systems. In addition, as the elderly population increases, an increasingly larger share of public sector funds will be needed for health care.

Further, increasing school enrollments are already significantly impacting school construction and operating costs. And, as the number of non-English-speaking people increases in urban areas, the need for specialized programs, such as "English as a Second Language" increases.

Virginia has also undergone significant economic changes in recent years. The 1980s were a relatively prosperous time for Virginians. The State's personal income grew rapidly. Virginia also experienced below-average unemployment rates. Further, Virginia benefited from a large proportion of the federal government's defense spending, ranking first among the states in per-capita federal defense expenditures.

However, growth in the State's personal income has slowed considerably since 1989, falling below the national growth rate. Part of this change may be due to the State's gradual shift from a predominantly manufacturing economy to a service economy. The average annual pay for the service industry is only 87 percent of the average annual pay for the manufacturing industry. If lower paying service jobs increasingly dominate the State's employment, growth in per-capita personal income may continue to slow.

Further, Virginia was substantially impacted by the recent economic downturn. As a result, the State's unemployment rate has risen. Though the statewide rate remains less than the national rate, many localities experience substantially higher rates. Also, despite relatively lower rates in the urban crescent, many of those localities were particularly impacted by the recession's effect on white-collar workers. In addition, future defense spending reductions might significantly impact the Northern Virginia and Tidewater areas.

Another critical trend affecting Virginia has been the federal government's devolution of responsibilities to state and local governments. According to the U.S. General Accounting Office, hundreds of new program standards and administrative requirements were imposed on state and local governments during the 1980s. At the same time, federal funding in many of these areas declined. Federal funds as a proportion of the State's budget declined from 25.5 percent in 1980 to 16 percent in 1990. The proportion of local governments' budgets derived from federal funds dropped from 13 percent in 1980 to a low of 5.2 percent in 1990. This trend, coupled with increasing service needs of a diverse population, require Virginia to constantly look for the most cost-effective ways to meet service needs.

Broad-Based Actions Are Needed to Improve State/Local Relations

In today's climate of increasing diversity and economic uncertainty, it is critical that federal, State, and local governments work together to accomplish common goals. However, the devolution of responsibility, often without funding, from higher levels of government to states and subsequently to localities has contributed to a climate of distrust between levels of government. In local government focus group meetings, local officials voiced concerns about having to perform new services passed down from both the federal and State governments without adequate funding.

Focusing more closely on the critical needs of Virginians as well as improving State/local relations will require communication, flexibility, and long-term planning. In addition, the Commonwealth will need to devote additional attention to regional and integrated approaches to service delivery.

Improved Intergovernmental Communication Is Necessary

State and local governments have the same ultimate goal - providing quality services needed by the citizens of the Commonwealth. However, in most of the 16 group meetings JLARC staff held with local officials, the lack of communication between levels of government was cited as a major problem. Some noted that a "State/local partnership" is lacking. State officials also cited communication problems with local officials. However, State officials voiced frustration that local governments often do not provide them with specific examples of problems and possible solutions. To improve communication between the State and local governments, and consistent with a recent study proposal of the Department of Planning and Budget, the following recommendation is made:

To expedite improved State/local communication, the Governor's secretaries should each hold meetings with local administrators at least once a year in different areas of the State. The purpose of the meetings would be to identify areas of concern to both the local governments and the State, and to assess possible improvements that may be needed to State/local processes.

Local Officials Cite Need for State Vision and an Urban Policy

In the group meetings with JLARC staff held during the summer of 1992, local officials discussed the need for the State to articulate a vision for the long-term future of the Commonwealth. Local officials representing cities also perceived a need for the State to develop a long-range urban policy similar to the Governor's Strategic Plan for Rural Development. The following recommendations address these concerns:

The General Assembly may wish to authorize the Department of Planning and Budget to establish a small planning unit to coordinate and develop long-term policy planning and policy analyses. A comprehensive policies plan would be developed during the first year of the Governor's term of office with the assistance of a committee composed of State and local officials and members of the business community. The plan would be periodically evaluated and revised.

The General Assembly may wish to direct the Governor to develop an urban policy similar in nature to the current policy for rural areas of the State. The policy could be developed with the assistance of the Department of Housing and Community Development, the Department of Planning and Budget, State universities, the Virginia Municipal League, and the Virginia Association of Counties.

Regional Approaches to Service Delivery Should Be Examined

As the State moves out of a decade of high growth and into one of potentially slower growth, providing services in the most efficient and economical manner becomes critical. One method to effect such economies is through regional service delivery.

The State currently encourages localities to provide some services regionally through the use of financial and non-financial incentives. However, for various reasons, localities are not pursuing regional solutions to the extent possible and appropriate. For example, the state's regional jail construction program has been very popular among localities in the eastern and northern parts of the State. However, localities in the southwest portion of the State, where economies of scale could clearly be derived from regional jails, have not yet entered into formal arrangements.

To address this problem, the General Assembly could provide additional incentives for regional cooperation. For example, required permit applications from regional entities could be given highest priority in processing by State agencies. Disincentives could also be considered. For example, for localities that do not meet a certain population threshold, the State could reduce State funding for a program unless it was undertaken regionally. To increase the use of regional arrangements, the following recommendation is made:

The General Assembly may wish to consider additional State inducements to encourage localities to provide certain services regionally. Functional areas appropriate for increased regional efforts include environmental protection, economic development, jails, and education. In particular, capital-intensive programs, such as landfills and water treatment facilities, should be considered for regional incentives.

State and Local Governments Should Strive to Integrate Services

The ability of service providers to address the multiple needs of clients can be limited by a fragmented service delivery system. As in many states, Virginia has separate agencies for social services; physical health services; mental health, mental retardation, and substance abuse services; aging services; special education services; and services to people with disabilities. There is substantial overlap in the clients served by these agencies. And without coordinated services, clients must negotiate the sometimes confusing array of services and agencies by themselves.

All levels of government have begun to respond to the need for service integration. For example, the State has recently initiated a coordinated approach to service provision for at-risk and troubled youth. However, additional efforts are still needed. For example, in the area of child services, service integration efforts should be broadened to encompass the educational system. The following recommendation is made:

Service integration efforts should be increased at both the State and local levels. The Secretaries of Health and Human Resources and Education, and their respective departments, should maintain an ongoing dialogue regarding approaches to service integration, with the goal of developing formal mechanisms for increasing integration of social, health, and educational services, particularly for children.

Appropriateness of City/County Distinctions Is Questionable

"City" and "county" titles were appropriate during the early 1900s because they accurately identified different locality types - urban and rural. However, the accurate descriptors of 1900 serve as artificial distinctions today. For example, the second most densely populated locality in Virginia is Arlington County. In total, 15 counties are more densely populated than the least densely populated city.

This blurring of the distinction between cities and counties is manifest in the 1971 changes to the "Virginia Constitution." The 1971 Constitution no longer maintains separate constitutional sections for cities and counties. Given the changes in cities and counties that have taken place, a study of Title 15.1 of the Code of Virginia appears warranted. Such a study could be used to further streamline local government structures and eliminate different treatment of cities and counties, where feasible. Therefore, the following recommendation is made:

The General Assembly may wish to direct a review of Title 15.1 of the Code of Virginia. Title 15.1 should be examined in light of the intent of the 1971 revisions to the Virginia Constitution to treat counties and cities more alike.

Options for Realignment of Service and Funding Responsibilities

To address the changing environment in which Virginia's governments operate, a number of long-term policy options have been identified across the functional areas of government. The options presented in this report are intended to further Virginia's traditional public policy goals, such as equity, efficiency, economy, effectiveness, public participation, and accountability. Particular attention was paid to identifying options which would most efficiently and effectively allocate increasingly scarce governmental resources.

In some cases the recommended options support or reinforce current practices or functional assignments. Other options represent - major departures from current State policy. Some will clearly require further study and policy input from General Assembly committees and State and local leaders. In total, the proposals are meant to initiate an ongoing State/local dialogue regarding the long-term direction of intergovernmental relations and the delivery of services to Virginians.

The table on pages vii and viii summarizes the options presented in the report. Supporting discussions of each option are included in the main body of this report.

Adequacy of Resources

In order for local governments to carry out their assigned service delivery responsibilities, adequate sources of revenue are required. The resolution directing this study required JLARC to review not only service delivery responsibilities but funding responsibilities as well. Two primary issues are apparent when discussing local funding for services: (1) local taxing authority should be equalized for cities and counties, and (2) the local debt requirements appear to be an obstacle that limits local government flexibility in meeting the long-term infrastructure needs of their localities.

To adequately address the assignment of functions between the State and localities in the long-term, it is also necessary to study in a more comprehensive, in-depth, and long-term manner the tax structures and rates of the Commonwealth. Such a study should be directed at recommending specific courses of action. The policy goals to be examined in such a study should include:

• applying taxes as broadly, fairly, and simply as possible;

• making the tax structure more responsive to economic growth; and

• providing State and local revenues adequate to fund current levels of responsibility that have resulted from federal devolution and changing needs in the population.
The following recommendations are therefore made:

The General Assembly may wish to direct a study of the State/local tax structure in Virginia. This study could address the specific revenue needs of Virginia's local governments and what funding mechanisms may be necessary to address those needs.

The General Assembly may wish to consider amending Article VII, Section X of the Constitution of Virginia to equalize borrowing authority between cities and counties.