RD183 - Executive Summary of the 2015 Interim Activity and Work of the Virginia Manufacturing Development Commission
Pursuant to the powers and duties authorized under § 30-276 of the Code of Virginia, the Manufacturing Development Commission (the Commission) held three meetings during the 2015 interim. The Commission studied and examined (i) key provisions of the Patient Protection and Affordable Care Act; (ii) the Department of Environmental Quality's (DEQ) process for certifying certain pollution control and recycling equipment as eligible for exemption from local property taxes; (iii) the potential impact of newly proposed Environmental Protection Agency (EPA) ground-level ozone standards; (iv) federal and state assistance to help manufacturers compete globally; (v) synthetic plastic microbeads; (vi) robotics safety guidelines; (vii) noncredit workforce program initiatives; (viii) 2016 legislation of interest to manufacturers; and (ix) the Virginia Initiative for Growth and Opportunity (GO Virginia). Following is a summary of the Commission's meetings and findings.
Key Provisions of the Patient Protection and Affordable Care Act
Michele Chesser, Senior Health Policy Analyst for the Joint Commission on Health Care, briefed the Commission members on the Patient Protection and Affordable Care Act (the Act) and the potential penalties imposed on employers under the Act. The Act is a combination of two distinct federal laws, the Patient Protection and Affordable Care Act enacted on March 23, 2010 (H.R.3590; P.L. 111-148) and the Health Care and Education Reconciliation Act enacted on March 30, 2010 (H.R.4872; P.L. 111-152). Ms. Chesser stated that the Act prohibits (i) rescission of health insurance coverage; (ii) annual and lifetime limits on essential health benefits coverage; (iii) charging higher premiums due to gender, family history, or occupation; (iv) exclusions based on pre-existing conditions; (v) co-pays, co-insurance, or deductibles on preventive care; and (vi) any preauthorization requirement for an emergency.
Ms. Chesser discussed other health insurance reforms under the Act. The Act limits how much health insurance premiums can vary based on age and tobacco use. The Act allows children less than 26 years old, whether or not married, to be covered under their parents' health insurance policy. The Act limits the waiting period for health insurance coverage under health insurance plans to a maximum of 90 days, except for grandfathered individual plans. Under the Act, out-of-pocket cost sharing is capped at the annual contribution limits applicable to federally recognized health savings accounts. Individual and small group health insurance plans must provide essential health benefits coverage (e.g., ambulatory patient services, emergency services, pediatric services, hospitalization, mental health and substance abuse treatments, prescription drugs, maternity and newborn care, and laboratory services). Essential health benefits coverage is not mandated for large group and self-insured plans.
Ms. Chesser also briefed the Commission on federal law that mandates individuals maintain health insurance coverage. She explained that individuals must be enrolled in a health insurance plan that provides minimum essential coverage or pay a penalty. The penalty assessed for (i) 2014 is the greater of $95 or 1 percent of the individual's taxable income, or, in the case of a family, $285 or 1 percent of taxable household income, (ii) 2015 is the greater of $325 or 2 percent of the individual's taxable income, or, in the case of a family, $975 or 2 percent of taxable household income, (iii) 2016 is the greater of $695 or 2.5 percent of the individual's taxable income, or, in the case of a family, $2,085 or 2.5 percent of taxable household income, and (iv) 2017 and thereafter is the same as the 2016 penalty except that the flat fee is adjusted annually for inflation.
Federal law also mandates that certain businesses maintain health insurance for employees. Ms. Chesser noted that in Plan Year 2015 employers with at least 100 full-time employees must provide health insurance coverage for at least 70 percent of full-time employees and their dependents up to age 26. In Plan Year 2016, employers with at least 50 full-time employees must cover at least 95 percent of full-time employees and their dependents up to age 26.
Ms. Chesser concluded by discussing penalties under the Act for noncompliance. Employers sponsoring group health plans are required to self-report failures to comply with certain regulations and must remit an excise tax if the failures are due to willful neglect or not corrected in a timely manner. She highlighted infractions for which the excise tax may be imposed including the failure to comply with COBRA, HIPAA, and Mental Health Parity and provisions under the Act relating to nondiscrimination rules, coverage of dependents to age 26, elimination of lifetime and annual dollar caps, the prohibition against rescission of coverage, pre-existing condition protections, the requirement for no-cost preventative care, waiting period restrictions, and protections involving emergency care and access to primary care providers. Such infractions must be reported annually to the Internal Revenue Service. In general, the tax is $100 per day for each participant affected. However, no excise tax is imposed if (i) the violation is corrected within thirty days after the employer knows or should have known of the violation and (ii) the employer exercised reasonable diligence but did not discover the violation or the violation was due to reasonable cause.
Department of Environmental Quality Certification of Pollution Control and Recycling Equipment for Local Tax Exemption
Mr. Michael Dowd, Director of Air Division of DEQ, spoke on DEQ's process for certifying certain pollution control and recycling equipment as eligible for exemption from local property taxes. Article X, Section 6(d) of the Constitution of Virginia, which is the source of the local tax exemption for such property, states:
"The General Assembly may define as a separate subject of taxation any property . . .used primarily for the purpose of abating or preventing pollution of the atmosphere or waters of the Commonwealth . . . and by general law may allow the governing body of any county, city, town, or regional government to exempt or partially exempt such property from taxation, or by general law may directly exempt such property from taxation."
Mr. Dowd also mentioned that under Article X, Section 6(f) all property tax exemptions must be strictly construed.
Certain pollution control equipment has been exempted from local property taxes by the General Assembly pursuant to § 58.1-3660. Under § 58.1-3661, the General Assembly has authorized local governing bodies to exempt certain recycling equipment from local property taxes. Thus, the local property tax exemption for qualifying pollution control equipment is mandatory while the property tax exemption for recycling equipment may be granted at the election of the locality.
Mr. Dowd stated that § 58.1-3660 provides that only pollution control equipment used primarily to abate or prevent pollution of the air or waters of the Commonwealth is eligible for an exemption from local property taxes. He indicated that qualifying pollution control equipment must be certified by a state authority or entity to the Department of Taxation as having been constructed, reconstructed, erected, or acquired in conformity with the state program for abatement or control of water or air pollution. However, § 58.1-3660 also lists or describes certain pollution control equipment that the General Assembly has statutorily determined to be used primarily to abate or control water or air pollution, which is exempt from local property taxes whether or not certified. Property made exempt from local taxation regardless of certification includes (i) equipment used to grind, chip, or mulch trees, tree stumps, underbrush, and other vegetative cover for reuse, (ii) landfill gas or synthetic or natural gas recovered from waste or other fuel, (iii) equipment used in collecting, processing, and distributing, or generating electricity from landfill gas or synthetic or natural gas recovered from waste, and (iv) solar energy equipment, facilities, or devices owned or operated by a business that collect, generate, transfer, or store thermal or electric energy. For solar photovoltaic systems, the automatic property tax exemption is limited to projects equaling 20 megawatts or less as measured in alternating current generation capacity.
With regard to the property tax exemption for recycling equipment, Mr. Dowd stated that § 58.1-3661 requires qualifying recycling equipment be certified by DEQ (i) as integral to the recycling process, (ii) for use primarily to abate or prevent air or water pollution, and (iii) as being used in manufacturing facilities or plant units that manufacture, process, compound, or produce for sale recyclable goods at fixed locations in the Commonwealth. Without such certification, a locality may not elect to exempt the recycling equipment from local taxation.
Mr. Dowd ended by explaining the procedures in DEQ's certification process. DEQ only certifies tangible property. Labor and engineering and other intangibles are not taken into consideration. DEQ will only consider for certification property that has been installed and is operational. An additional requirement for recycling equipment is that the equipment be integral to the recycling process. The property must be used primarily to abate or prevent pollution to be eligible for certification. DEQ will not consider or certify property that is not required under a DEQ program. DEQ will automatically certify pollution control equipment that the General Assembly has statutorily determined to be used primarily to abate or control water or air pollution. As required by Article X, Section 6(f) of the Constitution of Virginia, DEQ employs a strict construction standard in evaluating requests for certification. DEQ plans to standardize the certification process using a small centralized team. This will help to further ensure consistency in the certification of similar types of property.
Newly Proposed EPA Ground-Level Ozone Standards
Mr. David K. Paylor, Director of DEQ, updated the Commission on newly proposed EPA standards for ground-level ozone. He first reviewed the progress made since 1999 in reducing ozone. In 1999, rural Virginia had approximately 59 days with monitors measuring ozone at more than 75 parts per billion, Northern Virginia had approximately 51 days, Richmond had approximately 47 days, and Tidewater had approximately 32 days. In 2014, Northern Virginia had approximately 3 days with monitors measuring ozone at more than 75 parts per billion, Richmond had approximately 2 days, and rural Virginia and Tidewater had approximately 1 day.
Mr. Paylor indicated that EPA evaluates the ozone standard every five years. EPA's new proposal will reduce the ozone standard to between 65 and 70 parts per billion. EPA has also requested comment on reducing the standard to as low as 60 parts per billion. The EPA Clear Air Scientific Advisory Committee will determine the final ozone standard by October 1, 2015. If the final new ozone standard is 70 parts per billion, there will be no new nonattainment areas in Virginia. However, if the new ozone standard is set at 65 parts per billion, localities in Virginia's urban crescent (Central Virginia and Hampton Roads) could join localities in Northern Virginia currently in nonattainment.
Localities and regions that are unable to meet the new standard will be considered in nonattainment. Nonattainment areas will be designated by October 2017. Existing and new businesses in nonattainment localities will be subject to stricter rules for the awarding of permits and will also be impacted by a state corrective implementation plan for the area. The due date of the state implementation plan is October 2018. Mr. Paylor commented that new businesses are disproportionately impacted in nonattainment areas.
Federal and State Assistance to Help Manufacturers Compete Globally
Mr. Paul H. Grossman, Jr., Vice President, International Trade, Virginia Economic Development Partnership, briefed the Commission on programs designed to help Virginia manufacturers compete globally. He noted that in 2014 Virginia exports supported 320,963 jobs and generated $2 billion in state and local taxes. Roughly 30 percent of all consumption in Virginia between 2009 and 2014 was related to exports. Between 2008 and 2014, Virginia's gross domestic product grew at an annual rate of one percent while Virginia's exports grew at an annual rate of 2.4 percent. Between 2008 and 2014, Virginia manufacturing exports grew $1.492 billion; information and technology exports grew $1.008 billion; education, medical, and tourism exports grew $822 million; and finance and insurance exports grew $799 million. Virginia non-exporters are growing at a rate of (-7) percent while exporters are growing at a rate of 37 percent. Mr. Grossman indicated that 81 percent of global economic growth will occur outside the United States between 2015 and 2020.
Mr. Grossman concluded his briefing by summarizing programs that are essential for Virginia manufacturers to compete globally. The Virginia International Trade Alliance was launched in July 2015 to create 9,000 trade-support jobs and $975 million in projected international sales. The Going Global Defense Initiative will continue the payment of expiring Department of Defense grants to assist Virginia defense companies. The State Trade Export Promotion Program will continue the payment of Small Business Administration grants to assist 35 companies. The Virginia Leaders in Export Trade Program helps 50 companies defray the costs of going international through providing funds to translate the websites of such companies. The International Trade Show Program establishes a trade show assistance program to enable 50 companies to exhibit products and services at international trade shows.
Synthetic Plastic Microbeads
Dr. Kirk Havens, Director, Coastal Watersheds Program, Virginia Institute of Marine Science, College of William & Mary, spoke to the Commission on synthetic plastic microbeads. Synthetic plastic microbeads are so small, 1 - 300 microns, that they are incapable of being removed by wastewater treatment facilities. Sometimes they can become part of solid municipal waste. Zooplankton and tube worms consume microbeads. Dr. Havens explained that once microbeads are released into the environment they can absorb chemicals that are in the water, introduce toxins into the food chain, and create obstructions that keep organisms from taking in enough food leading to malnutrition or starvation. Synthetic plastic microbeads are included in cosmetics because they improve feel and help to hide wrinkle lines. Silica and sand are commercial alternatives to synthetic plastic microbeads.
Delegate Bulova also spoke to the Commission on synthetic plastic microbeads. In 2015 he introduced House Bill No. 1697, which would have prohibited the production or
manufacture of products using synthetic plastic microbeads as well as the purchase or sale of synthetic plastic microbeads. House Bill No. 1697 was referred to the Commission for study.
Robotics Safety Guidelines
Mr. Robert B. Feild, Senior Staff Attorney with the Department of Labor and Industry, spoke to the Commission on the Commonwealth's robotics safety guidelines. Virginia's Occupational Safety and Health program (VOSH) gained final approval from the federal Occupational Safety and Health Administration in 1984. The granting of final approval requires VOSH to maintain a program that is at least as effective as the federal program. VOSH also must enforce federal standards, regulations, and guidelines. Mr. Feild indicated that VOSH can promulgate its own standards, regulations, and guidelines, which must be at least as effective as any federal standards being replaced. VOSH has not promulgated standards, regulations, or guidelines for robotics safety.
Mr. Feild stated that the federal standard for robotics safety guidelines, STD 01-12-002, was published on September 21, 1987. It gives guidance to employers, employees, and compliance officers with regard to robotics safety guidelines.
Mr. Feild elaborated on potential hazards that can crop up during the operation of a robot and equipment, procedures, and techniques used to achieve robotics safety. Human error, control error, unauthorized access, mechanical hazards, environmental hazards, and electric, hydraulic, and pneumatic power sources are sources of hazards involving robots. Robotics safety can be achieved through and by using safety guards; control devices; proper installation, maintenance, and programming; and training. Safety guards include interlocked barrier guards, fixed barrier guards, awareness barrier devices, presence sensing devices, emergency robot braking, and audible and visible warning systems. Robotics safety with regard to control devices includes situating the main control panel for the robot outside of the robot work area, installing readily accessible emergency stops, employing the use of portable control devices that contain an emergency stop function, instituting automatic stop capabilities for abnormal robot speeds and robot traverses beyond the normal robot work area, user-prompt displays to minimize human error, and designing controls to prevent a robot from automatically restarting upon restoration of power following a power failure. Under the federal standard for robotics safety guidelines, robots must be installed in accordance with manufacturer's guidelines and must contain signs and markings indicating the zones of movement of the robot. Period checks of safety-critical equipment must take place. Managers and supervisors in facilities in which a robot is used must be trained on the work functions to be performed by the robot. Only adequately trained employees are allowed to program or perform maintenance on a robot.
Mr. Feild closed by informing the Commission that VOSH has been conducting robot safety inspections since 1987. However, few of the annual inspections undertaken by VOSH involve robots and citations are rare.
Noncredit Workforce Program Initiatives
The Commission heard from Dr. Glenn DuBois, Chancellor of the Virginia Community College System, on the shortage of workers in Virginia holding an industry-recognized, postsecondary certification. In 2015, there were more than 175,000 job vacancies in Virginia in middle skill occupations. Dr. DuBois reported these jobs paid over $58,000 annually, just shy of the median household income in Virginia of $63,000. It took nearly a month to fill these vacancies, costing Virginia businesses more than $36 million of productivity and the Commonwealth more than $54 million in tax revenue.
Dr. DuBois reported that in the next decade as many as two-thirds of the 1.5 million jobs that must be filled in Virginia will require more than a high school degree but less than a bachelor's degree. According to Dr. DuBois, nineteen states are funding community college training programs to ensure that similar workforce needs in those states can be met. Virginia has never established a formula for funding of postsecondary certifications.
Dr. DuBois explained a proposed appropriation of $25 million over the 2016-2018 biennium to produce 10,500 industry-recognized credentials to meet the labor needs of Virginia businesses. The proposal focuses on building the capacity to meet the desired number of credentials, incentivizing credential completion, and making industry-recognized credentials more affordable. Dr. DuBois stated that inaction in increasing industry-recognized credentials may result in Virginia losing out to neighboring states in attracting economic development prospects and jobs to the Commonwealth. Under the plan, individual community colleges will earn funding based on performance criteria and credential completion. The average cost of an industry-recognized, postsecondary certification at a Virginia community college is $3,100. Financial aid is nonexistent. Dr. DuBois stated that the proposal if funded at the level requested is anticipated to reduce the cost of earning a certification by at least one-third. Dr. DuBois indicated that the Virginia Community College System is the only entity that can deliver a credentials program that ensures quality, affordability, and access to all parts of the Commonwealth.
2016 Legislation of Interest to Manufacturers
At its meeting in January 2016, the Commission heard from staff on 2016 legislation of interest to manufacturers. House Bill No. 66 (Delegate Byron) establishes a grant program for persons earning workforce training credentials in high-demand fields. The target audience of the program is individuals enrolled in noncredit workforce training programs in high-demand fields. The objective of the program is to ensure a skilled labor force is available to fill high-demand jobs, including manufacturing. Eligible grant recipients must be domiciled in Virginia, have completed eight hours of community service, and have successfully completed a noncredit workforce training program and earned an industry credential in a high-demand field. Industry credentials are earned by earning an industry certification approved by the Virginia Board of Workforce Development, passing a licensure examination, or passing an occupational competency assessment. A grant up to $1,000 will be awarded for the cost of the training program and required textbooks. Upon earning the credential, an additional grant up to $1,000 will be awarded for fees for examinations or competency assessments related to the credential. The noncredit workforce training program must be provided or sponsored by a comprehensive community college, a private institution certified by the State Council of Higher Education for Virginia, and certain regional education centers.
Staff next discussed House Bill No. 80 (Delegate Byron), which makes certified pollution control equipment exempt from local property taxes as of the date placed in service. Staff noted that Article X, Section 6(d) of the Constitution of Virginia authorizes the General Assembly to exempt from taxation property primarily used to abate or prevent pollution. However, pollution control equipment can only be certified for local property tax exemption by the Department of Environmental Quality after it has been placed in service. As a result, pollution control equipment placed in service at the end of the year may lose a full year of tax exemption if the certification occurs in the following calendar year. Under current law, the taxability of property is determined on January 1 (tax day). House Bill No. 80 makes certified pollution control equipment exempt from local property taxes as of the date the equipment is placed in service, even if certification for exemption transpires at a later date.
Staff also discussed Senate Bill No. 58 (Senator McDougle) and Senate Bill No. 161 (Senator Howell). Both bills establish a major research and development tax credit. Eligible businesses must have Virginia research and development expenses in excess of $5 million for the year. The tax credit may be carried forward for ten years. No more than an aggregate of $25 million in credits may be granted annually under Senate Bill No. 58, $15 million annually under Senate Bill No. 161.
Virginia Initiative for Growth and Opportunity (GO Virginia)
Mr. Bill Shelton, Director of the Virginia Department of Housing and Community Development, addressed the Commission on GO Virginia. GO Virginia was initiated by the Virginia Business Higher Education Council and the Council on Virginia's Future. Mr. Shelton stated that GO Virginia encourages collaboration between business, education, and local government to strengthen regional economies and builds on existing initiatives to diversify Virginia's economy.
The priorities of GO Virginia are innovation through the leveraging of grants in key industry sectors, investment by localities in economic development projects, improvement in cost savings through collaboration, new inventions through investment in research and development, and infrastructure investments. Mr. Shelton noted that Virginia is ranked 48th among states in gross domestic product growth. He suggested that GO Virginia will promote private sector growth and diversification. He indicated that the business community is engaged in GO Virginia. Mr. Shelton stressed that GO Virginia is not a mandate. It is incentive based, does not establish new taxes or layers of government, and does not alter control over local government functions.
Mr. Shelton stated that projects funded under GO Virginia will focus on ways to diversify the economy and fill critical gaps as determined by relevant regions of the Commonwealth. He mentioned that workforce training is central to the success of projects funded. GO Virginia will be market driven as it will be led by the private sector.
An oversight board and regional councils will administer GO Virginia. The oversight board develops guidelines for the program, criteria for the establishment and certification of regional councils, and criteria for scoring of projects of regional significance. Regional councils will use the scoring criteria established by the oversight board to select projects that will move the region's economy forward.
Sources of funding planned for GO Virginia are the Virginia Growth and Opportunity Fund, the Virginia Collaborative Jobs Development Program, and proceeds of state bonds. Moneys in the Virginia Growth and Opportunity Fund will be used for state grants to fund projects identified as vital to diversify a region's economy and strengthen workforce. Moneys in the Virginia Collaborative Jobs Development Program will be used as an additional funding stream for financing projects that support regional economic and workforce development. The final component for funding is a $2.4 billion bond issuance for capital projects used for technological research and economic development infrastructure. Mr. Shelton indicated that state funds must be matched dollar for dollar from other local, federal, or private sources to leverage the state's investment. Projects certified by regional councils for state funding will be sent to the state board for approval or denial. Finally, Governor McAuliffe's 2016 introduced budget provided $5.725 million in Fiscal Year 2017 and $20.225 million in Fiscal Year 2018 to establish GO Virginia under the Department of Housing and Community Development.
Presentations and other supporting documents related to the Commission's work during the 2015 interim may be viewed or downloaded via the Commission's website: http://dls.virginia.gov/commissions/mdc.htm?x=mtg.