- Budget Development
- FY10 Non-Tax Revenue Development
- Health Care
- Transportation Reform
- Other Financial Assumptions
- Debt Service
- Capital Transfers Policy
- Financial Statements
- Appropriation Recommendations
- Operating Transfers
- Local Aid - Section 3
- Outside Sections
- Tax Expenditure Budget
- Capital Budget
- Federal Stimulus
FY11 Budget Challenges
Fiscal year 2011 will be the third straight year in which the Governor’s budget reflects the impact of a national economic recession. As tax revenues plummeted nearly $4 billion over a 14-month period, the demand for state programs and services have grown to an all time high. As it has been reported, Massachusetts is well positioned for economic recovery and we are beginning to see signs of recovery. Investments in education, local aid, life sciences, clean energy and infrastructure have helped create jobs and have laid the foundation for the long-term growth of our economy.
Still, it will take time for state tax revenues, which traditionally lag economic growth, to return to the levels we were at prior to the fiscal crisis. In the meantime, the fiscal year 2011 budget will, once again, require a series of creative solutions. The projected gap in the fiscal year 2011 budget is estimated at $2.7 billion and is driven by three factors. The structural imbalance created from one-time revenues and federal stimulus funds used in fiscal year 2010, modest tax revenue growth resulting from an improving economy, but projected off of a much smaller base than we had just a year ago, and growth in costs in a few areas of the State budget due to caseload and inflationary increases. The development of the fiscal year 2011 budget is further complicated by the fact that the balance of the State’s Stabilization Fund is lower than it was at the start of the fiscal crisis (understandably, given the need to use stabilization funds to cushion the fiscal impacts of an economic decline) and much of the federal stimulus funds that have been made available to the Commonwealth have been put to use in fiscal years 2009 and 2010.
In order to protect core programs and services during the fiscal crisis, the Patrick – Murray Administration has relied on the State’s Rainy Day funds and federal stimulus funds. The fiscal year 2010 budget relies on nearly $2.5 billion of one-time revenues to support critical programs and services, mostly to meet federal maintenance of effort requirements in education and Medicaid. It is important to understand that federal stimulus funds must be used to support the programs and services they were intended for and cannot contribute to the states reserves in any way – they must be spent or the state risks losing access to them.
Tax Revenue Growth:
Based on the consensus revenue estimate for fiscal year 2011, revenues are projected to grow by $590 million, about a 3.2% increase over the previous year estimates of $18.460 billion. Despite projections that the economy is starting to recover and revenue growth is positive, the fiscal year 2011 consensus revenue estimate of $19.050 billion is still far below the $21.401 billion consensus revenue estimate for fiscal year 2009 before the fiscal crisis began.
In developing the fiscal year 2011 budget, year-on-year spending growth was assumed for a limited number of programs in the state budget. These included the state's contributions to local education costs or "school aid", health care costs for low-income persons enrolled in MassHealth (Medicaid) and Commonwealth Care, state contributions for its employees' health care costs, and a limited number of caseload-driven programs across state government. In general, without substantial regulatory or even statutory changes to these entitlement programs, costs for these areas increase every year, based on annual medical and other inflationary cost pressures, increased caseload and program utilization and other demographic factors (such as aging of the state's population). The H.2 recommendation provides for real but modest increases in spending for these programs in fiscal year 2011 from their fiscal year 2010 estimated spending levels.
A&F worked with each appropriate state agency to ensure that the assumed spending growth was as accurate as possible, and solicited recommendations from agencies and groups outside state government about short-term and long-term solutions for addressing spending growth. In addition, the Patrick-Murray administration continue to propose measures that offer savings to state and local spending on health care costs, which continue to be one of the greatest challenges to state and municipal finances.
In combination, the use of reserves and other non-recurring revenues in fiscal year 2010, the projected growth in costs to maintain core programs and services and slight growth in tax revenues result in a projected shortfall for fiscal year 2011 of approximately $2.7 billion. The chart below illustrates the factors that when combined, led to the fiscal year 2011 budget gap
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