FY12 Expenditure Development

Spending Plan and Budget Proposal Development

The Executive Office for Administration and Finance (ANF) is the state agency responsible for preparing the Governor’s budget recommendations and for oversight of the annual budget enacted by the Legislature, known commonly as the General Appropriations Act or the GAA. Under state law, every state agency is required to annually prepare a budget for review and evaluation by the Secretary for ANF. The spending plan typically includes expenditure and revenue estimates for the current fiscal year (2011) as well as the agency’s anticipated expenses and receipts for the next fiscal year (2012) based on the assumption that they will maintain the same level of services and programs from one year to the next.

In July of each year, after the General Appropriation Act (GAA) is signed, agencies present spending plans to the Executive Office for Administration and Finance (ANF) to delineate how funds appropriated for the current fiscal year will be spent. These spending plans reflect each agency’s plans to operate their programs and services for the current fiscal year. Agencies are also requested to reflect any changes that may be necessary to their operating budgets, whether savings or increased costs, that will result from projects and investments made through the five-year capital plan.

For fiscal year 2011, agencies had to adjust their spending plans to account for the loss of revenues from the Federal Medical Assistance Percentages (FMAP) that the legislature assumed in the budget they sent to the Governor.  Since congress had not yet enacted the extension of this revenue, the Governor vetoed all funding related to it.  The Governor’s veto action forced agencies to react to the loss of the unrealized revenue, and therefore, in addition to agencies preparing spending plans during the summer of 2010, they also developed detailed implementation plans on how they would manage within the reduced funding levels.  These implementation plans were developed and vetted in July and spending plans were filed with ANF for review and approval in August.

Fiscal Year 2012 Budget Development

During the months of August and September agencies developed their fiscal year 2012 spending plans using their approved fiscal year 2011 budgets as the base to inform their recommendations for fiscal year 2012.  In developing budget recommendations, agencies incorporate projected changes in the programs they provide, such as anticipated changes in staffing, caseload growth, or increases in fixed costs such as fuel and energy costs.  Agencies also take into account changes in laws, regulations and policies that will impact programs and services for the next year. Based on revenue projections and the loss of one-time federal stimulus funds and other one-time funds used in fiscal year 2011, agencies were asked to focus on developing spending plans for fiscal year 2012 with an emphasis on controlling or preventing growth in spending over the projected fiscal year 2011 spending levels.

Despite that fact that revenues are growing as the economy recovers, tax revenue growth will not be sufficient to offset the loss of federal reimbursements that were available on a temporary basis through the American Recovery and Reinvestment Act (ARRA) to support the operating budget.  To address this budget gap, ANF established spending parameters that would be necessary in fiscal year 2012 to balance the state’s budget.  Agencies were required to submit proposals that would ensure that total spending fell below fiscal year 2011 appropriated levels. These plans were submitted to ANF and serve as the base for the Governor’s fiscal year 2012 budget recommendations.

On December 14th, the annual Consensus Revenue hearing was held by the Administration, the Senate and the House.  The three branches received testimony for the Department of Revenue and other economist regarding the amount of tax revenue that could be expected for fiscal years 2011 and 2012.  While the testimony suggested that revenues would continue to increase and that the state’s economy was recovering, the economists also warned of the continued pressure on caseload driven programs such as Medicaid, housing and welfare programs, as well as the impact of the loss of the federal stimulus funds.

Throughout the fall, ANF continued to work with agencies to develop their spending proposals. Agencies were given the opportunity to review and revise the line items, make reform and re-organization proposals and other changes necessary to live within budgetary parameters and meet core requirements of state government. Following the submission of spending targets, ANF worked with each secretariat to assess the impact of reductions and identify which cuts will be most challenging for agencies to implement. As part of its gap closing activities, ANF has sought to mitigate these reductions to the greatest extent possible.

One methodology ANF implemented to achieve this goal was the creation of an Inter-Secretariat Budget Team (ISBT) to identify and develop additional cost-saving proposals.  The team members were selected from across the Secretariats and were charged with developing innovative ideas that would help to mitigate budgetary reductions and improve how government works. This team worked with ANF throughout the budget process and will remain intact after the submission of the fiscal year 2012 budget to ensure timely implementation of the approved solutions.

Fiscal Year 2012 Post House 1 Process

In preparation for the start of fiscal year 2012 (July of 2011), ANF will continue to work with agencies to develop implementation plans well ahead of the beginning of the fiscal year. As part of the H.1 budget development process most agencies have successfully identified areas already where reductions to programs and services will be necessary or where they may capitalize on efficiencies. However, due to the complexity of some recommended programmatic changes, in some cases agencies have not yet been able to determine exactly how they will restructure programs to live within funding levels recommended in H.1. The implementation planning process led by ANF helps to best ensure that all necessary steps are completed to by the beginning of fiscal year 2012 to ensure that agencies will be able to operate at reduced funding levels.