Governor Deval Patrick's Budget Recommendation - House 2 Fiscal Year 2013

Governor's Budget Recommendation FY 2013

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Fiscal & Management Reforms

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Governor Patrick    FY 2013 Budget Recommendation:
    Issues in Brief

    Deval L. Patrick, Governor
    Timothy P. Murray, Lt. Governor


Improving Fiscal Management and Transparency

The FY 2013 budget includes many reforms that improve how the Commonwealth manages its bottom line by squeezing out savings wherever possible, implementing fiscal reforms and making state spending more transparent to the public.

Savings and Efficiencies

Similar to FY 2012, the Executive Office for Administration and Finance this year led an Inter-Secretariat Budget Team to find areas throughout state government where we could save money or change old ways of doing business for the better. This process has strengthened communication among state agencies and focused the FY 2013 budget to better serve the citizens of the Commonwealth. Some of these reforms include:

  • Virtual hold and call-backs for calling centers: To address long wait times to register for unemployment benefits, Executive Office of Labor and Workforce Development has implemented a new call system to reduce the time people are waiting on the phone to reach a live state employee to talk to. This new system (called Virtual Hold), launched in the last month, allows callers to receive a call back when an agent is available as opposed to waiting on hold.
  • Facilities management reform: Building on the efforts launched in FY 2012, the Division of Capital Asset Management (DCAM) is leading an effort to improve the delivery of facility management services throughout the Commonwealth. DCAM will serve the Commonwealth as its principal source of facility management expertise, strengthening the Commonwealth’s ability to effectively manage and maintain state facilities. At the same time, a new Bureau of the State House (BSH) will possess all the resources needed to care intensively for the State House, a major historic, architectural and governmental asset of the Commonwealth.
  • Energy purchasing re-procurement and fuel savings: Efforts to re-procure the Commonwealth’s statewide energy commodity contracts are underway with the goal of saving money, increasing contract participation from agencies and other entities and streamlining services wherever possible. The State Police will start investing in more fuel efficient vehicles through the capital plan and reduce their gasoline consumption by $1,000 a year per new vehicle.
  • Consolidate drug testing: To improve efficiency and meet testing demand, Executive Office of Health and Human Services (EOHHS) and Executive Office of Public Safety and Security (EOPSS) are developing a long-term comprehensive plan to transition all drug testing currently funded and performed by the Department of Public Health (DPH) to the State Police Crime Laboratory. DPH operates two facilities that test quantities of drugs confiscated as part of criminal cases: one lab located in Amherst and one lab in Jamaica Plain. Recent cuts to the Department of Public Health (DPH) nearly led to the closing of the facility in Amherst. EOHHS and EOPSS will transfer both the Amherst and Jamaica Plain caseloads to the State Police Crime Lab.
  • Enhance fraud, waste and abuse prevention efforts in the Commonwealth: This proposal seeks to focus and combine the efforts of the Commonwealth’s varied agencies that target fraud, waste and abuse of public dollars and develop a coordinated plan to share resources and recoup public dollars. It helps to further strengthen collaboration among members of the Fraud, Waste and Abuse Task Force and explores areas where state agencies can improve identification and enforcement of fraudulent activity. Finally, the initiative continues support for the Commonwealth Performance, Accountability and Transparency Office. The FY 2013 budget will make it easier for state agencies to share information electronically and utilize the IT investments we have made in stopping fraud before it starts. In addition the Governor proposes modest increases in the Attorney General’s office and for the State Auditor for expanded efforts to detect and pursue false claims or fraudulent activity by entities receiving state funds while enhancing state efforts to recover any misused funding or assigned penalties.
  • Explore advertisements on state vehicles and other property: To help generate new revenue, we will explore options for advertising on state property, such as vehicles, certain buildings and web space on
  • Re-negotiating State Office of Pharmacy Services Service Contract: This effort will re-align the cost structure and service level of the state’s current pharmacy services contract for various state agencies to achieve the goals of cost savings and maintenance of current clinical initiatives. The current vendor has developed a savings estimate achieved through increased standardization and reduced service levels for each participating agency.
  • Department of Corrections (DOC) food services re-procurement: This initiative will start under DOC to streamline its re-procurement of food services and save money, following its successful study and implementation of health care service cost reductions. To improve nutrition and support local agriculture, in their re-procurement DOC will preference vendors who provide farm to table food services.
  • The Alcoholic Beverages Control Commission (ABCC) online integration with the Division of Professional Licensure (DPL): ABCC does not have online capability for registrations, renewals and other services for its customers. DPL is currently developing a Request for Response for a comprehensive online licensing program that is consistent with the needs of the ABCC. Instead of creating a separate Information Technology Division capital project, the ABCC is collaborating with the Division of Professional Licensure to develop online services.

Fiscal Reforms

Over the past several years, the Commonwealth has been recognized by national rating agencies and other organizations for its responsible, balanced fiscal management and budgeting. Much of this is due to reforms adopted in the past two fiscal years to help put the state on stronger fiscal footing and allow Massachusetts to be well-prepared for the next economic downturn.

Like most states over the past several years, the Commonwealth relied on one-time or short-term budget solutions as well federal stimulus assistance that expired in FY 2011. Prior to the recession starting in 2008, the state’s rainy day reserves, formally known as the Stabilization Fund, had a total balance of $2.3 B. Through FY 2010, the balance was reduced to as low as $664 M as state government had to rely on these resources to help offset substantial drops in annual tax collections. Last year, the Commonwealth was able to make a large deposit in to the fund ($712 M), more than doubling the year-end balance, and making Massachusetts one of only four states in the country with reserves in excess of $1 B.

In recognizing the need to continue replenishing these reserves, the following measures have been adopted:

  • One-Time Settlements – Beginning in FY 2012, all one-time tax or other settlements, which are typically unreliable, in excess of $10 M are deposited directly into the state’s rainy day fund and not made available for general budgeting purposes. Under this reform, $163 M in one-time settlement revenue has already been deposited into the Commonwealth’s reserve fund in FY 2012.
  • Capital Gains Receipts – In recognizing the volatile nature of capital gains and its coinciding tax revenue, Governor Patrick proposed a new policy to reduce the state’s reliance on this revenue to a level that is sustainable and predictable from one fiscal year to the next. Specifically, any capital gains receipts in excess of $1 B are not available for annual budgeting purposes, but instead must be used to help replenish state reserves. As a result of this policy, the Administration’s FY 2013 budget proposal assumes that the $100 M of capital gains tax revenue expected to be received in excess of $1 B will be deposited into the rainy day fund.

Building on Governor Patrick’s track record of reform and responsible budgeting, the FY 2013 budget makes a down payment toward the state’s unfunded retiree health care obligations. This unfunded liability, commonly known as Other Post-Employment Benefits (OPEB) is estimated to be $16.6 B for the Commonwealth, and over $40 B including cities and towns. In FY 2013, 10% of the state’s annual tobacco settlement receipts, or $27 M, will be set aside to help prepare for this liability. This percentage will grow each year by 10 percentage points (e.g., in FY 2014, 20% of tobacco settlement costs), until 100%, or an estimated $276 M, is dedicated annually to help offset these costs. In addition, 5% of the excess capital gains tax revenues to be deposited in the rainy day fund described above will be transferred to the state’s retiree health liability trust fund.

Long-Term Financial Forecasting

The Patrick-Murray Administration is the first administration in Massachusetts to establish a Long-Term Planning Policy to ensure that the state budget is consistent with the principle of fiscal sustainability. This policy was developed based on best practices recommended by the Government Finance Officers Association (GFOA) and accounting standards being proposed by the Governmental Accounting Standards Board (GASB). This policy includes benchmarks to prevent structural deficits, an estimate for the sustainable rate of growth in health care spending, and identifies the need to address long-term liabilities for pensions and retiree health care.

The Administration’s policy to prevent structural deficits relies on a long-term tax revenue forecast based on the outlook for the Commonwealth’s economy. The FY 2013 budget achieves structural balance by limiting the use of one time resources to $541 million which is well below the estimated $1.025 billion cyclical shortfall in tax revenue (see next Figure) which reflects the fact that the state economy is still recovering from the recession and is below its full capacity.

This chart shows tax revenue trend line as well as the actual and forecasted tax revenues for fiscal years 2003 through 2016.  A decrease in the trend-line can be seen between 2008 and 2009.

Targeting the sustainable rate of growth in health care spending is essential to ensure that state government can continue to fund other policy priorities for the citizens of the Commonwealth. Spending related to health care - which includes MassHealth, Commonwealth Care, and the Group Insurance Commission (including retirees) - has increased from 23% of spending in FY 2000 to projected 41% in FY 2013.

This chart shows the proportion of state spending on health care compared to all other spending in 2000, 2005, 2010, and 2013.  In particular, the share of spending related to health care increases each year.

The Long-Term Planning Policy identifies a sustainable rate of growth in health care spending at a level that is approximately equal to the projected long-term rate of economic growth for the Commonwealth. This rate of growth would allow the Commonwealth to maintain programs and services in other areas, but does not allow for meaningful investments in priorities such as education, job creation and preventing youth violence. Health care costs would need to be contained to even lower growth rates in order to redirect future budgetary resources towards restoring cuts to other areas of government.

The Governor’s recommendations to address health care costs in FY 2012 will allow the Commonwealth to stay below 5% growth – achieving more than $800 M in savings. These reforms and cost-savings initiatives put the Commonwealth on track to reduce statewide expenditures on health care substantially over time. These efforts will continue in FY 2013 to again limit cost growth to less than 6%.

The Long-Term Planning Policy also identifies the need for solutions to address the unfunded liabilities associated with OPEB. The statewide OPEB liability exceeds $40 B and represents an estimated $100 B in future payments that have not been funded. The Administration has taken a number of steps to address this challenge including:  increasing the share of health insurance cost paid by employees and retirees; re-constituting the board to oversee investment funds designated to offset the liability; the commitment beginning in FY 2013 to phase-in proceeds from tobacco settlements to provide resources for the investment fund; allocating 5% of capital gains revenue over $1B to the fund; and recent pension reform legislation which will raise retirement ages and is expected to lower retiree health care costs over time.

Additional solutions, however, are still needed to address this threat to the state’s fiscal sustainability. Adequately funding current liabilities would require property tax increases to be over 20% on average at the local level, and budget reductions for state government approximately equal to the total amount of local aid in the FY13 budget. These solutions will be reviewed as part of an OPEB Commission that was mandated as part of the pension reforms signed into law by Governor Patrick in November 2011. More details on the Long-Term Planning Policy can be found at:

Improving Transparency

As part of the state’s FY 2011 Budget, the legislature passed and the governor signed into law new transparency guidelines, which include the development of an online searchable database for state spending. The Open Checkbook is based on the approach and technology piloted in the Massachusetts Recovery and Reinvestment Office website.

The Open Checkbook provides payment details for over 50,800 vendors – identifying who was paid, how much was paid, which state entity made the payment and the purpose of the payment. In addition to showcasing a breakdown of state vendor payments (which can be searched by vendor name, department, or spending category), the website also provides state government payroll and pension information. While the vendor details are updated every night, the payroll and pension figures are updated every two weeks and every month, respectively. The most frequent areas for searches on Open Checkbook are depicted in the figure below.

This chart shows the most frequent areas for searches on Open Checkbook, with payroll searches accounting for 60% of all searches.

Prepared by the Executive Office for Administration and Finance ·
For more information email: (617) 727-2040

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