Governor Deval Patrick's Budget Recommendation - House 2 Fiscal Year 2011

Governor's Budget Recommendation FY 2011

FY10 Non-Tax Revenue Development

Fiscal Year 2011 Non-Tax Revenue Assumptions

The Commonwealth collects and receives revenues from several non-tax sources, including the federal government, various fees, fines, court revenues, assessments, reimbursements, interest earnings and transfers from non-budgeted funds. These revenues are deposited in the General Fund, the Commonwealth Transportation Fund and other operating budgeted funds. The Governor’s fiscal year 2011 budget recommendation assumes approximately $13.64 billion in non-tax revenues.  Reimbursements from the federal government make up 64% of the State’s non-tax revenue.  The remaining non-tax revenues come from departmental revenues (22%) and operating transfers to fund programs and services off budget (14%).  Sections 1B and 1C of this document details the different types of non-tax revenues.

House 2 Total Non-Tax Revenues: $13.64 Billion

(in $ Billions)

A pie chart depicting Non-Tax Revenue Projections in House 2 in the following categories:

Federal Reimbursements $8.77 billion  64%
Departmental Revenue  $2.99 billion  22%
Consolidated Transfers  $1.88 billion  14%

Federal Revenues

Federal revenues are collected through reimbursements for the federal share of entitlement programs such as Medicaid and through block grants for programs such as Temporary Assistance for Needy Families (TANF) and Child Support Enforcement. The amount of federal reimbursements to be received is determined by state expenditures and federal regulations that govern federal programs.  Staff from the Executive Office for Administration and Finance work with agencies to project budget year spending levels for these federally supported programs.

Until the passage of the American Recovery and Reinvestment Act (ARRA) the Commonwealth received reimbursement for approximately 50% of its spending for Medicaid programs. The state’s Federal Medicaid Assistance Percentage (FMAP) was increased beyond 50% when ARRA was passed in February of 2009. The level of enhanced FMAP, under ARRA, for each state is dependent on the state’s unemployment rates.  Massachusetts qualifies for tier 3, which is the highest tier for FMAP percentages.  The enhanced FMAP through the ARRA legislation extends through December 2010.  The Administration has assumed that it will still be eligible under tier 3 for an enhanced FMAP percentage of 61.59% through the first half of fiscal year 2011 which will generate $690 million. This is consistent with economic indicators and consensus revenue assumptions for unemployment. Also, the fiscal year 2011 budget assumes that federal legislation will be passed to extend enhanced FMAP for states through June 2011.  Indications from the Obama Administration and Congress, including the passage of 2 different bills already suggest that enactment of legislation extending enhanced FMAP is likely. Our decision to include this revenue in our budget is consistent with the budgeting approach we took last year when the ARRA legislation was pending in Congress but not yet enacted and is consistent with the budgeting approach taken by a number of other states.  We have conservatively assumed that the Commonwealth will be in tier 2 for the second six months of fiscal year 2011 and that will result in an enhanced FMAP percentage of 60.2% which will generate $608 million.  In the unlikely event that Congress does not extend enhanced FMAP through the second half of fiscal year 2011, the Governor will re-file his House 2 budget recommendations for fiscal year 2011 to solve for the absence of this revenue.

Departmental Revenues

Departmental revenues are derived from licenses, tuition, fees for programs and services, reimbursements and assessments for services including, but not limited to, revenues from the Registry of Motor Vehicles, reimbursement of healthcare costs from municipalities participating in the state’s Group Insurance Commission (GIC) health care programs, drug rebate money received by the Executive Office of Health and Human Services, interest earnings received on the state’s budgeted fund balances and fees collected by the Secretary of State’s Office.  To the extent possible, the Administration has minimized fee increases.  However, MGL Chapter 7:3B provides for an annual review of fees to confirm that they are sufficient to defray the cost of providing the service. As part of this exercise, A&F analyzes historical non-tax revenue receipts and works with agencies to develop budget-year projections for these revenues. During the budget process, agencies are asked to review the fees to ensure they are current and reflect the actual cost of doing business.

H.2 includes two sections that give a detailed overview of projected non-tax revenue for fiscal year 2011. Section 1B details projected fiscal year 2011 non-tax revenue receipts by the department, board, commission or institution that administers and collects the respective revenue source. The online version of H.2 allows the user to further examine each governmental area and view a title and description of each revenue source contributing to that area’s total non-tax revenue.  Additionally, the fund statements which are included in the “Financial Statements” section of the budget document offer another view of departmental revenues by operating fund.

Consolidated Transfer

Consolidated transfers reflect inflows to the General Fund from non-budgeted funds which include annual tobacco settlement proceeds received as part of the Master Settlement Agreement with tobacco companies, net revenues from the State Lottery Fund, fringe revenue to recoup the cost of various statewide benefits assessed on non-budgeted funds and revenues from the Commonwealth’s Abandoned Property Division.  A&F solicits agency feedback and uses historical data to project transfers to and from the budgeted funds for the proposed budget year. 

Each year operating transfers are made to fund programs and services that are off budget.  In prior fiscal years these transfers from budgeted funds to non-budgeted funds were hidden in the outside sections of the budget and the spending for the programs was captured as a loss of revenue.  These programs include the Commonwealth Care Trust Fund and Medical Assistance Trust Fund which support the Commonwealth’s Health Care Reform Law. For fiscal year 2011, H.2 aims to bring greater transparency to the Commonwealth’s budget by breaking out these spending items from the outside sections of the budget and including them in a new Section 2E.  Section 2E details these transfers.

Policy Recommendations

A&F worked other Cabinet Secretaries and the Governor’s Office to identify policy priorities in fiscal year 2011, and several core policy recommendations that were incorporated into Governor Patrick’s budget recommendation. These policy recommendations are discussed in greater detail throughout this budget (in the budget document itself) and in the various issue briefs that are filed along with the Governor’s budget recommendations.

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