FY11 Budget Solutions

The Governor’s fiscal year 2011 budget is a balanced and fiscally responsible blueprint. Estimated fiscal year 2011 spending would grow by only 3% over estimated fiscal year 2010 spending, less than the projected 3.2% rate of growth in tax revenues.

In addition to delivering on many reforms, the Governor has once again proposed a balanced set of solutions that deliver on his commitment for a fiscally responsible budget that mitigates the impact on those most in need.

Of the $2.75 billion budget shortfall, the Administration anticipates that $1.394 billion will be funded with federal stimulus funds that will be required to spend – or lose – in fiscal year 2011. To close the remaining projected budget gap, the Administration has proposed budget cuts and savings and efficiencies totaling $797 million gross ($670 million net). The proposal includes $29 million of budget cuts that will be offset by contributions from the State’s independent and quasi-public agencies. It uses some select tax exemptions and dedicates the proceeds to fund wellness and other programs that will lead to cost savings in the long term. These solutions, along with a measured approach to the use of reserves and other one time revenues, have allowed the Governor to protect core services while responsibly balancing the fiscal year 2011 budget.

FISCAL YEAR 2011 SOLUTIONS
1	BUDGET REDUCTIONS, SAVINGS AND EFFICIENCIES ($797 million gross)	670
	Line Item Reductions	310
	Mass Health Reductions ($265 million gross)	132
	Line Item Reductions Offset by Quasi-Public Contributions	29
	Debt Restructuring: Smoothing	199
2	FEDERAL STIMULUS FUNDS REQUIRED TO BE SPENT IN FY11	1,394
	Federal Stimulus - Education Stabilization Funds	96
	Federal Stimulus - Enhanced FMAP (first 1/2 of FY11) - Tier 3	690
	Extension of FMAP (second 1/2 of FY11) - Tier 2	608
3	DISCRETIONARY RESERVES AND OTHER ONE TIME RESOURCES	489
	Rainy Day Funds	175
	Medicare Repayment for Special Disability Workload	160
	Sale of State Land	19
	Trust Fund Reconciliation and Closure	35
	Debt Savings	100
4	REVENUES	199
	Administrative Provisions to Facilitate Tax Collections	31
	Limiting Tax Expenditures	136
	Departmental Revenue Increases	33
	TOTAL SOLUTIONS:	2,752

Non-Executive Branch Agencies

FISCAL YEAR 2011 SOLUTIONS
Non Executive	FY10 GAA	FY10 Estimated Spending	FY11 H.2
Judiciary	584,222,928	593,067,928	432,109,302
Committee for Public Counsel Services	168,298,481	201,277,524	167,964,898
District Attorneys	92,646,673	92,646,673	92,646,673
Sheriffs	330,014,575	549,322,234	472,038,027
Other Constitutional	160,270,146	169,840,906	157,306,177
Lottery	82,403,845	82,403,845	82,403,845
Debt Service	2,098,749,596	2,075,076,451	2,071,593,691
Comptroller	17,820,389	19,020,389	13,977,337
Legislature	53,693,944	69,149,257	53,693,944
Total Non-Executive	3,588,120,577	3,851,805,207	3,543,733,894

Agencies outside of the Executive branch including Constitutional Officers, the Judiciary, District Attorneys and Sheriffs, among others comprise $3.5 billion of the fiscal year 2011 budget recommendations. Some areas of note include –

Judiciary –The Governor’s House 2 recommends that the Office of the Commissioner of Probation move from the Judiciary to the Executive Office of Public Safety and Security. The funding amount being transferred is $146 million. When adjusted for this re-organization, the overall budget for the Judiciary is 2.5% below the fiscal year 2010 estimated spending.
Committee for Public Counsel Services – House 2 funding allows for the hiring of additional staff attorneys, shifting away from our reliance on Bar Advocates in an effort to reduce costs. The total funding recommended for fiscal year 2011 is essentially level to the fiscal year 2010 GAA.
Sheriffs – A significant transition occurred in fiscal year 2010 that brought the remaining 7 County Sheriffs departments (Barnstable, Bristol, Dukes, Nantucket, Norfolk, Plymouth and Suffolk) into the state system consistent with the 7 State Sheriffs that transitioned in the 1990’s. The fiscal year 2010 GAA included funding for these departments for one-half of fiscal year 2010 as the transition implementation date was January 1, 2010 (half way through the fiscal year). For fiscal year 2011, the House 2 recommendations adjust for a full year of spending. Overall, the 14 Sheriff Department budgets were reduced by 2% below fiscal year 2010 estimated spending.

Executive Branch Agencies

FISCAL YEAR 2011 SOLUTIONS
Executive	FY10 GAA	FY10 Estimated Spending	FY11 H.2
EO Adminisrtation & Finance	313,283,351	345,650,435	345,535,161
EO Energy & EnViromental Affairs	209,917,322	204,252,286	197,905,899
EO Health & Human Services	4,749,176,462	4,696,005,290	4,667,934,484
MA Department of Transportation	78,821,155	88,497,769	-
EO Housing & Economic Development	315,125,004	350,285,917	324,456,038
EO Labour & Workforce Develpoment	46,254,384	54,256,983	44,345,299
EO Education	1,890,706,891	1,807,518,661	1,923,903,941
EO Public Saftey	932,767,320	928,545,292	1,072,853,430
Total Executive	8,536,051,889	8,475,021,633	8,576,934,252

Funding for Executive Branch Agencies for programs and services that fall within each of these Secretariats totals $8.6 billion for fiscal year 2011. Several factors contribute to the varying levels of increases and decreases among them:

Executive Office of Education (EOE) – The budget recommendation for the Secretariat for Education (excluding Chapter 70 discussed below) increases by 6.4% above the fiscal year 2010 estimated spending. In fiscal year 2011, funding for the University of Massachusetts and the State and Community Colleges increases to replace the use of Federal Stimulus dollars that supported these agencies in fiscal year 2010. For fiscal year 2011, $96 million in stimulus funds will be used to hold the campuses harmless to the fiscal year 2009 and 2010 GAA levels as required by the Federal maintenance of effort rules.
Executive Office of Health and Human Services (EOHHS) – Recognizing the importance of maintaining critical safety net programs and services, the Governor has limited budget reductions to EOHHS agencies to 0.6% (excluding MassHealth discussed below) below fiscal year 2010 estimated spending. Included in this funding are public health programs that are being supported through the creation of a Health and Prevention fund which has dedicated to it new revenues from the elimination of the candy and soda exemption and the alcohol tax that was initiated last fiscal year.
Executive Office of Public Safety (EOPS) – As mentioned earlier, a significant re-organization is being recommended which would transfer the Office the Commissioner of Probation from the Judiciary to the Executive Office of Public Safety as a new department of Community Supervision. In addition, the Department of Correction is committed to seeking changes and efficiencies through the Governor’s proposed Crime Package pending before the Legislature to achieve savings without closing any correctional facilities. Overall, most public safety agencies were level funded to fiscal year 2010 estimated spending.
Massachusetts Department of Transportation (MassDOT) – Fiscal year 2010 marked a significant transformation of our transportation agencies. The successful implementation of the reform has completely changed the way we budget for transportation programs and services in the fiscal year 2011 budget. Funding is now supported through operating transfers reflected in Section 2E of the budget document. Total funding through these transfers is approximately $375 million and is being transferred from the Commonwealth Transportation Fund to the Massachusetts Transportation Trust Fund, an off budget trust from which the new Massachusetts Department of Transportation is funded.
Executive Office of Energy and Environmental Affairs (EOEEA) – Fiscal year 2011 funding for EOEEA is approximately 3.1% below fiscal year 2010 estimated spending. Core programs and services were preserved, however, changes within the Department of Environmental Protection and the Department of Conservation and Recreation may need to occur to accommodate reductions. Investments in recycling were made through the revenue from expanding the bottle bill. EOEEA will also be a key partner in implementing the consolidation of energy across the Commonwealth.
Executive Office of Housing and Economic Development (EOHED) – Fiscal year 2011 funding is approximately 7.1% below fiscal year 2010 estimated spending. Fiscal year 2011 provides for the funding to maintain critical housing programs including funding for Local Housing Agencies, Emergency Shelters and the Mass Rental Voucher Program (MRVP is also receiving contributions from Mass Housing). Many of the budget cuts to economic development programs are being offset by contributions from quasi-public agencies with related missions
Executive Office of Labor and Workforce Development (EOLWD) – Funding for programs across this small yet vital Secretariat is recommended at 4.1% below the fiscal year 2010 GAA levels. In an effort to continue the commitment to training people to enter the workforce, the Summer Jobs Program, One Stop Career Centers and Workforce Training Grants were virtually preserved at fiscal 2010 GAA levels.
Executive Office For Administration and Finance (ANF) – Each year collective bargaining and other “reserve” accounts for various purposes are funded within the Secretariat. After accounting for those reserves the fiscal year 2011 budget for A&F agencies is 3.2% less than fiscal year 2010 estimated spending.

There are a few program in the budget that grow over the fiscal year 2010 levels for reasons that include the implementation of specific formulas, increased caseload assumptions and increased utilization.


Areas of Growth	FY10 GAA	FY10 Estimated Spending	FY11 H.2
Group Insurance Commission	1,049,621,804	1,063,874,301	1,241,596,385
MassHealth	8,922,854,888	9,237,363,684	9,838,236,308
Chapter 70	3,869,847,585	3,869,847,585	4,048,324,258
Local Aid	963,646,140	963,707,803	963,707,803

Fiscal year 2011 will mark the first full year that all employees from the Department of Transportation and the seven Sheriffs Offices will be receiving health insurance coverage from the Group Insurance Commission, a proposal aimed at creating additional savings for these organizations in the long term. These costs along with the expected growth in the cost of health care for fiscal year 2011, contribute to the growth in the GIC’s budget for fiscal year 2011.

MassHealth is the state’s Medicaid program that provides comprehensive health insurance to over 1.2 million Massachusetts residents. The fiscal year 2011 budget for MassHealth recommends funding to support 3% enrollment growth along with increases to support the Children’s Behavioral Health Initiative, Adult Day Health, Personal Care Attendants, Day Habilitation and Home Health and many other programs offered by MassHealth.

The state provides funding for school aid known as Chapter 70 that is allocated to the 328 school districts by formula. For fiscal year 2011, Chapter 70 education funding is at an all time high level of $4.048 billion. At this funding level every district is fully funded at foundation; all districts are assured the same level of funding as they received in fiscal year 2010 levels (at a cost of over $90 million), and all stimulus funds from the American Recovery and Reinvestment Act (ARRA) used in fiscal year 2010 to support education are backfilled with State General Fund dollars (at a cost of $172 million). This represents a significant commitment by the Administration to preserve and increase state funding for the Commonwealth’s school districts.

Medicaid Cost Controls and Savings ($265 million gross / $104 million net)

The Administration’s fiscal 2011 budget includes $9.838 billion for the MassHealth program. The proposed spending for MassHealth is 6.5% higher than fiscal year 2010 estimated spending of $9.237 billion. The fiscal year 2011 budget continues to fund projected enrollment growth in the MassHealth program of 3%.

MassHealth Program Spending
FY10 GAA	FY10 Spending Plan	FY11 Maintenance	Percent growth in Maintenance from FY10 Spending Plan	FY11 Spending Plan	Spending Reductions from FY11 Maintenance	Percent Growth in FY11 Fianl Spending from FY10 Estimated Spending
8,926	9,237	10,097	9.3%	9,838	(259)	6.5%

In order to manage spending growth at MassHealth and to achieve the $9,838 billion final spending number MassHealth is required to due some targeted spending reductions from the maintenance budget. The savings in the fiscal year 2011 H.2 budget total $265 million (gross), or $132 million (the $132 million net number only includes reimbursement at 50%, if enhanced FMAP were to be included the total state share would be $104 million) and can be categorized into the following; appropriate discipline on rates, program integrity, service restructuring and other initiatives (see below for a chart that highlights that amount in each savings category):


Categories	FY11 Gross Value	FY11 Net Value (50% Federal Medical Assistance Percentage)	FY11 Net Value (Enhanced Federal Medical Assistance Percentage)	FY11 Net Value (State Share)
Rates	(174)	(87)	(19)	(68)
Program Integrity	(23)	(11)	(2)	(9)
Sevice Restructing	(58)	(29)	(6)	(23)
All Other	(11)	(5)	(1)	(4)
Total Savings	(265)	(132)	(29)	(104)

Notes: Savings total does not tie with amount in chart above due to IT transfers of $4.5M and investments of $10.5M.

Rates - All providers have experienced rate reduction or freezes in the past year and a half due to the extreme fiscal pressures that the state and the overall economy have encountered. The providers highlighted above for fiscal year 2011 savings have experienced minimal or no rate-related cuts.

Program Integrity - Program integrity measures are changes that tighten and strengthen operations at MassHealth. Program integrity measures can include billing changes, changes in the redetermination process, cost avoidance and third party liability recoveries and other items that contribute to efficiencies in the program.

Service Restructuring - Service restructuring includes changes in the way that MassHealth delivers some services. The most notable service restructuring is for the MassHealth adult dental program. The MassHealth Adult Dental program will only cover preventative and emergency services and it will no longer cover restorative dental services. This change will not impact children or intellectually disabled members with active cases through the or intellectually disabled members with active cases through the Department of Developmental Services.

All Other - This item is a “catch all’ for the Administration’s other reductions that did not fall into one of the above categories. The most significant savings in this category is related to member cost sharing. The only additional cost-sharing is a $1 increase in co-payments for generic drugs (this will not be applied to antihyperglycemics, antihypertensives and antihyperlipidemics, which are used to manage and treat long-term chronic medical conditions).

The Administration’s budget also proposes a couple of revenue solutions to help offset increases in spending. Revenue initiatives include restructuring payments for prescription drug coverage in managed care plans to achieve higher drug rebate revenues, and expanding the Health Safety Net payer surcharge to Managed Care Organizations serving MassHealth and Commonwealth Care members to generate additional funding for MassHealth and Commonwealth Care.

In order to achieve the savings and revenue proposals highlighted above there are some moderate investments in the MassHealth program. The investments amount is $10.5 million gross or $5.25 million net (the $5.25M net number only includes reimbursement at 50%, if enhanced FMAP were to be included the total state share would be $4.1 million) for enhancements to UMASS’s pharmacy online processing systems (POPS) and additional resources for program integrity measures.

Reductions Offset by Quasi-Public Contributions

Since fiscal year 2009 the Patrick – Murray Administration has partnered with our Independent and Quasi-Public agencies to provide for nearly $90 million in funding to help preserve vital programs and services that would have otherwise been suspended or cut during this fiscal crisis. For fiscal year 2011, many of these agencies have once again stepped up to help preserve important programs and services for the coming fiscal year.

Reductions Offset by Quasi-Public Contributions
Quasi	Program Preserved	Total Contribution
University of Massachusetts	Scholarship	3,500,000
University of Massachusetts	State Library	125,000
University of Massachusetts	Collins	541,000
Connector Authority	Enrollment Grants	2,500,000
MA Convention Center Authority	MOTT	5,000,000
class="text">MassHousing Authority	MVP	8,000,000
Mass Housing Partnership	Soft Second	2,000,000
Mass Development Finance Authority	Mass Cultural Council	3,000,000
Mass Development Finance Authority	Office of Small Business	700,000
Mass Development Finance Authority	Permitting Office	335,000
Mass Tech Collaborative	STEM	500,000
Mass Tech Collaborative	HED Broadband	275,000
Mass Tech Collaborative	MOITI	300,000
Massport Authority	MOITI	300,000
Mass Tech Collaborative	Innovation Initiatives	500,000
Mass Education Finance Authority	McNair Scholarship	1,000,000
TOTAL		28,576,000

Debt Restructuring:

Debt service on outstanding long-term bonds is a significant portion of the Commonwealth’s operating budget. As part of the comprehensive plan to address fiscal year 2011 budgetary shortfalls, the Administration proposes a two-part debt refinancing strategy. The first part is to refinance $200 million of fiscal year 2011 amortizing principal to smooth the fiscal year 2011 debt service spike. The second part is to refinance an additional $100 million of fiscal 2011 principal to achieve budgetary relief, if necessary.

First transaction: Smoothing. We propose refinancing $200 million of $1.02 billion in fiscal 2011 amortizing principal for the purpose of smoothing the 2011 spike in total debt service. Repayment of this refinancing would occur over the next seven years. Following this transaction, the resulting fiscal 2011 total debt service will be approximately equivalent to fiscal year 2010 debt service. The historically low interest rates available in the bond market make this a sound budget-balancing strategy in the current fiscal context. At a current interest rate of 2.1%, the estimated cost of the smoothing refinancing is only $1.2 million, present value. In fact, the Administration plans to issue these refinancing bonds together with refinancing certain high interest rate bonds. In the aggregate, the refinancing will result in net present value savings of $10.8 million. The following chart illustrates the effect of this refinancing on currently outstanding debt service. The smoothing effect, (shown as a checked bar) is redistributed to years in which the Commonwealth faces lower debt service.

Second transaction: Budget Relief. The debt refinancing strategy includes an option to execute a second transaction to refinance an additional $100 million of principal due in fiscal year 2011 to achieve an additional $100 million of budgetary relief. The graph below reflects the total effect of both transactions on the Commonwealth’s debt profile. This second transaction could be executed mid-year, after the October revenue estimate review, if additional budgetary relief is desired at that time. At a current interest rate of 2.1%, we estimate the cost of both refinancings to be $2.5 million, present value. Together with the other refinancing for savings described above, the combined refinancing transactions are expected to result in net present value of $8.3 million.

As one limited component of a larger set of budget solutions, this debt refinancing proposal is a sound and reasonable proposal in the current fiscal context. This is particularly true based on the modest amount, the short amortization period, the historically low interest rate environment and the opportunity to pair this refinancing with another refinancing that will actually result in net present value savings. This refinancing will be taking into account and is consistent with our debt affordability policy.

2. Federal Stimulus Funds that Must be Spent in Fiscal Year 2011

Governor Patrick’s effective advocacy in Washington helped secure a total of $2.889 billion in enhanced federal Medicaid matching funds and $994 million in Education Stabilization funds for the Commonwealth as part of the larger American Recovery and Reinvestment legislation that was signed by President Obama in February of 2009. In the absence of these federal funds, the state would have had to make deeper, harmful cuts to core public priorities or draw larger amounts from its own stabilization fund to balance the budget. This strategy has resulted in a sizeable balance ($610 million) in the state’s stabilization fund heading into fiscal year 2011 to help continue to cushion the impacts of a prolonged national economic downturn.

The federal aid amounts included in the fiscal year 2011 budget blueprint are based on current projections of temporarily enhanced federal Medicaid matching funds (FMAP) that will be available to Massachusetts based on the Governor’s recommended appropriations for programs that generate matching federal funding under the State’s FMAP formula as well as the remaining balance of the fiscal Stabilization funds used to support education.

The fiscal year 2011 budget includes a total of $1.297 billion in enhanced FMAP, generated throughout fiscal year 2011. These resources reflect Governor Patrick’s ongoing advocacy and anticipated success in helping to secure the expected enactment of a six-month extension of enhanced federal matching relief as part of pending federal legislation. This approach is consistent with our actions last year in filing our fiscal year 2010 budget proposal while the federal recovery act was pending. In the unlikely event that Congress ultimately decides not to extend enhanced Medicaid matching funds, the Administration would re-file House 2 based on revised federal revenue projections (just as we re-filed House 1 last year based on updated state tax revenue projections). The fiscal year 2011 budget also includes $96 million in remaining federal recovery act Education Stabilization funds, which are used to fully protect higher education from budget cuts.

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Federal Stimulus Funds Used to Support the Operating Budget
	FY09	Projected FY10	Proposed for FY11
Federal Medical Assistance Percentage (FMAP) Based Original ARRA Legislation	(1,328)	(690)
Extension of FMAP Benefits - (6 monthc)	-	-	(608)
Fiscal Stabilization - Education Funds (81.8%)	(322)	(457)	(34)
Fiscal Stabilization - General Government Services (18.2%)	(90)	(29)	(62)
Transitional Assistance for Needy Families (TANF) Based on ARRA Legislation	(41)	(83)	(23)
SUBTOTAL OF ARRA FUNDS	(1,322)	(1,897)	(1,417)
Change in use of ARRA Funds Previous Year		575	(480)	-25%

The total amount of federal stimulus funding used to support the operating budget is reduced by approximately 25%, or $480 million, from the amount that was used in fiscal year 2010. It is important to understand that any federal stimulus funds used to support the operating budget must be spent in accordance with the “use or lose” provisions of the federal legislation. In addition, there are federal maintenance of effort requirements that must be met as a condition of the stimulus funds and a state cannot use these funds to build up their reserves.

3. Use of Discretionary Reserves and Other One Time Resources

Stabilization Fund

The Administration strikes a careful balance in using one-time revenues in our fiscal year 2011 budget blueprints.

The Governor’s use of the Commonwealth’s Stabilization Funds throughout the fiscal crisis has been measured and adjusted based on the changing economic conditions. For example, when the Governor filed his budget recommendations for fiscal year 2010 he proposed using approximately $500 million of Stabilization Funds. As the revenue picture worsened and more federal stimulus funds became available to help stabilize programs such as MassHealth and Chapter 70 education aid, the Governor reduced the Stabilization draw to $215 million. This amount was later increased by $34 million bringing the total authorization for fiscal year 2010 to $250 million. Ultimately, the total amount of Stabilization Funds that will be used in fiscal year 2010 will depend on revenue performance for the second half of the fiscal year. To the extent that revenues come in over benchmark, the Secretary of Administration and Finance may authorize a lesser amount to be drawn from the Stabilization Fund if revenues are sufficient to cover expenditures for the remainder of the year.

For fiscal year 2011, the Governor is proposing a modest draw from the Stabilization Fund of $175 million. This represents a 30% reduction in the use of Stabilization funds from fiscal year 2010 and preserves an ending balance of approximately $450 million. In addition, the Secretary of Administration and Finance intends to use his authority to reduce the amount of stabilization funds used in fiscal year 2011 to the extent supported by revenue collections. The following is a general description of the Stabilization Fund.

General Information regarding the Stabilization Fund

The Stabilization Fund is established in Chapter 29, section 2H of the General Laws as a reserve of surplus revenues to be used for the purposes of: (1) covering revenue shortfalls, (2) covering state or local losses of federal funds or (3) for any event which threatens the health, safety or welfare of the people or the fiscal stability of the Commonwealth or any of its political subdivisions. The fund is sometimes referred to as the state’s “rainy day fund,” serving as a source of financial support for the state budget in times of slow or declining revenue growth and as the primary source of protection against having to make drastic cuts in state services in periods of economic downturns.

The following table shows the amount on deposit in the Stabilization Fund at the end of each of the last 16 fiscal years and the projected balance for fiscal years 2010 and 2011.

A bar chart showing Massachusetts Stabilization Fund - 10 Year Snapshot, in Millions of Dollars

2001 $1,715
2002 $882
2003 $641
2004 $1,137
2005 $1,728
2006 $2,155
2007 $2,335
2008 $2,119
2009 $841
2010 $617
2011 $450

* FISCAL YEAR 2010 and FISCAL YEAR 2011 Stabilization Fund totals are estimates based on current revenue projections

As illustrated in the table above, the Stabilization Fund provided critical support in maintaining state services the last time the Commonwealth experienced declining tax revenues in the face of an economic downturn.

Use of Other One-Time Discretionary Revenues:

As state tax revenues grow due to projected improvement in the economy – and the Governor continues to exercise care and restraint in spending – we project being able to reduce the total amount of one-time resources used to balance the budget in fiscal year 2011 by 23% compared to fiscal year 2010 and 38% compared to fiscal year 2009. Through fiscal discipline, we are able to minimize the use of the State’s Stabilization Fund – the state’s most flexible reserve. The budget proposes only a $175 million withdrawal from the State Stabilization Fund, an 87% decrease from fiscal year 2009 and 30% decrease from fiscal year 2010.

Total Use of One-Timers (Federal Stimulus and Other One-time Solutions)
	FY09 Actual	Projected FY10	Proposed for FY11	% Change
Federal Stimulus Funds
Federal Medical Assistance Percentage (FMAP) Based Original ARRA Legislation	(869)	(1,328)	(690)
Extension of FMAP Benefits - (6 months)	-	-	(608)
Fiscal Stabilization - Education Funds (81.8%)	(322)	(457)	(34)
Fiscal Stabilization - General Government Services (18.2%)	(90)	(29)	(62)
Transitional Assistance for Needy Families (TANF) Based on ARRA Legislation	(41)	(83)	(23)
Subtotal: Federal Stimulus Funds	(1,322)	(1,897)	(1,417)
Change in use of Funds from Previous Year		575	(480)	-25%

Discretionary One-time Funds
State "Rainy Day" Funds	(1,390)	(249)	(175)
One-time Tax Settlement Revenue	(196)	(152)	-
TANF Contingency Funds (non- ARRA Funding)	(80)	(18)	-
Ma Convention Center Fund	(65)	-	-
Bryne Grant	(13)	(4)	-
Ma School Building Authority Repayment	-	(150)	-
Independent and Quasi Contributions	(46)	(21)	(29)
Trust Fund Balances	-	(28)	(35)
Special Disability Workload Federal Reimbursement	-	-	(160)
Sale/Proceeds from the Sale or Use of State Land	-	(9)	(19)
Debt Savings Proposal	-	-	(100)
Subtotal: Discretionary One-time Funds	(1,790)	(631)	(518)
Total Use of One-timers	(3,112)	(2,529)	(1,935)
Change in use of One-timers from Previous Year		(583)	(593)	-23%
Change in use of One-timers from FY09			(1,177)	-38%

4. Revenues

The budget does not include any broad-based tax increases. Based on a thorough, multi-agency examination of state tax exemptions, it proposes limiting select exemptions to provide sufficient resources to meet public priorities. This includes retaining existing film and life sciences tax credits, but temporarily capping the financial benefit they provide at levels calibrated to ensure Massachusetts remains a leader in both fields. The budget also repeals sales tax exemptions for candy and soda and ends the exemption of cigars and smokeless tobacco from the cigarette excise tax rate enacted by the Legislature in 2008. These measures promote public health and generate revenues that are dedicated to health care and wellness programs through the Commonwealth Care Trust Fund and the Commonwealth Health and Prevention Fund.

Limiting Certain Tax Expenditures ($135.9 million net of transfers to the School Building Authority and the Commonwealth Care Trust Fund)

Massachusetts law defines “tax expenditures” as “state tax revenue foregone as a direct result of [a] law which allows exemptions, exclusions, deductions from, or credits against, the taxes imposed on income, corporations, and sales.” Every year, as required by law, the Department of Revenue prepares a “Tax Expenditure Budget” that shows how much the Commonwealth spends for each of these tax expenditures. The current Tax Expenditure Budget is published as part of this document and can be viewed in it entirety under the section tab titled “Tax Expenditure Budget”.

To carry out the Patrick-Murray Administration’s policy of shared sacrifice during this fiscally challenging time, and based on an unprecedented, thorough review of the state tax code’s many preferences, we recommend limiting specific tax expenditures worth $161.6 million in fiscal year 2011.

Temporarily limit film tax credits ($75 million). Our budget temporarily limits total film credits to $50 million for each of fiscal year 2011 and fiscal year 2012. We believe that this will not interfere with long-term plans to build film studios and will ultimately keep Massachusetts among the most competitive states for this significant industry.
Temporarily limit life sciences tax credits ($5 million). Although promoting the critical life sciences industry remains one of our top economic development priorities, we will administratively reduce fiscal year 2011 tax credit awards by $5 million.
Repeal aircraft sales tax exemption ($4.2 million). This exemption can no longer be justified, especially since cars and boats are not exempt, and other states are likely to apply use taxes to aircraft if we do not. The H.2 recommendation does not seek to repeal the exemption for aircraft parts, because of the benefit that serves for our small airports.
Repeal sales tax exemption for candy and soda ($51.7 million). Repealing this exemption serves important public health purposes and will support critical wellness and prevention programs.
Remove exemption of cigars and smoking and smokeless tobacco from 2008 tobacco excise rate ($15 million). The new cigarette excise rate passed by the Legislature in 2008 did not apply to these other tobacco products. We cannot justify this distinction in view of important health and revenue benefits. The Governor’s budget directs these revenues to the Commonwealth Care Trust Fund to support the state’s health reform initiatives.

Commonwealth Health and Prevention Fund ($51.7 million; $157.1 million after dedicating the alcohol tax signed into law in the previous fiscal year)

Massachusetts has long been an innovator in health care and public health. The public health programs that serve the people of the Commonwealth reflect the Administration’s commitment to preventative care and wellness services as a vital component of health care reform. The Commonwealth Health and Prevention Fund will receive a total of $151.7 million of revenue generated from eliminating exemptions on sweetened beverages and candy ($51 million) and by dedicating the alcohol tax revenue ($100 million) that was singed into law as part of the fiscal year 2010 budget. The fund will be used to support critical programs within the Massachusetts Department of Public Health, including addiction services, smoking prevention and cessation programs, violence prevention, and children’s nutrition.

Health and Prevention Fund: Fiscal Year 2011
$151.7 Million
Account Distribution	Acct #	% Funded from Health and Prevention Fund	Total Health and Prevention Fund Spend
Addiction Control Services	4510-0700	100%	$81,184,876
Smoking Prevention and Cessation Programs	4590-0300	90%	$4,725,969
Health Promotion, Violence Prevention and Workforce Expansion	4510-2500	83%	$33,520,467
Children's Health and Nutrition	4512-0120	83%	$32,268,688
Total Wellness Fund Spending			$151,700,000

Bottle Bill ($20 million)

Discarded cans and bottles are a major source of trash that impacts our communities while wasting precious natural resources and energy. The Massachusetts Bottle Bill, enacted in 1982, was designed to promote recycling by encouraging consumers to return their empty soda and beer containers by offering a $0.05 deposit. In the fiscal year 2011 budget, Governor Patrick proposes to expand the $0.05 deposit to include water, flavored waters, coffee based drinks, juices and sports drinks. When the bottle bill was enacted in 1982, the beverages covered by the law were limited to carbonated soft drinks, mineral water, beer and other malt beverages. Since that time, the beverage market has expanded and non-carbonated beverages have experienced near double-digit growth in the past decade.

A bar chart showing Beverage Consumption in Massachusetts, 2000 and 2005

Of the estimated $20 million in additional revenue generated through this change, $5 million will be dedicated to the Executive Office of Energy and Environmental Affairs for recycling and solid waste management.

Fraud, Waste and Abuse

It is critically important that the Commonwealth be focused on detecting fraud and abuse in the delivery of all state programs and services. In this difficult fiscal environment, the Commonwealth is experiencing increased caseloads in many important programs. These programs, especially those that protect our most vulnerable residents, are in greater demand during these difficult economic times. We need to make sure every dollar is spent appropriately.

Because fraud, waste and abuse prevention is a cross Branch / cross- Secretariat initiative the Governor’s budget recommendation for fiscal year 2011 proposes the creation of a task force comprised of all the state entities that play a critical role in the detection and prevention of fraud. The goal of the taskforce will be to create better coordination among these entities and to:

Better coordinate across agencies and branches of state government.
Examine best practices and apply them consistently across all state agencies.
Identify areas where the Commonwealth may be susceptible to fraud and abuse and implement controls
Collaborate with the Office of the Comptroller and other auditing professionals to review the state’s compliance with internal controls aimed at detecting and preventing fraud.
Hire consultants to develop recommendations for how Massachusetts can enhance our efforts in this area.

The Governor also proposes providing additional resources to these agencies by recommending a 10% increase in funding levels for those agencies that detect and prevent fraud and abuse.

Additional Resources Dedicated to the Detection of Fraud and Abuse
Department	Account Name	FY10 Estimated Spending	H.2	Increase	% Change
State Auditor	Bureau Special Investigations	1,647,654	1,812,419	164,765	10.0%
State Auditor	Medicaid Audit Unit	790,702	897,829	107,127	13.5%
Attorney General	Medicaid Fraud Control Unit	3,467,021	3,814,923	347,902	10.0%
Operational Services Division	HHS Provider Recovery RR	499,240	549,925	50,685	10.2%

As a result of the work of the task force and the increased investment in fraud and abuse detection and recovery, the Administration conservatively estimates that it will save $15 million through increased recoveries.