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FY12 Budget Challenges
On July 1, 2011 states across the country will be entering their fourth consecutive year of a difficult fiscal environment. For most states, however, the challenges presented by fiscal year 2012 will be different in several ways than the years that have preceded it. Beginning in fiscal year 2009 and continuing through fiscal year 2010, most states experienced a steep decline in state tax collections as economic activity declined under the weight of the global economic crisis. Most states were forced to take a number of measures to address the declining revenues and the simultaneous jump in demand for safety net services, including: implementing dramatic spending reductions through cuts to programs and layoffs of employees; increasing taxes and other non-tax revenues; utilizing state reserves; and relying on temporary federal stimulus revenue.
Fiscal year 2011 is the first time in 3 years states are beginning to see general tax collections recover, although most, including Massachusetts, have not seen them recover to levels comparable to those prior to the beginning of the recession. With the combination of recovering tax revenue and the use of federal stimulus dollars authorized through the remainder of the fiscal year, states have been able to reach fiscal stability this year. The Commonwealth’s fiscal year 2011 budget relies on a combination of $1.9 billion in one-time measures, $1.5 billion of which relates directly to federal stimulus and assumes growth of tax revenues from fiscal year 2010 of $1.24 billion. 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.
As the previous sections notes, the state is no longer assuming the receipt of the $160 million in one-time federal Medicaid revenues related to the Special Disabilities Workload (SDW) populations. This lowers the total amount of one-time resources used in fiscal year 2011 that must be accounted for in the development of the fiscal year 2012 budget.
| (dollars in millions) | |
| Total One-Timers: | 1,856.9 |
|---|---|
| Federal Stimulus (ARRA): | 1,552.1 |
| State Fiscal Stabilization Fund | 96.0 |
| Enhanced FMAP Revenue | 1,244.4 |
| Other ARRA | 11.7 |
| EduJobs Funding | 200.0 |
| Other One-Time Sources: | 304.8 |
| Special Disabilities Workload | - |
| Special Education (IDEA) | 101.3 |
| Debt Service Restructuring | 100.0 |
| Quasi Public Contributions | 25.0 |
| Trust Sweeps (incl. Springfield) | 58.5 |
| Other One-Time Solutions | 20.0 |
Beginning in fiscal year 2012 states will need to account for the loss of resources made available on a one-time basis. Even with strong revenue growth in fiscal year 2012, the state can only expect to offset a portion of the impact of the loss of one-time resources.
Bottom-Line Spending Growth
The Governor’s fiscal year 2012 budget is balanced and fiscally responsible, reflecting the fact that state spending must align with the resources available to the state. Total state fiscal year 2012 spending is projected to total $30.549 billion. When accounting for the $397 million in off-budget fiscal year 2011 spending that would typically be funded from the state budget, total fiscal year 2012 spending is a 1.8 percent reduction from fiscal year 2011 estimated spending. Since fiscal year 2009, total state spending has only grown by $1.129 billion, an average of 1.0 percent over the four fiscal years.
| (dollars in millions) | ||||
| Estimated FY2011 Spending | H.1 FY2012 Spending | Annual Change | % Change | |
|---|---|---|---|---|
| Projected Spending* | 30,720 | 30,549 | (173) | -0.6% |
| FY2011 Adjustments | 397 | - | ||
| Adjusted Spending | 31,117 | 30,549 | (570) | -1.8% |
| *excludes annual state contribution for employees' pensions. | ||||
Changes to State Revenue
For fiscal year 2012 the consensus tax revenue estimate assumes tax collections of $20.525 billion, or $741 M above the revised fiscal year 2011 estimate. When compared to the revised fiscal year 2011 estimate, projected FY 2012 tax growth totals 3.5 percent.
| (dollars in millions) | |
| Original FY11 Tax Consensus Figure: | 19,078 |
|---|---|
| Revised FY11 Tax Projection: | 19,784 |
| FY11 Revised vs. Original: | 706 |
| FY12 Tax Consensus Figure: | 20,525 |
| FY12 Consensus vs. FY11 Revised Estimate | 741 |
Based on the updated estimates, the resources available as a starting point for building our fiscal year 2012 budget compared to fiscal year 2011 assume the loss of $1.857 billion of one-time resources, primarily from the expiration of $1.55 billion in federal stimulus funds. As noted earlier, the state’s tax collections are projected to grow by $741 million next year, a small portion of which will be offset by increased transfers of sales tax revenues to the Massachusetts Bay Transportation Authority (MBTA) and the School Building Authority (SBA). Under state law both the MBTA and SBA receive 16 percent of the total annual sales tax collected by the Commonwealth. Finally, after accounting for the loss of federal stimulus “enhanced” Medicaid revenues and other smaller one-time sources, total non-tax revenues are projected to decrease by $45 million in fiscal year 2012.
| (dollars in millions) | |
| Loss of One-Time Resources: | (1,857) |
|---|---|
| Growth in Tax Collections from FY11: | 741 |
| Increase Transfer of Tax Revenues for Off-Budget Purposes: | (36) |
| Growth in Non-Tax Revenues: | (45) |
| Change in Available Resources for FY12: | 1,197 |
Additional Revenues
With available resources being $1.197 billion less than fiscal year 2011 as a starting point, the following measures are proposed to support the fiscal year 2012 budget. The measures (identified in the table below) serve to generate in total, $627.3 million in additional resources in fiscal year 2012 to support state spending. The Governor’s budget does not rely on broad-based tax increases nor does it increase available fiscal year 2012 revenues by raising the user fees that state’s residents pay for specific government services (such as licenses or permits). Where additional revenue solutions are proposed for fiscal year 2012 they are advanced as limited, responsible and fair measures to support state government services while still mindful that the economic conditions remain challenging for businesses and households.
| (dollars in millions) | |
| TOTAL | 627.3 |
|---|---|
| Use of Stabilization Fund reserves (one-time): | 200.0 |
| Enhanced DOR Tax Enforcement: | 61.5 |
| New Revenue Initiatives: | 88.8 |
| Expanded Bottle Bill: | 20.0 |
| Revenue Maximization: | 40.0 |
| Sale of Assets: | 15.0 |
| Quasi-Public Contributions: | 25.3 |
| Abandoned Property (one-time): | 99.0 |
| Expanded Federal Revenue through Medicaid Waiver: | 78.0 |
Spending Growth:
Year-on-year spending growth was provided for a limited number of programs in the state budget, particularly for those items that reflect long-term state liabilities (such as debt service, retiree health costs and pension contributions). The items total approximately $632.1 million in increased spending above fiscal year 2011 spending.
| (dollars in millions) | |
| Debt Service | 255.7 |
|---|---|
| State Aid for Public Education | 139.8 |
| Retirees Health Care | 17.3 |
| State Pensions Contribution | 37.0 |
| Aid for Special Education Costs | 80.0 |
| Annualized MassHealth Spending | 100.0 |
| total | 629.7 |
Given that available resources in fiscal year 2012 are projected to be $1.197 billion less as a starting point for comparison to fiscal year 2011 in developing the fiscal year 2012 budget, state spending will need to be reduced below fiscal year 2011 levels. With the additional resource being proposed by the Governor noted above, total state budget resources will be $30.549 billion, or $570 million less than fiscal year 2011. This is further compounded by the state’s need to fund increased spending of $629.7 million for the limited number of items in the budget noted above, requiring that other areas in the budget face further reductions totaling $1.2 billion to live within the lower level of resources and to offset these increases in spending.
Furthermore, state agencies will need to implement additional cost controlling measures in order to avoid or mitigate increased cost pressure each may face in their specific programs. This is particularly true for the state’s subsidized health care programs for low-income families, the uninsured and state employees (current and retired). The state will implement aggressive cost-controlling measures in order to keep total fiscal year 2012 spending in line with available resources.
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