Governor Deval Patrick's Budget Recommendation - House 2 Fiscal Year 2009

Governor's Budget Recommendation FY 2009

Fiscal Year 2009 Budget Challenge

The Commonwealth's fiscal year 2008 budget of $26.808 billion currently relies on about $600 million of reserve transfers and $180 million of non-recurring revenues carried forward from fiscal year 2007. In the aggregate, this means that a structural deficit of $780 million is the starting point for developing a fiscal year 2009 budget that maintains existing services and programs. This does not include spending pressure that exists in fiscal year 2008 from requests for supplemental funding and continued expansion of programs and services.

The fiscal year 2009 budget challenge is compounded by the fact that there are significant pressures on expenditures in fiscal year 2009 for a relatively small number of cost items, including Medicaid, Chapter 70 education aid, and others. Expenditures needed to provide the same level of services in fiscal year 2009 as in fiscal year 2008 are projected to grow by almost 6%, far exceeding the revenue consensus growth of 3.8%.

The structural deficit for fiscal year 2008 together with the projected growth in costs exceeding revenues, not surprisingly, results in a fiscal year 2009 projected shortfall of over $1.3 billion.

Contrasts new revenue of $700 million against new spending pressures of $2 billion.  New revenues were generated mainly from growth in tax revenues, while spending grew from such areas as Medicaid, Chapter 70, FY08 Spending supported by reserves, Recurring PACs and Other state spending.

House 2 Recommendations
FY2009: H.2 Total Spending = $28,165 Billion

Pie chart displaying how the $28 billion in the budget is distributed.  In descending order, Medicaid received 31%, Health and Human Services 18%, Education 16%, Debt Service 7%, Public Safety 6%, Direct Local Aid 5%, Higher Education 4%, Group Health Insurance 3%, Dept. of Early Education and Care 2%, and all Other 8%.

Note: controlling for county sheriffs coming into the state budget, the total bottom line for H.2 is $28,075 Billion.

FY2009: H.2 Total Revenues = $27,914 Billion

Pie chart displaying how the $28 billion in revenue to support the budget was generated.  Taxes provide 69%, with Federal reimbursements providing 22% and Departmental revenue providing 8%.  New Tax Revenue Proposals netted 1% of the overall total.

FY2009: Tax Revenues

Pie chart detailing from where state tax revenue is generated.  Income tax is 60% of the total, with Regular Sales tax at 15%, Corporations at 7%, Meals & Motor Vehicle Tax at 6%, Motor Fuels at 3% and Cigarettes at 2%.  All other is 7%.

H.2 Total Spending Including Off Budget Transfers
  FY2008 FY2009  
FY2008 Est. Spending 27,205    
FY2008 GAA 26,808   4.73%
House 2 FY2009:   28,165 3.53%
Adjustments: County Corrections Reform   (90)  
Adjusted House 2 FY2009:   28,075 3.20%
Spending Through Consolidated Transfers:
Health Care Reform Transfers:
  Commonwealth Care Trust Fund 618 869  
  Hospital & Physician Rates 154 225  
  S. 122 Payments 180 160  
  Health Safety Net Trust (Pool) 147 63  
Medical Assistance Trust Fund 501 251  
Essential Community Provider Trust Fund 28 28  
State Retiree Benefit Trust Fund 360 382  
RMV Revenues to the Transportation Improvement Fund - 6  
Subtotal of Consolidated Transfers: 1,988 1,984  
Spending Through Statutory Transfers:
Pensions 1,399 1,465  
MBTA 756 768  
SBA 635 702  
Subtotal of Statutory Transfers: 2,789 2,935  
Grand Total of Spending: 31,982 32,994 3.16%

Fiscal Year 2009 Budget Solutions

The fiscal year 2009 budget authorizes spending of $28.165 billion, an increase of 5.1% over the fiscal year 2008 General Appropriations Act. Factoring in additional spending now authorized in fiscal year 2008 through supplemental appropriations and prior appropriations continued, the Governor's budget recommendation reflects growth of 3.5% over the current projected spending level for fiscal year 2008.

The Governor's fiscal year 2009 budget proposal relies on a balanced set of solutions to close the projected shortfall described earlier. The Governor's budget recommendations are balanced and transparent. The Administration restrained spending through a variety of initiatives that resulted in gross reductions of $479 million ($344 million net) or almost 2% of state spending. This combined with revenue initiatives, spending controls, reforming the Stabilization Fund deposit, and a rational approach to the use of reserves combined to close a $1.3 billion gap.

In addition to these solutions, the budget holds nearly 190 line-items to zero growth in spending for fiscal year 2009. Base spending for these items total almost $1.5 billion in fiscal year 2009.

Pie chart displaying the variety of solutions used to balance the budget, detailed in the final table.  Categories include Spending and Revenue Solutions, Casino Revenues, Stabilization Use and Reforming the Stabilization Deposit.

The Solutions (millions)
  The Solutions millions
A. Spending Controls and Reductions  
  Elimination of Earmarks $ (40)
  State Employee Health Care Contributions $ (51)
  Constrained growth in agency & program spending $ (84)
B. Medicaid Cost Controls and Savings - (Net of Revenue Loss)  
  Value and Cost Based Purchasing Principles $ (105)
  Right Care, Right Setting Efficiencies $ (26)
  Efficient Drug Utilization $ (10)
  Administrative Savings $ (29)
  Subtotal of Spending Controls and Reductions ($479M Gross Savings) $ (344)
C. Enhanced Revenue Collection and Enforcement Efforts $ (166)
D. Recommendations Of the Study Commission on Corporate Taxes $ (297)
E. Casino Revenues Used to Cover the Lottery Shortfall $ (124)
F. Stabilization Use - In Accordance with Administrations Proposed Policy $ (369)
G. Reforming the Stabilization Fund Deposit $ (100)
  Total Solutions: $ (1,399)
Note: Total savings cover the budget gap along with limited targeted investments

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