Budget Overview Legislative Perspective Legislative Briefing 11/19/2014. Stephen Klein Legislative Joint Fiscal Office

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1 Budget Overview Legislative Perspective Legislative Briefing 11/19/2014 Stephen Klein Legislative Joint Fiscal Office 1

2 Basic Budget Dynamics Total was $4.4B in FY09 now to $5.5B in FY15 Average annual growth 3.2% since FY09 GF is 26% of total-gf growth has averaged 5.5% since FY09 With rescission FY 2015 GF growth 2.35% Health Care Funds are 6% of total(up from 3.4% in FY09) Federal funds now 36% of total (up from 33% in FY 09). Base FF growth has averaged 3.7% since FY09 EF local spending decisions state fund pressure state contribution 32% TF The needs of the system continue to grow constant revenue challenge with potential of federal funds declining federal fund reauthorization in April? Gross State Product 5 year avg. growth 2.3% 4% in 15) 2

3 FY15 Total Appropriations By Fund $5.47B (includes Aug'14 rescission) General Fund 25.9% Federal Funds 35.8% Net Education Property Taxes Transportation Fund & TIB 5.1% Healthcare funds 5.6% Special funds 5.3% Dedicated Taxes Education Fund 22.3% 3

4 FY15 Budget w/ Rescission All Funds Appropriations = $5.47B Gen'l Gov't 1.8% Labor/ACCD/VHCB/NextG en 1.9% Children & Families 5.5% K-12 Ed 32.0% Medicaid+ 29.1% 0.0% Debt Service 1.3% Higher Ed 1.5% All Other Appropriations 5.1% Protection (All) 5.2% Corrections 2.6% Natural Resources 1.9% Transportation 12.1% 4

5 FY15 State Funds (Excludes Fed$s and Ed Property Taxes) Appropriations = $2.48B (Note: Does not include tax expenditures) Gen'l Gov't 3.9% Labor/ACCD/VHCB/NextG en 1.9% Children & Families 6.4% K-12 Ed 23.8% 0.0% Debt Service 2.8% Medicaid+ 26.2% Higher Ed 3.4% Natural Resources 3.3% All Other Appropriations 3.3% Protection (All) 9.2% Corrections 5.7% Transportation 10.2% 5

6 FY15 General Funds Appropriations = $1.4B Gen'l Gov't 5.2% Labor/ACCD/VHCB/NextG en 1.3% Children & Families 8.6% K-12 Ed 27.2% Medicaid+ 23.0% 0.0% Debt Service 4.6% Higher Ed 5.9% All Other Appropriations 3.8% Protection (All) 8.8% Corrections 9.6% Tran 0.0% Natural Resources 1.9% 6

7 1,800.0 Out Year GF Budget Picture July 2014 Revenue Forecast FY15 Budget - 3.3% Avg. Annual Growth Rate in FY17-FY19 1, , , , , , ,100.0 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 GF Total Revenue Total GF Uses Total GF +ARRA 7

8 FY 2015 Spending and Revenue Issues Total GF 1.42b Education Fund $296M Medicaid $326M Corrections $135M Higher Ed $84 M Teachers Retirement/OPEB [23% 5yr Growth] $81 M Debt Service Subtotal $65 M $988 M 69% of GF Notes Revenue Tracking for first four months of the year off by $11.9 million. Income tax and estate tax below expectations. Revenue downgrade and additional FY 2015 reductions in spending likely. Tax expenditures: statutory provisions which reduce the amount of revenue that would otherwise be collected to encourage a particular activity or to limit the amount of taxes collected from groups of individuals. Tax expenditures have essentially the same fiscal effects as direct government appropriations. Tax expenditures are all exemptions, exclusions, deductions, credits, preferential rates or deferral of liability applicable to the state s tax sources. Calculation methodology is changing. We will include them in January presentations. 8

9 FY 2016 Budget and Finance Issues Balancing Budget projected $99.5m gap Continued federal uncertainty: Transportation, other Health Care Reform Education Finance Clean Water Others? 9

10 Reserve Issues FY15 General Fund Reserves Actual Stabilization Reserve $69.3m (5% of Appropriations) Rainy Day Fund $4.39m (.3%) (May be used in Budget Adj.) National studies for a state with Vermont s progressive tax structure point to reserve needs of over 10% FY 2015 Transportation Reserves $12.6m (5% of prior year appropriations) FY 2015 Education Fund $31.3 million (5% of prior year net appropriation) Special Funds - Limited reserves in state special funds Vermont has also borrowed against cash flow for several policy initiatives (Retiree health care, Investment funds) 10

11 Retirement Funding State Employees Slight improvement in funded ratio: FY % FY % Actuarial Value FY % (Market Value) State Teachers FY 2013 is before implementing funding changes to Teacher s retiree health care. This delays improvement in funded ratio: FY % FY % Actuarial Value FY % (Market Value) The Government Accounting Standards Board (GASB) #67 requires a market value report for comparison purposes, however this measure can be volatile. 11

12 CBO, 8/27 12

13 CBO 9/15 Number of Americans over 65: 45 million today, 61 million in 2024 Federal Health Care Subsides: 4.9% GDP in 2014, 5.9% in 2024 With rising interest rates, federal debt interest payments likely to grow from 1.3% of GDP 2014 to 3% GDP in 2024 There are limits set on annual funding for defense and nondefense activities (highways, elementary & secondary education, housing, veterans health care, Etc). Federal spending apart from Social Security, major health care programs, and net interest is 9.3% of GDP in 2014, 7.3 % of GDP in

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