Michigan League for Human Services
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1 Michigan League for Human Services March 11, 2003 FISCAL YEAR EXECUTIVE BUDGET RELEASED Spending and Revenue Enhancements Address Large Deficit The much anticipated Fiscal Year Executive Budget was released on March 6 th and addresses what has been termed the largest deficit in recent history. The budget, which is the first presented by Governor Jennifer Granholm, totals $38.6 billion, with $8.6 billion in General Fund (GF) spending and $11.2 billion in spending from the School Aid Fund. In order to address a projected GF deficit of $1.7 billion and a SAF shortfall of $365 million, the budget proposes a combination of spending reductions and revenue enhancements. The recommended budget includes $937 million in spending reductions, with the largest amount falling in the category of Administrative Savings ($217 million), including hoped for employee concessions. Other major spending reductions include: 6.5 percent cut in spending for higher education, 3 percent reduction in revenue sharing on top of already frozen payments, and 50 percent reduction in arts funding. In addition, the budget assumes $174 million in Medicaid savings, achieved largely through a federal waiver that would restructure the state s Medicaid program coverage for adults. Michigan Merit Award Scholarships are recommended to be reduced from $2,500 to $500, with funding redirected to cover healthrelated costs. Education 39% Community Health 24% Total Expenditures Fiscal Year 2004 Family Independence Agency 10% General Government 6% Jobs & Opportunity 3% Public Protection 6% Resource Management 2% Transportation 8% Capital Outlay 2% Although some spending reductions were recommended for the state s human services departments, health and social services programs were largely spared in the Governor s budget, reflecting her priority on services for children, the disabled, and the elderly. Revenue enhancements totaling $403 million are also included in the Governor s budget. New revenue includes a series of tax loophole closures primarily affecting out-of state residents and businesses, increases in various fees 1115 South Pennsylvania Avenue, Suite 202, Lansing, MI (517) Fax: (517) Web site: A United Way Agency
2 Page 2 March 2003 Michigan League for Human Services and fines and a 4 cents per gallon increase in the diesel fuel tax. In recommending the closure of certain tax loopholes, the Governor s budget would: tax nonresident casino winnings and available business income of out-of-state residents, close loopholes created by manipulating filing status under the state s Single Business Tax, eliminate out-of-state business tax shelters, eliminate unintended tax exemptions that result from overly broad statutory exclusions, and reverse the tax penalty provisions of the 2002 tax amnesty program. An additional $125.5 million would be generated as a result of recommended increases in various fees and fines. The budgeted increases, which are spread among numerous departments, include drivers license and chauffeur license fees, daily and annual state park permits, various licensing fees, civil filing fees, and hospital, nursing home and pharmacist Quality Assurance Assessment Program fees. Spending $937 A Mix of Budget Solutions Solve FY 2004 Problem (in millions) School Aid Fund Subsidy $198 Revenue Enhancements $403 Corrections Policy Changes $122 Refinance School Bond Loan $40 Other solutions to resolving the projected deficit include refinancing of the school bond loan, corrections policy changes and elimination of the GF subsidy of the School Aid Fund, all totaling $360 million. Family Independence Agency (FIA) The Governor s Executive Budget recommends total FIA funding of $3.9 billion, of which $1.1 billion is GF. The following significant changes were reflected in the proposed budget for FIA: Increased funding ($1.90 million) for the State Disability Assistance program in association with a caseload of 8,400. Additional funding ($12.73 million) to improve Food Stamp Program accuracy and reduce related federal penalties. Additional authorizations ($35.51 million) to permit the expenditure of federal Low Income Energy and Weatherization funding if it is allocated by the federal government. A 15 percent reduction ($0.95 million) in emergency burial rates. A reduction ($4.40 million) related to limiting the maximum payment for day care to 100 hours per child per pay period. A reduction ($20.57 million) in Child Support Enforcement base funding in recognition of statewide implementation. Termination of the Transitional Work Support program ($5.0 million). (A Medicaid Waiver will be sought to provide coverage for these families.)
3 Michigan League for Human Services March Page 3 Submission of a federal TANF claim for community-based services funded from the Child Care Fund resulting in an $18.70 million GF. Sharing of a portion of GF savings ($12.50 million) from the Child Care Fund with participating counties through an increase in the reimbursement for alternatives to out-of-home placement from 50 percent to 75 percent. Counties would have the option of funding the Before and After School, Teen Parent Counseling, Family Preservation and Prevention, Fatherhood and Marriage and Enhanced Kinship Care Pilot project programs from the Child Care Fund if they are able to provide the 25 percent match. Limit adoption subsidy payments to adoptees under the age of 19, rather than age 21. ($3.61 million savings) Modification of foster care administrative rates to make them more uniform. ($0.45 million savings) Reduction of information technology related funding. ($7.86 million savings) Other Comments The Executive Budget assumes an average monthly Family Independence Program (FIP) caseload of 69,500 for FY The January 2003 FIP caseload was 72,463 and the current upward trend appears to have some momentum. While the summer months have typically seen lower caseloads, the current soft economy could result in an average FY 2004 FIP caseload several thousand cases higher than recognized in the Executive Budget. The Executive Budget also assumes approximately $20 million will not be appropriated in relation to the three percent salary adjustment scheduled for 10/1/2003 for more than 10,000 FIA employees. The Governor indicated that discussions with the unions representing state employees regarding wage and benefit concessions are currently underway. A comparable savings has been assumed in the other state departments. The Department of Community Health (DCH) The Governor s budget recommends total funding of $9.1 billion, of which $2.6 billion is GF. The largest portion of spending in the DCH budget is for Medicaid services. In order to reduce costs in the Medicaid budget the Governor is proposing a Medicaid Adult Benefits Waiver that would constrain medical benefits to some current recipients, but would avoid the necessity of Medicaid provider rate cuts or elimination of Medicaid eligibility for certain populations. Under the Waiver children would retain full Medicaid coverage. Chiropractic and podiatry services would be eliminated for aged and disabled adults, and dental coverage would be limited to emergencies, but otherwise their coverage would remain the same. Non-disabled adults, primarily parents with incomes up to 50 percent of the poverty level would also continue to receive Medicaid services, although inpatient hospital benefits will be limited, chiropractic and podiatry services would be eliminated and dental services for this group would also be limited to emergencies. The nearly 40,000 caretaker relatives who were to lose coverage under Governor Engler s December Executive Order would receive limited ambulatory and hospital benefits, and childless adults would receive bare bones coverage similar to what is currently available through the State Medical Program. Neither of the latter two groups would be eligible for dental services. The Governor s budget proposes to use approximately $300 million in unspent SCHIP funds for services provided through the waiver. These funds would require a significantly lower state match than federal Medicaid funds and as a result it is anticipated that the Waiver would reduce the state s Medicaid costs by nearly $110 million in Fiscal Year
4 Page 4 March 2003 Michigan League for Human Services Other Medicaid changes include: New GF resources for the Medicaid mental health program totaling $18.3 million and a $23 million Medicaid rate increase (1.6 percent) for community mental health Medicaid providers. Additional funding for the Elder Prescription Insurance Coverage Program (EPIC) through a Pharmacy Plus waiver, increasing funding from $30 million to $68 million and increasing the number of low-income seniors served by the program from 15,000 to 42,000. Expansion of family planning services for low-income women not currently eligible for Medicaid. Covered family planning services would include contraceptives, physician visits for health history and gynecological exams, as well as some testing for sexually transmitted diseases. Restructuring of the state s tobacco settlement revenues from 25 percent of these revenues supporting health care, to 66 percent of the total annual award. Department of Career Development (DCD) Recommended funding for the DCD is $466.9 million total, of which $24.7 is GF. Forty-four percent of the department s funding is allocated to Workforce Development services, including Work First services and Welfare-to- Work programs. Funding for these services are recommended at continuation levels. Funding for Michigan Rehabilitation Services and the Michigan Community Service Commission are also recommended at continuation levels. Changes to the DCD budget include: a 1.8 percent increase, or $909,600 over current funding levels for the Employment Service Agency, which is responsible for the state s employment service and labor market information programs. a reduction from $2 million to $1 million in Tobacco Settlement Trust Fund revenues to the Council of Michigan Foundations, with a recommendation that the funds be used solely on tobacco cessation programs, and elimination of funding for pre-college programs in engineering and the sciences college exposure and enrichment services for youth in two areas of the state with anticipated savings of $900,000. Department of Consumer and Industry Services (CIS) The Governor s recommendations for CIS total $466.9 million, of which $24.7 million is GF. The following significant changes were recommended in the CIS budget proposal: A 41 percent ($43.7 million) increase in the federally funded Michigan State Housing Development Authority (MSHDA) program to create and preserve decent, affordable housing for low- and moderate-income Michigan residents. A 3.9 percent ($6.1 million) reduction in funding for the operation of the Public Service Commission, the Office of Financial Services, the Liquor Control Commission, and the Bureau of Regulatory Services, which licenses and inspects adult and children s foster care facilities and child care providers. (Approximately $1.0 million of the $6.1 million reduction relates to Executive Order ) Merger of the Office of Fire Safety and the Bureau of Construction Code for a savings of $665,200.
5 Michigan League for Human Services March Page 5 Elimination of the Appellate Commission with functions assumed elsewhere in the Bureau of Worker s and Unemployment Compensation for a savings of $284,500. The institution of various corporate, securities, licensing and regulation fees which are expected to offset $10.8 million in general fund revenues. (It is noted that legislation will be required to enact most of the recommended fees.) K-12 School Aid Budget The Governor s Executive Budget recommends total School Aid funding of $12.4 billion, of which $11.2 billion is GF. The following significant changes were reflected in the budget proposal for K-12 programs: Restore the basic foundation allowance which was reduced in FY 2003 to full funding at $6,700 per pupil. Maintain funding for at-risk children at $314.2 million and expand allowable uses to include before and after school programs. Add $3.3 million to provide early childhood school readiness and parenting skills programs to be administered by the intermediate school districts. Add $17.7 million to fund renaissance zone reimbursement. Add $2.0 million to fund the educational costs of court-placed children. Issue school refinancing bonds and deposit $100 million savings in the School Aid Fund. The Executive Budget also recommended refinancing Durant bonds thereby reducing School Aid Fund costs by $40 million. Replace the $198.6 million School Aid general fund subsidy with funds from a revenue sharing reserve account per P.A. 679 of Amend the pupil membership formula to aid school districts with declining enrollments and save the School Aid Fund approximately $40 million. Institute new lottery games intended to secure an additional $50 million for the School Aid Fund. Reduce adult education funding by $57.5 million to $20 million. Eliminate funding for: Career Preparation Programs ($22.2 million) Partnership for Adult Learning (PAL) ($20.0 million) Math and Science Centers ($10.2 million) Gifted and Talented Programs ($5.0 million) Golden Apple and Other programs ($11.4 million)
6 Page 6 March 2003 Michigan League for Human Services Higher Education The Governor s recommendations for Higher Education total $2.5 billion, all but $83 million of which is GF. The following significant changes were reflected in the Executive Budget for Community Colleges and Universities: Reduce funding for Michigan s community colleges and universities by an additional 6.5 percent ($ million). Together with the 3.5 percent reduction in Executive Order , this would bring the cumulative reduction to 10 percent of the enacted FY Higher Education Budget. Creation of the needs based Michigan Opportunity Scholarships at a cost of $112.4 million. Funding for this program would come from savings achieved through the elimination of the current State Competitive Scholarship, Tuition Grants, Michigan Work Study, Part-Time Independent Student, and Michigan Education Opportunity Grants programs. Students currently receiving State Competitive Scholarship and Tuition Grant awards will have their awards continued under the new program if they continue to meet the original eligibility criteria. Elimination of the Postsecondary Access Student Scholarship (PASS) program in the Community Colleges Budget. Funding for the Tuition Incentive Program (TIP) is recommended to be increased by 76 percent ($4.0 million) in response to growth in TIP participation and costs. However, the Executive Budget recommends discontinuation of new enrollments in the TIP program in anticipation of merging it with the Great Lakes, Great Hopes Scholarship fund being proposed by the Governor. Any student previously notified will continue to be eligible under TIP. Reduction of the Michigan Merit Award Scholarship, funded with Tobacco Settlement revenues, by 80 percent from the current $2,500 to $500 for students graduating from high school after Students graduating from high school prior to 2004 can claim any remaining award for which they are eligible by September 15, Elimination of $6.9 million in funding for general and allied health degree reimbursement programs at private colleges and universities. 6.5 percent reductions for the following grants and programs are also recommended: Martin Luther King, Jr. Caeser Chavez Rosa Parks program grants intended to encourage participation of minority students in postsecondary education. Michigan State University Agricultural Experiment Station. Michigan State University Cooperative Extension Service. Continuation funding at $4.0 million for the Nursing Scholarship program. Department of Education (DOE) The Governor s recommendations for the Department of Education total $112.8 million, of which $29.4 million is GF. The following significant changes are reflected in the Executive Budget proposal for the DOE: A 33 percent ($2.6 million) increase in funding for the School Breakfast Program.
7 Michigan League for Human Services March Page 7 A 9.3 percent ($2.1 million) reduction in Kindergarten through 3 rd grade reading programs for children not reading at grade level due to reductions in federal grant administration and early retirement savings. Federal grants to schools and related administrative funds totaling $102.0 million have been removed from the Department of Education Budget due to the phasing out of programs by the federal government. Ongoing federal grants to school districts totaling more than $1.2 billion are now appropriated in the School Aid Budget. A reduction of $2.0 million was reflected in association with the elimination of the Motorcycle Safety Education Program and the Off-Road Vehicle Safety Education Program. Department of Corrections The Governor s budget recommends an increase of less than 1 percent for the Department of Corrections and the Governor proposes to keep costs in line through new criminal justice policies. The Governor has proposed a new Conditional Reintegration Program under which carefully screened low-risk inmates could be housed in corrections centers or on electronic tethers in the community immediately prior to parole. The program is expected to eliminate the need for over 1,375 prison beds and save over $19 million in Fiscal Year In addition, it is recommended that the department partner with local governments to develop and use cost effective community-based sanctions for low-level offenders. Further, the Governor s budget proposes to increase the use of community-based sanctions for technical parole violators and provides funding for local programs to provide control and treatment options for parole violators and other low-level offenders who would otherwise be sent to prison. The budget recommends one-time funding for enhanced counseling and training for probationers and parolees. Increased funding for drug courts would help treat substance abuse offenders locally and would provide alternatives to costly prison beds. EXECUTIVE ORDER SUMMARY Executive Order , Governor Granholm s first Executive Order, was presented to the House and Senate Appropriations Committee on February 19 th to address an additional $158 million shortfall in current-year General Fund revenues. Departmental highlights of the Executive Order, which was immediately approved, are outlined below. Family Independence Agency While Executive Order does not specify state employee layoffs, it does assume significant savings related to vacant positions which had been scheduled to be filled. In FIA, for example, the Executive Order identifies approximately $5 million in general fund/general purpose savings related to staffing. To realize this level of savings, FIA will need to leave approximately 200 positions vacant for the full year. Given rising caseloads, recent data suggesting a dramatic increase in the number of applications for assistance not being processed within the department s Standard of Promptness, and the potential for increased food stamp error rates and related federal fiscal penalties, leaving FIA staff positions unfilled may further erode client services and result in federally mandated expenditures to reduce resulting errors. If additional corrective actions are required, their cost would offset at least a portion of budgeted savings. FIA reductions include:
8 Page 8 March 2003 Michigan League for Human Services Family Independence Agency 1. Salary and Fringe Benefits $4,979, Family Preservation and Prevention Services (5% Reduction/TANF) 3,133, Information Technology Operation and Development 1,833, Employment and Training Support Services (GF and TANF) 787, Contracted Services, Supplies and Materials 674, Day Care Before and After School Pilots (5% Reduction/TANF) 500, Staff Travel and Training 343, Foster Care Payments 300, Teenage Parent Counseling (5% Reduction/TANF) 208, Juvenile Justice Operations 171, Legal Support Contracts 153, Youth in Transition Program 149, Wages and Employment Verification Reporting 100, Demonstration Projects 58, Domestic Violence Prevention and Treatment 50, Adoption Support Services (5% Reduction/TANF) 25, Commission for the Blind 7,100 TOTAL REDUCTIONS $13,475,200 In addition, the Executive Order reflected a savings of $17.3 million in association with the replacement of state general fund with TANF in support of Juvenile Justice Child Care Fund service costs. (This decision reflects a fund source shift and not a program reduction.) Also impacting FIA was a $280,900 reduction in the Capital Outlay budget associated with facility maintenance and remodeling. Department of Community Health 1. Pharmaceutical Services $10,000, Medical Services Administration (staffing, equipment, etc.) 2,153, Worker s Compensation Program 1,362, Information Technology Operations and Development 874, Prenatal Care Outreach 625, Children s Special Health Care Services 350, Community Services (senior citizens in-home care) 225, Certificate of Need Programs 222, Case Management Services 150, Mental Health/Substance Abuse Program Administration 150, Palliative and Hospice Care 136, Senior Volunteer Services 115, Sudden Infant Death Syndrome Program 100, Laboratory Services 81, Family Planning Local Agreements 79, Mental Health Initiatives for Older Persons 58, Obesity Program 53, Primary Care Services (physicians) 50, Protection and Advocacy Services Support 40, Michigan Essential Health Care Provider Program 28,700
9 Michigan League for Human Services March Page Sexually Transmitted Disease Control Local Agreement 23, Conveyor Contract 22, Senior Citizens Center Staffing and Equipment 21, Community Mental Health Services Program (service contracts) 18, Dental Programs 12,500 TOTAL REDUCTIONS $16,957,281 In addition, the Executive Order reflected a savings of $255,400 in the Capital Outlay budget associated with DCH facility maintenance and remodeling. Department of Consumer and Industry Services 1. Adult Foster Care, Children s Welfare and Day Care Licensure $955, Office of Fire Safety 665, Bureau of Hearings 175, Employment Standards Enforcement 172, Information Technology Operation and Development 79, Administrative Services 40, Policy Development 35, Health Systems Administration 18, Emergency Medical Services Grants and Contracts 15, Manufactured Housing and Land Resources Program 10, Occupational Safety and Health 5, Employment and Labor Relations 3, Tax Tribunal Operations 1,100 TOTAL REDUCTIONS $2,176,436 In a transfer package approved by the Senate in conjunction with Executive Order , $665,200 is recommended for transfer from state restricted contingency funds to replace the general fund authorization removed from the Office of Fire Safety line-item above. Department of Education 1. State Board/Superintendent Operations $565, School Excellence Operations 181, Field Services Operations 114, Unclassified Positions 59, Central Support 45, Information Technology Operations 44, Worker s Compensation 25, Education Options Operations 22, Administrative Law Operations 21, State School Operations 3, Government Services Operations 1,000 TOTAL REDUCTIONS $1,084,184
10 Page 10 March 2003 Michigan League for Human Services In a transfer package approved by the Senate in conjunction with Executive Order , $666,800 of the above reductions primarily related to the State Board/Superintendent Operations and Central Support line-items was recommended for restoration using earnable federal and state restricted contingency funding. Other 1. Higher Education and Community Colleges $30,285, State Police 5,353, Corrections 7,861, Career Development 515, Environmental Quality 3,568, History, Arts and Libraries 1,261, Other State Department 29,542, Life Sciences Corridor Initiative 12,500, Legislative (yet to be acted on) ~ 2,100, Judiciary (yet to be acted on) ~ 1,100,000 The Higher Education reduction in Executive Order represents a 1.5 percent reduction and brings total reductions for FY2003 to 3.5 percent. State agency reductions equate to approximately 1.8 percent of the original FY2003 appropriation and bring total reductions for the year to approximately 5.3 percent.
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