Senator Jack Hill, Chairman. Senate Appropriations Committee

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1 Senator Jack Hill, Chairman Senate Appropriations Committee

2 FY12 Wrap Up Senate Budget and Evaluation Office 2

3 FY2012 Revenues One year ago, at the end of 1 st quarter (July-Sept), Georgia revenues were growing by 7.2% over FY11 By the end of the 2 nd quarter, revenues had fallen off significantly and never really recovered The failure of the last 3 quarters to match the first quarter of FY2012 laid the groundwork for the 3% cuts in FY2013 and FY2014 Senate Budget and Evaluation Office 3

4 $20,000 Tax Revenue Comparison (in millions) $18,000 $17,640 $17,450 $16,000 $14,000 $14,693 $16,366 $15,619 $14,199 $15,310 $16,053 $16,014 $12,000 $10,000 $8,000 $6,000 $4,000 $2,000 $- FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 FY2012 FY2013 Budget Est. Budget Est. (4.4% Senate Budget and Evaluation Office Growth) 4

5 8.0% 7.0% FY12 to FY11 Quarterly Comparison 7.2% 6.0% 5.0% 5.3% 4.8% 4.6% 4.0% 3.0% 3.4% 3.4% 2.0% 1.0% 0.0% Q1 Q2 Q3 Q4 FY12 Over FY11 Final FY12 Revenue Estimate Senate Budget and Evaluation Office 5

6 $160,000 $140,000 $120,000 $100,000 $80,000 FY2012: Were Monthly Revenues Meeting Budget Projections? $84,472 $108,817 $98,484 $138,827 This chart shows cumulative revenue collections compared to the amount needed in a given month in order to make the final budget revenue $98,508 $68,700 $60,000 $40,000 $31,017 $48,545 $38,800 $20,000 $5,524 $9,697 $- $(20,000) $(11,544) YTD Change from "Where We Need to Be to Make Budget" 6

7 FY2013 Senate Budget and Evaluation Office 8

8 $1,900 Monthly Tax Revenue Comparison (in millions) $1,800 $1,700 $1,600 $1,500 $1,400 $1,300 $1,322 $1,318 $1,200 $1,100 $1,000 $900 $800 $700 $600 $500 $400 July August September October November December January February March April May June FY2010 FY2011 FY2012 FY2013 *Only compares revenues collected and reported by the Department of Revenue (primarily tax revenue). Other agency collections, such as insurance premium taxes,are not included. 9

9 $20,000 Tax Revenue Comparison (in millions) $18,000 $16,000 $14,000 $14,693 $16,366 $17,640 $17,450 $15,619 $14,199 $15,310 $16,053 $16,014 $16,845 $12,000 $10,000 $8,000 $6,000 $4,000 $2,000 $- FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 FY2012 FY2013 Budget Est. Budget Est. (4.4% *Only compares revenues collected and reported by the Department of Revenue (primarily tax revenue). Other agency collections, Growth) such as insurance premium taxes, are not included. Senate Budget and Evaluation Office 10

10 Where the FY13 New Money Went (in millions) Employee Benefits (SHBP, Retirement, etc), $231, 22% All Other Adds (Med. Resid., waivers, bonds, etc.), $74, 7% Dedicated Funds (MFT, Lottery), $54, 5% Population Growth and Shortfalls, $575, 55% Job Creation (paid with Mortgage Settlement), $112, 11% Senate Budget and Evaluation Office 11

11 FY2013 Changes by Area Area as % of Total Budget Change from 2012 General Change from 2009 General (in millions of dollars)* 2009 General 2012 General 2013 General PreK-12 Education $8,545 $7,278 $7, % 3% -12% Higher Education $3,157 $2,633 $2, % 4% -14% Medicaid/PeachCare $2,516 $2,661 $2, % 10% 16% Corrections/Public Safety $2,019 $1,795 $1, % 7% -5% Health and Human Services (Mental Health, Foster Care, Labor, etc) $1,694 $1,410 $1, % 3% -14% Bonds $1,010 $1,065 $1, % 6% 11% Transportation $924 $781 $ % 10% -7% General Government (Revenue, Sec of State, Driver Services, etc) ** $408 $379 $ % 1% -6% Natural Resources $311 $217 $ % 9% -24% Economic Development $150 $77 $ % 142% 24% Grand Total $20,734 $18,297 $19, % 6% -9% *Includes all state funds including lottery proceeds and motor fuel funds. ** FY2009 General does not include HTRG funding 12

12 Breakdown of the $36 Billion Budget Agency Funds (Tuition, Research Funds, Park Fees), $5.26, 15% State Funds (Taxes, Lottery, MFT, etc.), $19.34, 54% Federal Funds (Medicaid, Highway, WIC, etc), $11.30, 31% Senate Budget and Evaluation Office 13

13 2013 Amended/2014 General and Beyond 14

14 Issues for FY13 Amended Agency cuts of 3% will cover most of the Medicaid shortfall of $350+ million Mid year adjustment and debt service savings will hopefully cover rest of deficits that arose since passage of FY13 General Budget Need approximately 5% tax growth to cover budget estimate (as of August it is currently only 4.6%) Senate Budget and Evaluation Office 15

15 Issues for FY14 General Known Shortfalls: Medicaid: $400+ million Enrollment Growth in Education/Higher Education: $150 - $200 million Retirement Systems: $100- $200 million Governor s Instructions (All Cuts Taken) Yields: $300 million Unknown Fiscal Impact: Health Care Reform? Federal Budget Reductions Need State Funds? Hospital Provider Fee Renewal 12% Cuts for Hospitals and $150+ million budget deficit if not renewed Employee Health (SHBP) Shortfalls? Senate Budget and Evaluation Office 16

16 Other Topics Senate Budget and Evaluation Office 17

17 Volker-Ravitch State Budget Crisis Task Force Paul Volker (former Fed Reserve Chairman) and Richard Ravitch (former Lt. Gov of NY) chaired a task force to look at challenges facing state budgets. The released 6 concerns for all states: 1. Medicaid Spending Crowding Out Other Needs 2. Federal Deficit Reductions Impact on States 3. Underfunded Retirements 4. Eroding and Volatile Tax Bases 5. Local Govt Issues Impact State Finances 6. State Budget Laws and Practices Hinder Stability and Masks Imbalances 18

18 Population Trends in Cost Driver Areas % Change Georgia Population 9,544,750 9,687,653 1% Education K-12 FTEs 1,627,660 1,650,981 1% Regents FTEs 235, ,109 17% TCSG FTEs 73, ,629 46% Health Medicaid/PeachCare Enrollees 1,520,750 1,696,839 12% Corrections Inmates and Probationers 208, ,756 4% Since the recession began in 2008, areas such as Higher Ed and Medicaid have seen significant growth. Senate Budget and Evaluation Office 19

19 All State Employee Trends FY2008 FY2011 Change State Employees 82,080 71, % Teachers 118, , % Non-Certs (Bus Drivers, Cafeteria, Admin) 56,625 55, % Regents Faculty and Staff 40,209 42, % Total 297, , % Senate Budget and Evaluation Office 20

20 Hospital Provider Fee Explanation Hospitals pay 1.45% of revenues to the state as a fee (~$230 million) Hospitals (primarily Medicaid providers) receive a 12% higher reimbursement rate (~$250 million) MEDICAID ($680 million) Fed matches Hospital Fee with federal dollars at a 35%/65% statefederal split (~$450 million) State uses the drawn down federal dollars to cover expenses/enrollme nt and prevent a rate cut of over 10% (~$430 million) Senate Budget and Evaluation Office 21

21 Hospital Provider Fee Issues In 2010, Georgia faced a $600+ million Medicaid deficit. Governor Perdue proposed 3 options to solve: Cut Medicaid provider reimbursements by 10.5% and remove sales tax exemption on non-profit hospitals Cut provider reimbursements by 16.5% Implement a hospital provider fee and increase hospital reimbursements by 12% (Chosen in the end) The fee is set to sunset on June 30, Impact if not renewed: Hospitals lose the 12% reimbursement increase cited above. Hospitals in Georgia are struggling to stay open. State will need to add $150 million to Medicaid to draw down enough federal funds to cover the resulting gap. Medicaid currently faces a $400 million deficit. 22

22 Hospital Provider Fee Issues Hospital Provider Fee increase was offset by State Ad Valorem phase out and Senior Income Tax Exemption (Capped at $65,000 in 2012) 23

23 The Fiscal Cliff The federal Budget Control Act of 2011 mandated $1.2 trillion in savings (Over 10 years) Most mandatory programs and a few discretionary programs are exempt. All other programs are subject to sequestration (withholding of appropriation by the US Treasury). Those programs sequestration will take an average cut of 10% of FY2011 grants Exact amounts not known until January 2013 but estimated at $220 million for GA Top 10 Federal Grants in the State Budget Subject to Withholding/ Sequestration FY2011 Budgeted Federal Fund Name Receipts Medical Assistance Program CFDA $5,757,705,745 Exempt Federal Highway Admin.-Planning & Construction CFDA $1,298,393,170 Sequestered National School Lunch Program CFDA $680,252,887 Exempt Grant to Local Educational Agencies CFDA $577,374,238 Sequestered Temporary Assistance for Needy Families $432,550,863 Exempt Special Education Grants to States CFDA $427,773,620 Sequestered Supplemental Nutrition -Women Infants & Children CFDA $295,095,769 Sequestered State Children's Insurance Program CFDA $246,587,299 Exempt Child Care & Development Block Grant CFDA $136,340,196 Sequestered CCDF Mandatory & Matching Funds CFDA $108,432,924 Sequestered Senate Budget and Evaluation Office 24

24 Federal Cuts Impact More Than Budget Federal reductions will impact the state economy. Federal spending in Georgia in FFY2009: Grants to State, Locals, Non-Profits Social Security Other Retirement and Disability Medicare Food Stamps and Unemployment Insurance Procurement Contracts (incl. military) Federal Employee Salaries (incl. military) Other FFY2009 Federal Spending in Georgia 25 $19 billion $16 billion $10 billion $10 billion $4 billion $11 billion $14 billion $5 billion $87 billion Regardless of how you feel about the role of government, reductions will impact the state economy!

25 35 Revenue Shortfall Reserve (RSR): Days of State Operations Available Senate Budget and Evaluation Office 26

26 Bond Raters: GA is Strong But Must Be Cautious Currently Georgia, along with 8 other states, enjoys the highest bond rating (Triple AAA). The bond rating agencies cited the following strengths and possible weaknesses. Strengths Conservative fiscal management and prompt expenditure cuts when revenues decline (S&P, Fitch, Moody) History of rapid reserve (RSR) building after recessions (S&P, Fitch, Moody) Economy positioned to recover in medium term (S&P, Fitch) Pensions are well funded (Fitch, Moody) What Could Cause a Downgrade RSR is very low (Moody) Revenue estimate assumes a higher rate of growth than forecast and may require the use of the RSR if it does not materialize (S&P) Economy and revenues are weak (Moody) Not addressing OPEB liability (Moody) Substantial deterioration of pension funded status (Moody) Relying on one-time fund sources (Moody) Bond Raters assume $800 million in new principal each year as an equivalent amount of old bonds are paid off. Senate Budget and Evaluation Office 27

27 Reasons to Be Optimistic Triple A Bond Rating Retirement Systems Better than Most States Growth of Ports and Atlanta Airports Investments Expanding Georgia has strong university system and research capacity. This will yield high paying jobs Senate Budget and Evaluation Office 28

28 Addendum Senate Budget and Evaluation Office 29