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Impact of the FY 2009 Budget Rescissions Presentation Prepared for the Appropriations Committee by the Office of Policy and Management. July 9, 2008. INTRODUCTION. INTRODUCTION.

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Impact of the FY 2009 Budget RescissionsPresentation Prepared for the Appropriations Committee by the Office of Policy and Management

July 9, 2008



Introduction1
INTRODUCTION

  • The FY 2009 budget that was adopted during the June 2007 Special Session was based on revenue projections that exceeded expenditures by less than $100,000

  • In the past six months, the State has experienced a significant decline in revenue in both the General Fund and Special Transportation Fund, resulting in a current FY 2008 General Fund estimated deficit of $19.7 million

  • Calculation of the projected $150.0 million General Fund FY 2009 deficit:

    • $170.4 million in revenue deterioration

    • $10.0 million in additional expenditures with the passage of PA 08-51- Criminal Justice Reform Bill

    • Offset by $30.0 million increase in projected lapses-including debt service and fringe benefit savings


Introduction2
INTRODUCTION

  • Per C.G.S. 4-85-The Governor may modify allotments if estimated budget resources are determined to be insufficient to finance all appropriations

  • Allotment modifications

    • Cannot exceed 5.0% in any one account

    • Cannot exceed 3.0% of any one fund

    • Cannot reduce funds appropriated for Grants to Towns

  • Rescissions Amount % of Fund

    • General Fund $139.1 million 0.82%

    • Transportation Fund $ 18.8 million 1.63%

    • All Other Funds $ 1.8 million 0.98%

    • Total $159.7 million 0.87%


Rescissions are essential at this time due to
RESCISSIONS ARE ESSENTIAL AT THIS TIME DUE TO:

  • Deteriorating economic conditions

  • Significant declines in the State’s projected collection of revenues

  • The lack of mid-term adjustments to address the expenditure deficiencies projected in FY 2009

  • The lead-time agencies need to adjust expenditures to achieve the required savings



States facing budget shortfalls in fy 2009
STATES FACING BUDGET SHORTFALLS IN FY 2009

  • 29 States have identified budget shortfalls in FY 2009 of at least $48 billion

  • All 6 New England states as well as New York and New Jersey have identified a FY 2009 budget gap

  • California has the largest projected gap at $22.2 billion or 21.3% of its FY 2008 General Fund

Neighboring States with a FY 2009 Budget Gap

Source: Center on Budget and Policy Priorities, as of June 30, 2008


Personal income growth is slowing
PERSONAL INCOME GROWTH IS SLOWING

  • CT’s expected personal income growth is down from last year’s forecast, especially in 2008-09

  • Personal income growth in CT expected to lag the nation

Source: Moody’s Economy.com as of June 25, 2007 and June 30, 2008


The housing market continues to slow
THE HOUSING MARKET CONTINUES TO SLOW

  • Housing starts in CT have changed dramatically from last year, including a negative swing of 38.3 percentage points for 2007-08

  • According to the Warren Group:

    • Median sale price of a single family home in CT fell nearly 10% in April compared to April 2007

    • The number of home sales in CT declined 27% from April 2006

Source: Moody’s Economy.com as of June 25, 2007 and June 30, 2008



Declining revenue results in projected fy 2008 deficit
DECLINING REVENUE RESULTS IN PROJECTED FY 2008 DEFICIT

Estimated FY 2008 General Fund Surplus/(Deficit)

(In Millions)

  • FY 2008 revenue projections have been revised downward by $289.9 million since February

  • As of June 20, 2008 OPM is projecting the general fund to have a deficit of $19.7 million, down from a surplus estimate of $263.2 million in January

  • As of July 1, 2008 the State Comptroller has projected an even larger deficit of $42.9 million


Negative revenue trends seen
NEGATIVE REVENUE TRENDS SEEN

FY 2008 General Fund Revenue

(In Millions)

  • Since the beginning of FY 2008, in eleven revenue streams, projected revenue has fallen by $277.3 million

  • Refunds of Taxes are also $50.2 million higher than originally projected in FY 2008

  • Declining FY 2008 collections will translate into lower FY 2009 revenue


Revenue projections lowered
REVENUE PROJECTIONS LOWERED

FY 2009 General Fund Revenue

(In Millions)

  • Most revenue items are projected to bring in less than the originally adopted revenue forecast

  • Two of the significant positive revenue items are one-time in nature- a timing change in the claiming of Federal Revenue and an anticipated sale of unclaimed property

  • The only other significantly positive revenue trend is the oil companies tax and while it brings in additional revenue, higher oil prices also mean higher state energy costs and higher demand for energy assistance programs in the Dept. of Social Services


Fy 2009 budget areas of concern

FY 2009 BUDGET AREAS OF CONCERN


FY 2009-AREAS OF CONCERN

  • Traditionally, through the first year of the enacted biennial budget, funding deficiencies and revenue changes become evident which require adjustments during the midterm legislative session

  • No agreement was reached this year on necessary revisions due to declining revenue trends and larger deficiencies

  • The result of no midterm adjustments is that budgeted amounts in most instances do not reflect the rising caseload projections and other expenditure increases which will most likely lead to deficiencies in many accounts


Fy 2009 areas of concern
FY 2009-AREAS OF CONCERN

  • Department of Social Services

    • The $150 million shortfall projection for FY 2009 assumes the enacted budget is correct, yet the Governor’s mid-term budget adjustments anticipated that the Medicaid budget would be short by $62 million in FY 2009

      • Major drivers behind the $62 million are cost and caseload related, including HUSKY A, where caseload is expected to grow from 296,484 in July 2007 to 344,000 by the end of FY 2009. HUSKY costs are expected to increase $31 million beyond the enacted budget

    • Costs in long-term care could escalate as DSS continues to assess nursing homes in financial distress due to court ordered receivership or pending bankruptcies

    • Preliminary cost to bring in new providers under the HUSKY managed care re-bid will likely be higher


Fy 2009 areas of concern1
FY 2009-AREAS OF CONCERN

  • Department of Social Services-continued

    • Reporting continues to be problematic as a result of DSS’s transition to a new claims payment system in February 2008, impacting the ability of both OPM and OFA to accurately project expenditures

    • Carry forward of $85 million for FY 2008 Medicaidobligations that did not get paid, including:

      • $36.7 million for provider rates;

      • $25 million in one-time payments to MCO providers due to payment delays as certain plans transitioned out of the HUSKY program; and

      • $18.9 million to cover obligations associated with the Carr dental litigation settlement.


Fy 2009 areas of concern2
FY 2009-AREAS OF CONCERN

  • Department of Education

    • Section 17 of PA 08-170, will result in $7.0 million of unfunded costs to the Magnet School account

    • Special Education Funding had an FY 2008 deficiency of $5.4 million because the grant was uncapped; a potential FY 2009 deficiency of $6.5 million will exist assuming the 8% growth in eligible expenditures that occurred between FY 2007 and FY 2008 reimbursements


Fy 2009 areas of concern3
FY 2009-AREAS OF CONCERN

  • University of Connecticut-Health Center

    • The UCONN Board approved a FY 2009 budget for the Health Center that forecasts an $11.5 million deficit involving the John Dempsey Hospital, the University Medical Group and Research programs

    • The deficit is primarily due to projected losses in the Neonatal Intensive Care Unit (NICU), Psychiatry, High Risk Maternity and OB/Gynecology and Research Programs. For example, the average loss per case in the NICU was about $34,000 in FY 2008

    • Rescissions were not ordered for the UCHC due to the financial challenges that it is facing this year and would only exacerbate the projected deficit


Fy 2009 areas of concern4
FY 2009-AREAS OF CONCERN

  • Juvenile Jurisdiction Implementation

    • Details of modifications to the system including placing staff, expanding courtrooms, and developing community programs specific to the juvenile population, and the associated costs, have not been finalized

  • Criminal Justice Reforms

    • PA 08-1 – An Act Concerning Criminal Justice Reform – funding for this PA was provided through the use of available carry forward funds. The additional costs for changes resulting from increased penalties for those incarcerated have not been quantified

    • PA 08-51 - An Act Concerning Persistent Dangerous Felony Offenders and Providing Additional Resources to the Criminal Justice System – The FY 2009 funding of $10 million was provided outside of the enacted budget and the annualized costs are estimated to be $18.4 million



Impact of fy 2009 rescissions1
IMPACT OF FY 2009 RESCISSIONS

  • Actions taken by the Governor to mitigate the FY 2009 deficit

    • Issued orders to implement the following:

      • Hiring Freeze

      • Out of State Travel Ban

      • Limited Purchases to Items/Services Critical to Agency Missions

    • Implemented a Rescission Plan which globally reduces General Fund allotments by $139.1 million; $26.9 million or 19% is in Personal Services line items

    • Planned PS savings that do not require layoffs, instead relying upon attrition to achieve savings

    • Planned OE savings that do not target those agencies facing current service level deficiencies

    • Planned other savings in a manner that does not reduce payments to private providers serving vulnerable clients


Impact of fy 2009 rescissions2
IMPACT OF FY 2009 RESCISSIONS

  • The Enacted Budget is based upon certain assumptions including the following lapses:

    • Legislative Unallocated Lapse $ 2,700,000

    • Other Unallocated Lapses 87,780,000

    • General Personal Services Reduction 14,000,000

    • General Other Expenses Reduction 11,000,000

    • DoIT Consultant Lapse 2,000,000

      Total Budgeted Lapse $117,480,000


Impact of fy 2009 rescissions3
IMPACT OF FY 2009 RESCISSIONS

  • The Governor’s actions are timely for the following reasons:

    • Reductions are more achievable if full year savings can be counted upon to offset projected shortfalls

    • Reductions implemented later in the year multiply the impact on the affected programs. Planning for a 5% reduction at the start of the year is preferable to what would amount to a comparable 10% impact if implemented in mid-year


Impact of fy 2009 rescissions4
IMPACT OF FY 2009 RESCISSIONS

Summary of Rescissions- All Funds

  • $26.9 million in Personal Services which will be achieved through attrition, not layoffs

  • $14.2 million in Other Expenses which will be difficult in the face of rising energy costs

  • $29.1 million in Debt Service which is achievable as the state is projected to receive premium payments and a reduction in the size of bond issues in FY 2008

  • $36.4 million in State Comptroller-Fringe Benefits which is achievable due to net savings from the recent RFP negotiations


Impact of fy 2009 rescissions5
IMPACT OF FY 2009 RESCISSIONS

  • Private Providers

    • No cuts to providers in DDS, DMHAS, DCF or DOC

    • Rescission to OPM Private Providers account achievable due to over-appropriation for FY 2008 3.0% private provider COLA

      • $39.0 million appropriated; $35.7 million needed to fund 3.0% COLA

      • $3.28 million lapsed in this account in FY 2008 and a like amount will remain unallocated in FY 2009


Impact of fy 2009 rescissions6
IMPACT OF FY 2009 RESCISSIONS

  • Human Services

    • Many of the rescissions are technical in nature, reflecting caseload or cost re-estimates proposed in the Governor’s FY 2009 adjustments and adopted by the Appropriations Committee’s recommended budget in April

    • Technical:

      • SAGA – $5.8 million reduction – pharmacy carve-out savings

      • ConnPACE – $2.8 million reduction – lower Medicare Part D coverage gap (i.e., donut hole) costs

      • TFA – $1.9 million reduction – lower caseloads

      • DCF Board & Care – $967,000 – cost and caseload re-estimate

    • The $2.1 million reduction in the DSS Housing/Homeless Services account is achievable due to delays in spending new Rental Assistance Program funds as units are leased up incrementally over the course of the year

    • A reduction of $2.6 million is also made in DSS related to new initiatives added by the legislature for this biennium.  Due to delayed starts, funds budgeted for FY 2008 will be carried forward into FY 2009 to cover needs for certain programs over the two year period


Impact of fy 2009 rescissions7
IMPACT OF FY 2009 RESCISSIONS

  • Department of Public Health

    • Anticipated minor impact:

      • Needle and Syringe Exchange Program ($24,545). Average impact is less than $5,000 for each of the five programs supported by these funds (Bridgeport, Danbury, Hartford, New Haven and Stamford).

      • Community Services Support for Persons with AIDS ($9,959)

      • Emergency Medical Services Regional Offices ($33,874). Average impact is less than $6,800 for each of the five regional EMS offices

      • Loan Repayment Program ($6,253). May result in a slightly reduced level of support for new loan repayment grants in FY09

    • Start up delays in FY 2008 expected to carry over into FY09, resulting in minimal impact:

      • Fetal and Infant Mortality Review ($15,000)

      • Nursing Student Loan Forgiveness Program ($6,250)


Impact of fy 2009 rescissions8
IMPACT OF FY 2009 RESCISSIONS

  • Department of Public Health - continued

    • AIDS Services ($395,328). State and federal funds for DPH’s efforts to treat and reduce the incidence of HIV/AIDS in Connecticut total nearly $50 million. The state picked up a federal funding reduction in FY 2008 by adding $2.5 million, increasing to $3.1 million in FY 2009. The rescission should not result in a significant impact to DPH’s efforts

    • Community Health Services ($464,238). Contract delays in FY 2008 resulted in a lapse, and a continuing appropriation of $2.5 million is available for FY 2009, making this rescission achievable

    • X-Ray Screening and Tuberculosis Care ($41,038). Expenses in this program fluctuate based on the number of indigent individuals requiring tuberculosis related treatment and care. DPH will monitor expenses in this area and will ensure close coordination with public assistance programs to minimize any impact from this rescission

    • Genetic Diseases Programs ($44,766). DPH retained $800,000 from the fees charged for the Newborn Screening Program in FY08 to offset program expenses and pay for technology upgrades. Federal block grant funds also support this program. No significant impact is expected to result from the rescission


Impact of fy 2009 rescissions9
IMPACT OF FY 2009 RESCISSIONS

  • Department of Labor – Workforce Investment Act (WIA)

    • Federal rules require that states appropriate WIA funds provided by the U.S. DOL. Connecticut’s WIA appropriation is based upon an estimate of the federal award

    • As in past years, the FY 2009 WIA allocation from the federal government is less than the appropriated level

      • Appropriation = $25,895,848

      • Anticipated WIA allocation = $22,957,988

      • The difference of $2,937,860 will lapse in FY 2009, so $1,294,792 of this amount was included in the rescissions. This leaves $1,643,068 in additional WIA lapsing funds

    • Federal WIA funding reductions for FY 2008 total $3,047,981. PA 08-1, JSS (the Deficiency Bill) utilized $2,668,505 to cover deficiencies in other agencies. Sec. 4-89(i), CGS, specifies that any remaining WIA funds will not lapse and will carry forward into FY 2009. These funds are also available to help address potential shortfalls or to mitigate the need for rescissions


Impact of fy 2009 rescissions10
IMPACT OF FY 2009 RESCISSIONS

  • Department of Higher Education

    • No Reductions were made to the major financial aid accounts (CT Independent College Student Grant and CT Aid for Public College Students) as per past rescission practice and in consideration that many awards have already been committed to students by now

    • A $100,000 reduction was made to the Capitol Scholarship Program because it experienced a nearly $300,000 unspent carry forward amount in FY 2008 which facilitates $100,000 savings in FY 2009


Impact of fy 2009 rescissions11
IMPACT OF FY 2009 RESCISSIONS

  • University of Connecticut, Charter Oak State College, Community-Technical Colleges and Connecticut State University System

    • The Block Grants in each of these agencies were reduced by 3%

    • The 3% rescission essentially equates to the regular turnover and Personal Services reductions that other Executive and Judicial Branch agencies manage each year

    • Staff turnover occurs and will now be applied to meet the rescinded amount and the colleges should be able to manage these reductions similarly without raising tuition or fees, or causing layoffs


Impact of fy 2009 rescissions12
IMPACT OF FY 2009 RESCISSIONS

Unrestricted Net Assets

  • These agencies have not been subject to the application of generic Personal Services and Other Expense account savings; as a result their fund balances have increased over time

  • All other Executive and Judicial Branch state agencies have managed these required savings in their budgets


Impact of fy 2009 rescissions13
IMPACT OF FY 2009 RESCISSIONS

  • Judicial Department

    • Rescissions were determined in collaboration with the Judicial Department

    • Rescission decisions carefully considered Judicial’s ability to roll out new programs and services including:

      • Hiring requirements for current and expanded programs

      • Siting issues for new programs

      • A realistic timeframe to expand current contracted programs



STRUCTURAL HOLES

CREATED BY FUNDING EXPENDITURES WITH PRIOR YEAR SURPLUSES

Structural Holes in the Fiscal 2010 Budget – General Fund

(In Millions)

  • Approximately $393.4 M of projected FY 2010 spending will be funded with surplus dollars in FY 2009

  • These spending commitments, without ongoing revenue sources to pay for them, are contributing to our large projected FY 2010 imbalance


General fund
GENERAL FUND

  • According to the Office of Fiscal Analysis, preliminary General Fund estimates indicate large current services budget gaps when compared to current projections of revenue in the out-years

  • These projections do not reflect costs related to other enacted legislation from the 2008 session

  • These projections do not reflect a potential recession, nor have they been adjusted for the slowdown in revenue growth

Source: OFA- February 26, 2008 Analysis of Governor’s Budget Report



Conclusion1
CONCLUSION

  • Economic conditions have deteriorated both nationally and in CT

  • FY 2009 is currently forecasted to be out of balance by $150 million prompting the Governor to make rescissions before the estimated deficit reaches the 1% statutory trigger

  • The adopted budget lacks funding for many critical state funded programs

  • Both OPM and the State Comptroller are projecting deficits in FY 2008


Where do we go from here
WHERE DO WE GO FROM HERE

  • Further modifications may be made depending on:

    • Whether revenues decrease, increase, or remain as projected when the Budget was adopted

    • Whether problems identified prove to increase the deficit

  • Rescissions can be expanded within the powers granted to the Governor if revenues decline

  • Rescissions can be lifted if revenues rebound

  • Plans will be presented to the Legislature for approval should rescissions beyond the Governor’s statutory authority become necessary


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