Regular readers of the column know that the state budget has two moving forces that determine whether agencies will require cuts in a given fiscal year. The first force is the growth in revenue collections. Revenues are increasing but, as mentioned in prior columns, a lot of this is based on increased collections from title fees.
But the other determinant of agency cuts is growth in areas such as Medicaid and education. The recent trend has been that we have been using all new revenue, plus funds generated from agency cuts, to fuel the increases in these growing areas.
The fiscal year 2014 budget as passed is based on revenue growth of around 3.2 percent in tax revenue growth over actual collections in FY13. Our past experiences have shown that we need to wait until December and January (the highest collection months) to be certain, but first quarter collections are indicating that we will meet this estimate.
We also have approximately $180 million in the revenue shortfall reserve that can be used in the amended budget. It appears that the state will be well positioned in the FY14 amended budget to deal with any issues that might arise.
The FY15 budget is a little farther off, but it looks like revenue growth of 4 to 5 percent over anticipated FY14 collections will be sufficient to cover needs which, as discussed later, will probably run close to $600 million. This is much better than the $900 to $1 billion deficits that loomed in prior years and required agency cuts to fill.
As you may know, the governor has informed agencies that he does not anticipate that cuts will be necessary to balance the budget. This week we will look at the main state major components of spending of new funds.
Medicaid again dominates funding
FY14 amended needs: $73 million
FY15 general needs: $158 million
Medicaid issues continue to require a portion of any new revenues that the state will see. Thankfully, it does not appear as if the level of these needed funds will match the $200-plus million dollar requests we were seeing over the past few years. Growth funds in the FY15 budget will require approximately $39.7 million of the funds requested. Growth covers any increases in enrollment or utilization of services.
The majority of new funds will go as a result of compliance with the Affordable Care Act. Though Georgia is presently not expanding Medicaid, there are still costs that the state must cover in order to conform to federal law. The most prominent is a side effect of the individual mandate.
As you know, ACA requires that all citizens have insurance coverage for themselves and their families. Currently, there are individuals in Georgia who qualify for Medicaid but do not sign up for one reason or another. It is anticipated that these individuals who are currently eligible will sign up for Medicaid in order to comply with the individual mandate and utilize some services that the state will have to absorb. This is known as the “woodwork effect,” implying that people will “come out of the woodwork” and sign up.
It is anticipated that this will cost approximately $14 million in the FY14 amended budget and $41 million in the FY15 general budget.
Next is a change in the eligibility review process. Eligibility for low-income Medicaid is currently checked every six months, and those that have received jobs or have another event that disqualifies them from Medicaid are removed from receiving services. The new law now mandates that this check process only occurs every 12 months instead of every six months. Since clients will be able to stay on the system for an extra six months, there is an added cost to the plan. This item is estimated by DCH to cost approximately $10 million in the amended budget and $29 million in the general budget. The remainder of request will go to smaller requests dealing with specific policy changes or deficits that need to be addressed.
FY15 ARC: $130 million
The Employee Retirement System and Teachers’ Retirement System are anticipating an annual required contribution (ARC) of $130 million in order to meet actuarial projections. Retirement funding in this day and age is sensitive, so I want to caution that the systems are doing relatively well. But remember that the state depends on contributions from a certain number of current employees to meet its funding needs.
As the state has shed jobs during the recession and not given raises at predicted levels, this throws off of the models developed by the state actuaries. Also, market returns have been relatively good in recent years, but the losses in 2009 and other years around the recession still affected long-term financial targets. As a result, the retirement systems will need these additional funds to remain well-funded.
The state has always met its retirement obligations and our Triple AAA rating, the highest available, is based on our financial commitment to these and other contractual obligations like bonds.
Next: K-12, higher education, behavioral health/developmental disabilities growth.
I may be reached at
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(404) 657-7094 (fax)
E-mail at Jack.Hill@senate.ga.gov
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