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Mid-session thoughts
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As the two week break concludes and the Session resumes, here are some observations that address where we are budgetarily and process-wise.

The Legislature now has a pretty clear picture of the deficit we face, the assumptions that deficit is based upon and a general roadmap of how we get there from here. But there are a lot of moving parts…

To review, the governor’s amended budget was based on a $1.4 billion shortfall but presumed that revenues were turning around and the balance of the last six months of this fiscal year would be equal to the revenues of last year. When January’s revenues came in $136 million down, that was a gamechanger that raised a warning signal about the remaining five months. This had implications for the FY11 budget as well since federal stimulus funds presently budgeted for FY11 would need to be moved back to FY10 to cover the shortfall.  

While the governor has not adjusted the revenue estimate for FY10, the generally expected revenue estimate reduction is $300 to $350 million.

Two observations here: that that figure is optimistic and, based on trends, really should be $500 million. And two, this reduction is a double whammy in the FY11 budget since using stimulus funds from FY11 to fill the shortfall in FY10 leaves that hole. Additionally, the double part comes because an end of the year shortfall means you have not met the revenue estimate for FY10 so your beginning point for FY11 is short the $300-$350 million or whatever the ending number is. The balance of the shortfall also includes the hospital bed tax/managed care fee of $345 million and a few replacements like the Tuition Equalization Grant. A tally of all of these equals a $1.1 billion shortfall.

Here, then are the big questions in meeting the FY11 $1 billion shortfall that has been studied the last two weeks.

What will be the final form of the budget piece that the governor has plugged in with a hospital bed tax/managed care fee or alternatively a provider rate cut? In the governor’s FY11 budget proposal, there is a managed care fee of $345 million plugged in to draw down federal Medicaid funds to both meet the state deficit and to fill the Medicaid hole as well. This piece takes legislation that so far has not moved. Resolution of this issue is a critical part of filling the shortfall. Around $400 million is needed from the health care portion of the budget for the shortfall.  

What will be the cut to the Board of Regents? The governor’s budget already contains a cut of $223 million to the teaching formula less stimulus funds. The additional amount to fill the shortfall possibly could be no more than the Regents proportion of the state budget. Technical colleges would probably be one fourth of the Regents cut following the percentage of the budget theory.

What will be the additional reduction to Education?  Included in the governor’s FY11 proposal is a cut of $527 million to the QBE formula less $70 million in stimulus funds. An effort will be made to minimize additional cuts but filling a $1.1 billion hole is difficult at best.  What will be the additional cuts to state agencies in addition to Education and Higher Education? An additional 3 percent cut for agencies on top of the median cut of 8 percent in the governor’s budget proposal is certainly possible but that may be on the low end.

Here is the challenge: State government, as measured by revenues, is 25 percent smaller than it was 2 1/2 years ago. State economists’ current outlook is that Georgia will not grow beyond the amount needed for population/formula growth for three to four years. So reducing the size of state government is probably the most assured way of meeting the future. If employees are 80 percent of government costs on the average, there is almost no other option than reducing the workforce in state government. There may be an early retirement option, but a reduction in force is a very real possibility.

Reviewing and increasing fees for state services will be a part of filling the FY11 hole but some will require legislation.  

If understanding the problem is the beginning to solving it, then we are moving down that road. But there are difficult but necessary decisions left to be made in the weeks ahead.

A noticeable change is the excellent working relationship between the House of Representatives and the Senate leadership and staffs since Speaker Ralston was elected. That fact will make decisions a little easier but also reduces the influence that historically others have on the process.

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