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Projecting the amended budget
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The Executive Branch is currently gathering information from agencies to build the governor’s fiscal year 2013 Amended Budget.  This budget will be presented to the General Assembly in January 2013 for consideration.

This week we discuss the components of the current year deficit, priorities in funding these needs and the role agency cuts will play.

Medicaid – Dominating needs
FY13 amended need: $350 million
Every year, the state population grows and several programs tied to enrollment and population increase and create a need for what seems like every dollar of increased revenue. In the Senate, budget writers have been monitoring state agency needs and the increasing list of priority state services. We currently anticipate that the amended budget will require approximately $540 million in additional funds in order to meet our obligations.

The Department of Community Health (DCH), which administers Medicaid, PeachCare and the State Health Benefit Plan, continues to be the major force behind budget discussions, and will continue to play a significant role this upcoming session.  FY2012 deferred payments will require approximately $200 million of the $350 million needed.  Enrollment growth and increased utilization will claim the rest. As we will discuss next week, DCH is entering a perfect storm of issues that range from dealing with the provisions of the Affordable Care Act, the Hospital Provider Fee renewal and demand for services from those still hurt because of the recession.

K-12 education
FY13 amended need: $150 million
K-12 enrollment growth of a little over 1 percent will require approximately $130 million in the amended budget. This is higher than the $90 million we have been putting in the amended budget of prior years. The rest of the funds will be dedicated to funding a portion of local funds not received by charter schools. These funds were authorized by the enabling legislation, HB797, which went into effect upon passage of Amendment One in November.

Other areas
FY13 amended need: $40 million
Increased utilization of foster care services in the Department of Human Services adds a $4.4 million deficit to agency concerns. The Department of Behavioral Health, under a consent decree with the US Department of Justice, is requesting $13 million for its work to comply with the provisions of the settlement.

What is not known is the immediate impact of federal sequestration discussed last week.  National groups have pegged Georgia’s potential losses at $220 million but it is unknown how much that will be in FY2013 or how much will need to be covered by state funds (if any) if negotiations between Congress and the President do not change this amount.

Where will the money come from? Mainly agency cuts
As revenues have come in, we’ve seen some growth over FY2012 revenues. The FY2013 budget was built on approximately 5 percent growth in collections over FY2012. We are currently collecting slightly below 5 percent, with virtually flat revenues in sales and use tax and lower than optimistic income tax revenues.

At this point, which admittedly is still a little too early to tell, we do not expect revenue growth to exceed the amount set in the FY2013 general budget.  In other words, new revenue probably will not be there to cover these new deficits.

The Revenue Shortfall Reserve (RSR) is currently in the $550 million range, including the $167 million or so that will be needed for the mid-year K-12 adjustment. The adjusted balance, including lapses, leaves approximately $385 million which would fund just over seven days of state operations. Some debt service savings might add a little more.

The primary tactic that Georgia will have to cover the remaining deficit is through agency cuts. The Governor has called for 3 percent reductions in the FY13 amended. The governor’s instructions did exempt several state programs from additional reductions, including the state funding formula for education known as QBE.

With the exclusions he outlined, this will only generate approximately $250 million for the amended budget. What is concerning is the belief among many that some of these reductions are not feasible given the reductions of agencies over the recession. Medicaid has offered up $62 million in cuts; higher education, $64 million; Corrections and public safety agencies, $52 million and all other state agencies $77 million.

Next week:  November revenues

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