A reflection on the events at the end of the FY2010 shows effects into FY2011 and FY2012 as well. What this means is that the state’s economy, while marginally improving, has not shown any signs of growth meeting the predictions as represented by the revenue estimate in FY2010 and therefore presents serious problems in the FY2011 amended and FY2012 budgets as well.
This spring, state revenues were supposed to level out and equal the level of a year ago and set the stage for growth in FY2011. That has not happened.
Despite the revised revenue estimate during the Session, the state was short in cash by some $128 million at the end of the fiscal year in June.
Meeting this shortfall has ramifications for FY2011. The governor’s announcement of a 4 percent withholding of allotments to state agencies (excluding k-12 education) is probably only the start of budget cuts in this fiscal year.
There are three separate but interrelated budget events:
1. The 2010 shortfall and how that was met
2. Issues with the FY2011 budget just begun in July
3. The writing of the FY2012 budget and the political and budgetary issues
The state has taken actions to squeak through the year’s end. There appears to be a cash shortfall of $125 million or so; however, there are potential accounting actions that may help cover this deficit. Among the actions taken to meet the shortfall were: the state withheld year-end allotments and stopped non-critical purchases and moved federal stimulus funds from the FY2011 budget in k-12 and Regents.
FY 2011 Issues
1. The $37 million in AARA funds moved from FY11 creates a hole because those funds were counted in the FY2011 budget.
2. The issue you have read about is the federal Medicaid match differential, (FMAP). When the recession started, the federal government, as part of its efforts to assist states with budget problems, increased the federal match percentage for Medicaid from 60 percent to 75 percent, which saved Georgia hundreds of millions of dollars. It also insured that states such as Georgia would not cut Medicaid benefits to save money. That enhanced match runs out in December and if not renewed by Congress creates a $370 million hole in the budget we are in right now, FY11. This issue was mentioned in the governor’s 4 percent agency cut announced recently.
3. For the second year in a row, there is an unknown amount of state income tax refunds that have been pushed into July and August. That payout will affect the revenue picture in FY11. Last year the total was reported at about $160 million. If the amount still to be paid to Georgia taxpayers exceeds $160 million, then there is an additional hole created in FY11 compared to last year.
4. When a number of factors are considered, the amount of tax growth in state revenues built into the FY11 budget totals about 4.24 percent, or over $600 million. Remember, the last months of FY10 were under predictions. If that continues and the very optimistic growth planned in this budget does not materialize, that shortfall could total several hundred million dollars.
While some of these numbers do depend on factors still unknown, the common belief among budget writers is that there is a potential shortfall in the FY11 budget of several hundreds of millions of dollars. Coming on the heels of reductions of 20 percent or more, this has the potential seriously reducing state services.
1. Tax cuts passed as part of the Hospital fee legislation start phasing in FY2012 and start reducing revenues. Removing the 1⁄4 mill of property tax the state presently receives will begin phasing out in FY12 and will cost state coffers $16 million. Eliminating state income taxes for senior citizens also starts phasing out in FY12 and will cost the state $14 million in revenue.
2. The biggie is that Medicaid match or FMAP extension. If the enhanced match is not passed by Congress, the present day cost to the state is an entire year or about $787 million.
3. Estimating growth for the next fiscal year will be a huge issue and certainly hard to do in these uncertain times. To use a baseball term, revenue estimators for Georgia are below “the Mendoza line” in batting average for estimating state revenues.
4. Contributions to state retirement funds will need to increase to keep those funds up. Estimates are that the Employees Retirement System
will require employer contributions to increase by $30 million. The Public School Employees Retirement System will need $8.3 million and the Group Term Life Insurance fund may require $15 million but would probably be funded internally.
5. Even in these austere times, Behavioral Health has received over $70 million of new funding during the FY10 and FY11 budgets in response to the state’s court actions with the U.S. Justice Department. Recent developments in federal court may result in additional new funds that would be mandated for Georgia’s mental hospitals and mental health delivery system.
6. The GEFA securitization and other one-time sources of funds will dry up in 2012 as well. GEFA alone was $287 million and the remainder could push this well over $300 million.
7. Also, don’t forget that areas such as education, universities and Medicaid are still growing. This could run several hundred million depending on how forecasting proceeds over the next few months.
The FY12 budget is complicated by the fact that presumably there will be no new federal stimulus funds so the state is essentially on its on. Not listed as issues but almost surely to be fiscal issues are the health of the State Health Benefit Plan and Medicaid expenditures. There will be problems in those areas that will have to be solved.
I may be reached at
234 State Capitol, Atlanta, GA 30334
(404) 656-5038 (phone)
(404) 657-7094 (fax)
E-mail at Jack.Hill@senate.ga.gov
Or call toll-free at
1-800-367-3334 day or night
Reidsville office: (912) 557-3811