December 4, 2012
To the Honorable Senate and House of Representatives:
Pursuant to Section 9C of Chapter 29 of the Massachusetts General Laws, Administration and Finance Secretary Jay Gonzalez has advised me of a projected budgetary shortfall totaling $540 million with respect to the Fiscal Year 2013 General Appropriation Act and other supplemental budgetary authorizations. The shortfall is due to slower-than-expected tax collections. This letter, the attached supporting documents, and the legislation I am filing with this letter provide the budget reductions and other actions I have identified to close the gap.
In order to best preserve services on which our citizens rely, the measures identified to close the shortfall must be both fiscally responsible and balanced. Though I am cutting state spending levels to reflect the resources available to support them, we have tried to do so thoughtfully, and the reductions still leave most agency and program budgets at funding levels above last year’s. Nevertheless, I recognize that these reductions will have impacts on our employees, clients, providers and residents.
Working with you, we have established a number of prudent fiscal policies to ensure structurally-balanced budgets and long-term fiscal sustainability. These have been codified through changes in law and in our Long-Term Fiscal Policy Framework and have been positively reviewed by the rating agencies. One of these fiscal policies is a commitment to solve no more than half of any mid-year tax revenue shortfall with rainy day funds or other one-time, non-recurring resources. This policy ensures a balanced set of budgetary solutions that will better position the state to absorb the impact the tax revenue reduction may have in subsequent years as well.
Consistent with this policy, I am reducing spending by Executive Branch agencies by $225 million or about 1% in the aggregate, under authority of chapter 29, section 9C of the General Laws. This results in $157 million in net budgetary savings after accounting for reduced federal revenues resulting from the spending cuts.
As a result of the hiring controls we imposed in October, about 700 of the new positions that were originally planned and funded in fiscal year 2013 are being eliminated and will not be filled, which accounts for approximately $20 million of the total Executive Branch savings noted above. This will result in the total state workforce having over 6,000 fewer positions at the end of fiscal year 2013 than it did before the recession.
I am not proposing any reductions in Chapter 70 funding for the public schools.
We are proposing to use an additional $200 million from the rainy day fund to help cover the shortfall, bringing the total amount that would be used in fiscal year 2013 from $350 million to $550 million. This will result in a projected balance in the rainy day fund at the end of fiscal year 2013 of $1.2 billion, still an important resource for helping to address any additional challenges we might face this fiscal year, including impacts of the fiscal cliff or other federal budgetary actions, costs of addressing the Hinton drug lab, or other unforeseen needs.
Consistent with the 9C reductions across the Executive Branch, we are filing legislation today to make similar 1% reductions in the budgets of the judiciary, constitutional officers, and other departments that do not report to the Governor, for additional savings of $25 million. Specifically, we are proposing to give these departments the flexibility to make budgetary reductions totaling 1% of their respective budgets in the aggregate in whatever manner they believe to be most appropriate; if they fail to do so, however, automatic 1% reductions across each of their budgetary accounts would take effect.
The legislation we are filing also includes a 1% across the board reduction to unrestricted local aid, for total savings of $9 million. In the legislation, however, we are proposing that, if lottery profits exceed the $1.026 billion currently budgeted in fiscal year 2013, all of such excess proceeds be committed to increasing the amount of unrestricted local aid.
Because the estimated amount of sales tax revenues is being reduced, there is a corresponding reduction in the automatic transfer to the Massachusetts School Building Authority of $20 million. There is also $98 million of additional federal revenue and $11 million from certain reserve fund surpluses. This $129 million is part of the solution to the revenue shortfall.
As a result of our high credit ratings and general market conditions, our cost of borrowing is lower than originally assumed in the budget. In addition, the Health Connector Authority was even more successful than originally anticipated in controlling growth in its health care costs. We currently estimate the fiscal year 2013 savings from these accounts to total $113 million; we propose to reallocate those savings against the revenue shortfall and known deficiencies, as follows:
- $20 million to help address the revenue shortfall.
- $44.3 million in Family Homeless Services. Even with the program reforms my Administration has implemented and the new resources funded in this year’s budget to divert families from shelters, the state continues to see historic levels of demand for emergency housing services.
- $25 million for public counsel services provided by the Committee for Public Counsel Services.
- $11 million for the continued operation of the Fernald Campus in Waltham.
- $5 million for Judgments and Settlements which must be paid by the state.
- $3 million for the costs to implement the recent state Health Care Reform legislation (Chapter 224 of the Acts of 2012).
- $3 million for state agency costs in response to the Hurricane Sandy storm in October.
- $2.5 million for Tuition Waivers for National Guard members. This program has seen in increase in costs as servicemen and women return from overseas.
Legislation to achieve these solutions is attached.
Lastly, I am proposing legislation to give the Executive Office for Administration and Finance flexibility in transferring funds within collective bargaining reserve accounts to meet actual costs. I requested this sensible management tool previously in the final FY12 supplemental bill, but the Legislature has not yet acted on it.
Taken as a whole, these steps will ensure that the Commonwealth aggressively addresses the projected shortfall in a sensible and sustainable manner. We have faced unprecedented fiscal challenges in recent years, but, working together, we have promptly and responsibly addressed these challenges. I am confident that we will again do so and keep the Commonwealth on sound fiscal footing while best preserving the services and programs on which the people we serve depend.
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