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Use of One-Time Resources
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FY2010 House 1 Budget Recommendation:
Deval L. Patrick, Governor
Timothy P. Murray, Lt. Governor
In balancing the most challenging budget in decades, the Administration is proposing to use one-time resources from the State’s Stabilization Fund and from anticipated federal aid that the Governor and his Administration have been actively advocating for in Washington. The total amount of one-time revenue sources used to solve a combined fiscal year 2009 and 2010 budgetary shortfall of nearly $6 billion is $2.6 billion ($1.4 billion in fiscal year 2009 and $1.2 billion in fiscal year 2010). The Administration believes the level of one-time resources to support budgetary spending in the current fiscal context strikes the right balance between building a bridge to economic recovery and increased state tax revenue and exercising the restraint necessary to ensure that the Commonwealth’s persistent structural budget deficit is not compounded by when we are in an environment of economic growth once again.
For fiscal year 2010 the Governor’s budget proposal includes a $489 million transfer from the Stabilization Fund. It also includes suspending the annually required deposit into the Stabilization Fund, saving an additional $97 million.
The following table shows the amount on deposit in the Stabilization Fund at the end of each of the last 16 fiscal years and the projected ending balances for fiscal years 2009 and 2010.
As illustrated, the Stabilization Fund provided critical support in maintaining state services the last time the Commonwealth experienced declining tax revenues in the face of an economic downturn.
Overall, the Administration plans to use $1.4 billion in Stabilization Funds over fiscal years 2009 and 2010. For fiscal year 2009, $601 million has already been authorized and an additional $325 million is recommended to help close the remaining shortfall. The fiscal year 2010 budget will rely on an additional $489 million, not including the suspension of the statutorily required deposit. At the end of fiscal year 2010, the balance of the Stabilization Fund will be approximately $850 - $888 million, depending on investment earnings.
Federal Recovery Assistance
The federal aid amounts included in the fiscal year 2009 and 2010 budget blueprints are based on current projections of temporarily enhanced federal Medicaid-matching FMAP (Federal Medical Assistance Percentage) funds that will be available to Massachusetts in those years. The estimates are conservative in that they do not assume any other federal aid that the Commonwealth is likely to receive under the federal economic recovery bills pending in Congress.
The Governor and his Administration have been active participants in the formulation of the federal recovery plan and Massachusetts is well-positioned to receive additional funding to support critical programs that help protect key functions of government and build a bridge to a better economy. Given the unprecedented nature and size of the projected budget deficit, the Governor has proposed to use some of this funding to help avoid deeper cuts in critical programs and services. Among several types of federal stimulus under consideration, the FMAP is the aid that is likely to be received earliest and with the most flexibility to address the immediate challenges faced in this budget.
The most recent version of the federal bill pending in the House provides approximately $87 billion in FMAP funding. Based on our reading and understanding of the bill, Massachusetts could receive between $1.5 and $1.7 billion in additional FMAP over the 27-month period beginning in October 2008 and ending in January 2010. Thus, we expect 9 months of funding to be available during fiscal year 2009 and a full 12 months would be available during fiscal year 2010. Consistent with this expected cash flow, the Administration plans to use $1.244 billion (of the projected $1.6 billion) of FMAP funds over fiscal years 2009 and 2010. The fiscal year 2009 budget will rely on $533 million and the fiscal year 2010 budget will use $711 million. The balance of FMAP funds, approximately $335 million, would be received during fiscal year 2011.
Relying on Federal Aid for Fiscal Years 2009 and 2010
The decision to rely on federal aid to help close the projected shortfalls in fiscal years 2009 and 2010 was carefully considered. In reviewing the proposed federal package, and knowing the types of aid had been given to states in prior economic downturns, it was decided that the FMAP portion of the federal aid would be the most prudent funding to rely on in developing our solutions to the in fiscal year 2009 and 2010 shortfalls. The Administration also recognizes the risk involved in relying on certain types of federal aid based on draft legislation that has not been signed into law. That is why the use of federal aid has been limited to only the FMAP portion - we do not rely on any of the other types of aid being considered. In the event the amount of federal aid received is less than what is assumed in the budget solutions, the remaining balance in the Stabilization Fund could be used.
Balances Remaining for Future Fiscal Years
The amount of federal aid and stabilization funds used in solving the fiscal year 2009 and 2010 shortfalls has been calibrated to ensure that the amounts used in 2010 are less than what is being used in fiscal year 2009. This places a greater emphasis on cuts, savings and revenues to balance the fiscal year 2010 budget – solutions that have longer term benefits.
It was also important to ensure that one-time resources available at the end of fiscal year 2010 would be equal to or greater than the amounts used in balancing the fiscal year 2010 budget. The FMAP balance of $355 million, when combined with the projected $850 million Stabilization Fund balance at the end of fiscal year 2010, will ensure that we have the equivalent levels of reserves in fiscal year 2011 that were used in 2010. This budgeting policy essentially sets a ceiling for what should be considered the maximum amount of one-time resources that could responsibly be used in fiscal year 2010.
|Beginning Balance||FY2009 October||FY2009 January||FY2010||Funds Remaining for FY2011|
|Federal stimulus funds(anticipated FMAP Funding)||1,600||(533)||(711)||356|
|Total Use Of One-Time Resources:||3,862||(601)||(860)||(1,200)||1,201|
*Incuded $100 million deposited for fiscal year 2009
Cuts Avoided Through the Use of Additional Resources
Over-reliance on one-time revenues to balance the budget in the near-term can lead to further cuts down the road. It is therefore important to strike the right balance between cuts and the use of reserves. Judicious use of reserves avoids misguided cuts that would dismantle needed programs and services and helps bridge us to a better economy. The chart below shows the cuts avoided in fiscal year 2010 though our measured use of reserves: Stabilization Funds were used to avoid cuts across state government and FMAP funds were used to avoid cuts primarily to health care and human services related expenditures.
Cuts Avoided in FY10 Through Use of Addtional Resources
|Government Area Names||House 1||Federal Aid (FMAP)||Stabilization
(Allocated in Proportion to total Budget
|Administration and Finance||345,124,990||(15,741,650)||-3.2%|
|Group Insurance||1,035,335,228||(45,354,787) -4.4%|
|Energy & Enviromental Affairs||223,752,800||(10,205,689)||-2.1%|
|Health and Human Services*||4,778,183,925||(105,631,856) -2.2%||(217,939,879)||-44.6%|
|Mass Health||8,970,235,518||(560,013,357) -6.4%|
|Housing & Economic Development||351,286,119||(16,022,668)||-3.3%|
|Labour & Workforce Development||65,076,364||(2,968,227)||-0.6%|
|Total Local Aid||5,074,458,421|
|Total H1 Spending:||27,973,136,488||(711,000,000)||(489,000,000)|
* Additional revenues totaling approximately $300M have been proposed to avoid further cuts in these departments.
Prepared by the Executive Office for Administration and Finance · Rooms 373 & 272 · State House
For more information contact:
Matthew Gorzkowicz (firstname.lastname@example.org)
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