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Agencies prepared “spending plans” during the summer of 2008 and filed them with the Executive Office for Administration and Finance (A&F) for review in September. Each year, agencies present spending plans to delineate how funds appropriated for the current fiscal year (in the General Appropriations Act) will be spent.
Agencies use current-year spending as a base to inform their recommendations for the following fiscal year. A critical component for development of the budget recommendation is defining a “maintenance” level of funding for an agency or program. A maintenance budget is defined as the level of funding necessary to provide the same level of services in a fiscal year as those provided for in the prior fiscal year and to cover expenses which the Commonwealth will be obligated to pay. In developing maintenance budgets and ultimately budget recommendations, agencies incorporate projected changes in the programs they provide, such as anticipated changes in staffing, caseload growth, or increases in fixed costs such as fuel and energy costs. Agencies also take into account changes in laws, regulations and policies that will impact programs and services for the next year.
Fiscal Year 2009 Spending Plans and Fiscal Year 2010 Budget Development
Recognizing signs of a deteriorating economy, the Administration anticipated early on that it would be necessary to prepare for a revenue shortfall in fiscal year 2009 and slow revenue growth in fiscal year 2010. To prepare for this inevitability, agencies were asked to submit strategies that could be implemented mid-year to achieve savings if fiscal year 2009 revenue fell below benchmark. In addition, A&F set caps on the growth in spending that would be allowed in fiscal year 2010, agencies were asked to ensure that spending fell below fiscal year 2009 appropriated levels by 1.5%.
After spending plans had been submitted, it became clear that the revenue shortfall in fiscal year 2009 would be much larger than originally anticipated. So while agencies had already submitted plans to reduce spending by almost $230 million, A&F worked to develop a much longer list of potential reductions. On October 15, 2008, after the A&F Secretary notified the Governor that available revenues were insufficient to meet authorized expenditures by $1.4 billion, A&F implemented $1.053 billion in spending reductions and controls. These reductions, combined with other solutions presented at the time (including voluntary reductions from public entities not subject to reductions under Ch.29, S.9C, additional non-tax revenues not previously recognized, and the use of additional stabilization funds) were implemented to bring the fiscal year 2009 budget in balance.
After revising fiscal year 2009 revenue downward in October, A&F asked agencies to begin identifying additional opportunities to reduce fiscal year 2010 spending even further. In mid-November, 2008, A&F formally launched a process whereby agencies were asked to revisit their fiscal year 2010 budget requests. New fiscal year 2010 targets reflected the need for growth in some areas of the budget, including Medicaid (MassHealth), the Group Insurance Commission (which provides state employee health benefits), and the Commonwealth’s debt service line items. After accounting for growth in each of these areas, the spending targets distributed to Secretariats reflected a $38 million decrease below fiscal year 2009 appropriations and only 1% growth above fiscal year 2009 projected spending.
Just as agencies were completing their work on revising fiscal year 2010 budget requests that would meet new spending targets released in November, the Administration began the process to develop consensus with the House and Senate Committees on Ways and Means regarding the fiscal year 2010 tax revenue estimate. While the intent of this hearing was to come to consensus regarding fiscal year 2010 revenues, it became clear during expert testimony that, despite having revised revising fiscal year 2009 revenue projections downward by 5% only two months earlier, an additional decline should be expected. And because the impact could be expected through at least the first half of fiscal year 2010, tax revenue would be approximately $1 billion below what A&F had assumed only a month earlier in distributing new spending targets.
Based on the information gained during the consensus revenue process, a second round of mid-year reductions was necessary. A&F developed reduction targets based on the remaining funding available, and agencies were given the opportunity to review and revise the line items from which reductions would be taken in fiscal year 2009. However, at this point in the expenditure development process, it was not feasible or practical to ask agencies to again identify specific actions they would take to achieve further reductions in their fiscal year 2010 budget requests. It became clear that there was a level of spending that revenue would support, and that it was most important to ensure that funding did not exceed this level. This meant that, in some cases, fiscal year 2010 budget recommendations reflect reduced spending for programs but that agencies have not yet determined how to implement these reductions.
Fiscal Year 2010 Post House 1 Process
Recognizing that the revenue picture is not likely to improve before the second half of fiscal year 2010, immediately after releasing H.1, A&F will guide agencies through a fiscal year 2010 planning process. In most cases, agencies have identified areas to cut back or to reform current programs and capitalize on efficiencies. However, due to the rapidly changing revenue projections, in some cases agencies have not yet been able to determine exactly how they will restructure programs to live within funding levels recommended in H.1.
During the post-H.1 planning process, agencies will refine the details of the initiatives to which they have already committed in order to achieve savings in fiscal year 2010. In some cases where there is uncertainty as to how savings will be achieved, agencies will use the several months before the start of the fiscal year to finalize the details of their reduction plans.
While the fiscal year 2009 and 2010 expenditure development process evolved significantly in a short period of time, there were several core policy recommendations that were incorporated into Governor Patrick’s budget recommendation. Below are several examples of the types of policy reports upon which many of the fiscal year 2010 budget recommendations were developed. Additional reports and policy papers can be found at www.mass.gov/budget/governor.
Special Commission Relative to Ending Homelessness –Governor Patrick authorized the Commission to End Homelessness to design a strategic plan to end homelessness in Massachusetts by 2013. On January 9, 2008, the Commission released its report, and charged the Interagency Council on Housing and Homelessness (ICHH) with implementing the Commission’s recommendations. A major component of this plan was to transform the state’s existing system for helping homeless individuals and families by transitioning from a system that emphasizes shelters as the first solution to one that deploys shelter as an emergency assistance tools, and places greater emphasis on prevention and permanent housing activities as solutions. It was contemplated by the commission that this would result in drastically diminished use of emergency shelters. Governor Patrick’s budget recommendation for fiscal year 2010 transfers homelessness spending currently funded through at the Department of Transitional Assistance to the Department of Housing and Community Development. Utilizing the expertise within DHCD will help the Commonwealth develop a “Housing First” model to end homelessness.
Readiness Finance Commission ReportIn June of 2008 Governor Patrick assembled the Readiness Finance Commission and charged it with presenting a variety of alternative means to achieve sustainable education funding for current needs and the sequenced investments necessary for a ten-year Readiness Project implementation plan. Due to the dramatic economic downturn, the Commission’s report, therefore, concentrated on the urgent need to find opportunities for cost savings and to maintain support for our education system in a time of inadequate resources. Governor Patrick’s fiscal year 2010 budget recommendation continues support for education, most prominently by maintaining Chapter 70 education funded in fiscal years 2009 and 2010 at its current, all-time high of $3.948 billion.
Massachusetts Health Insurance Survey - In April 2006, the Commonwealth launched unprecedented efforts to reduce the number of uninsured. Out health care reform law focuses on creating greater access to health insurance by expanding eligibility for MassHealth and offering a new subsidized program, Commonwealth Care, for individuals who are not eligible for MassHealth. There are also new commercial products available through the Commonwealth Connector Authority for individuals who do not qualify for publicly-subsidized coverage. Greater access to coverage, coupled with a new individual mandate to obtain affordable health insurance, has resulted in the lowest rate of uninsured in the country. In November 2008, the Division of Health Care Finance and Policy released its report to assess the impact of health care reform, Health Care in Massachusetts: Key Indicators. The report indicates that over 97% of individuals in the Commonwealth have insurance, including nearly all elderly individuals and children. Governor Patrick’s fiscal year 2010 continues to build on this progress by funding continued expansion of health insurance coverage through MassHealth and Commonwealth Care.
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