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FY10 Budget Solutions
Fiscal Year 2010 Budget Solutions
The fiscal year 2010 budget authorizes spending of $27.973 billion, a decrease of about 0.7% from the fiscal year 2009 General Appropriations Act. When compared to fiscal year 2009 estimated spending which includes 9C reductions and after accounting for County Sheriffs being brought on budget, the House 1 recommendation is for a 0.5% increase over current year spending levels.
|FY09||FY10 House 1||House 1 vs
|Supplemental Appropriations Net of Surpluses||516|
|Prior Appropriations Continued from FY08||156|
|County Corrections Adjustment||(71)|
|Total Projected Spending||27,227||27,763||27,902||139||0.5%|
|Consensus Tax Revenue Forecast||20,879||21,402||19,855||(1,547)||-7.8%|
|Stabilization Fund Draw||315||401||489||88||18.0%|
|Total Projected Revenue||27,590||28,055||27,521||(622)||-2.2%|
As people throughout the Commonwealth have to tighten their belts, so too must state government. Nearly half of the solutions to our fiscal year 2009 and fiscal year 2010 budget deficits are spending cuts and savings, totaling approximately $2.8 billion. With these restraints, the fiscal year 2010 budget is essentially level-funded from fiscal year 2009 spending levels.
The Governor's fiscal year 2010 budget recommendation relies on a balanced set of solutions to close the projected shortfall described earlier. The Governor's budget recommendation is balanced and transparent. The Administration restrained spending through a variety of initiatives that resulted in gross reductions of $1.820 billion ($1.630 billion net). This combined with revenue initiatives, spending controls, and a rational approach to the use of reserves closed a $3.5 billion gap as projected from Maintenance.
To protect key functions of government, we are using an appropriate amount of one-time resources in our budget blueprints, including temporarily enhanced federal Medicaid matching funds and state Stabilization funds.
Fiscal Year 2010 Solutions
|A. Net Cuts, Spending Reductions & Savings from Maintenance||$1,630|
|State Employee Healthcare Contributions||$60|
|Medicaid Cost Controls and Savings - (net of FFP loss)||$178|
|Local Aid Reductions||$220|
|Maintain C.70 at Current Year Funding Levels||$300|
|Executive Branch Cuts (net of revenue loss)||$674|
|Non Executive Branch Cuts||$197|
|B. Net Revenue Initiatives||$587|
|Meals and Hotel & Motel Tax Dedicated to Local Aid||$148|
|Elimination of Sales Tax Exemptions - Dedicated to the Commonwealth Wellness Fund||$150|
|Other Departmental Revenue Initiatives||$289|
|C. *Stabilization Fund Use||$586|
|D. Federal Recovery Aid||$711|
*includes $97 million from suspending the statutorily required deposit for fiscal year 2010
Net Cuts, Spending Reductions & Savings from Maintenance
State Employee Health Care Contributions ($60.4 million)
The budget offers comprehensive, affordable health insurance coverage to state employees through the Group Insurance Commission, while including reforms to improve the fairness and sustainability of health coverage for state employees. The budget changes employee contributions from a system based on date of hire to a more rational system based on salary levels and affordability. The following table shows the proposed employee contribution level, which could result in $60.4 million of budget savings in fiscal year 2010:
|Salary Level||Employee Contribution|
This reform would reduce contributions for 6,400 state employees - and for another 15,200 state employees, contribution levels would not change. For many other state employees, contribution levels would increase modestly based on salary and affordability. In the aggregate, these reforms would reduce system costs by $60.4 million in fiscal year 2010, better positioning the Commonwealth over time to continue to provide comprehensive health insurance to state workers.
Medicaid Cost Controls and Savings ($357 million gross / $178 million net)
The fiscal year 2010 House 1 budget includes a total of $357 million in gross savings ($178 million in net savings) which include $25 million in gross ($12.5 million net) targeted investments in the MassHealth program. The targeted investments are necessary to achieve many of MassHealth's savings initiatives in fiscal year 2010. Savings are achieved through on- and-off budget reductions in the MassHealth program. When accounting for off-budget reductions, the total savings is $374 million gross ($187 million net) including $25 million in gross investments ($12.5 million net). These savings support cost control efforts in the MassHealth program and will manage the overall growth from a projected 7.3% increase to a 3.14% increase over fiscal year 2009 projected spending levels.
|FY09 Estimated Spending||$8,416|
|FY10 Maintenance with Off-budget Consolidations||$9,323|
|Total Off-Budget Spending||$(290)|
|Total FY10 Maintenance Excluding Off-budget Consolidations||$9,033|
|Percent Increase in Maintenance over FY09 Estimated Spending||7.3%|
|Savings and Investments||$(357)|
|FY10 House 1 Recommendation||$8,970|
|FY10 House 1 Recommendation Excluding Off-budget Consolidation||$8,680|
|Percent Increase in House 1 over FY09 Estimated Spending*||3.14%|
* dollars in millions.
Note: The FY10 total used to calculate this percentage excludes off-budget spending that will be moved on-budget in FY10
MassHealth savings and investment initiatives are included in the chart below:
Savings Initiative Title
Gross Amount FY10
Net Amount FY10
|On Budget Savings|
|Service Program Changes||($38)||($19)|
|Payment and Pricing Strategies||($43)||($22)|
|Subtotal On-Budget Savings||($382)||($191)|
|On Budget Investments|
|Specialty Hospital Rate Adjustment||$12||$6|
|Pay-for-Performance (P4P) Administration||$3||$2|
|Primary Care/Medical Home/Chronic Care Model Rate Inc||$10||$5|
|Subtotal On-Budget Investments||$25||$13|
|Total Savings and Investments On-Budget||($357)||($178)|
|Off Budget Savings|
|Subtotal Off Budget Savings||$25||$13|
|Total Savings and Investments On- and Off-Budget||($374)||($187)|
|* dollars in millions|
Examples of MassHealth Savings:
- Provider Rates - MassHealth providers and health plans were held to a minimal increase in fiscal year 2010. The average increase (over fiscal year 2009 rates) for many MassHealth providers and health plans are at or below 1%.
- Pay-for-Performance (P4P) - This savings initiative achieves cost savings by delaying payments to providers until quality benchmarks are met. This offers incentives for providers to meet and exceed quality of care standards established by MassHealth.
- Service Program Changes - MassHealth will achieve cost reductions by offering MassHealth members coordinated care in appropriate settings. The purpose is to provide patients with a broad spectrum of care particularly focused on preventative care which should result in more effective treatment, better health outcomes and corresponding savings. This savings will also allow for members to participate in cash counseling programs which will permit members that are getting services in the community to get cash to cover 95% of historical cost.
- Utilization Management - MassHealth has recently enhanced its Service Utilization Review System (SURS) and developed the capacity to expedite claims review. Furthermore, the savings will increase clinical reviews across many provider groups to ensure members receive the most appropriate level of care.
- Pharmacy Savings - This initiative centers upon drug utilization management and works to substitute medically appropriate generic drugs for high-cost brand drugs whenever possible.
- Other/Off-budget Savings - These proposals eliminate enrollment outreach grants and non-effective pilot programs as well as reduce pay-for-performance payouts to providers that do not meet quality measures.
Examples of MassHealth Targeted Investments:
- Specialty Hospital Rate - This investment will allow for MassHealth to examine their hospital rate structure to provide some specialty hospitals with higher reimbursements due to the acuity level of patients served.
- Primary Care/Medical Home/Chronic Care Rate Increase - This will be directed toward paying primary care doctors higher rates. Care management is focused on primary and preventative care which will lower cost by helping to keep people out of emergency rooms and acute care settings.
- Pay-for-Performance Administration (P4P) - This will enable MassHealth to contract with a vendor to collect data from providers and to analyze and develop reports for P4P payout.
Reorganizing the way MassHealth is budgeted:
In the fiscal year 2010 House 1 budget the Administration has reformed the way that it will budget for MassHealth. The budget moves previously off-budget items (totaling $290 million gross) on-budget in fiscal year 2010 such as hospital and physician rates and pay-for-performance payouts as well as the Essential Community Provider Trust Fund (ECPTF). In addition, MassHealth line items have been consolidated from 20 line items in fiscal year 2009 to 6 line items in fiscal year 2010 and will be categorized by payment or provider type (examples are managed care organization, primary care clinician plan and fee-for-service) rather than by population (examples are Essential, CommonHealth and Breast and Cervical Cancer).
Local Aid Reductions ($234 million)
The fiscal year 2010 House 1 proposal recommends $5.3 billion in local school and general municipal spending (all Cherry Sheet and Local Aid accounts), a decrease of $220 million or 4.22% below the fiscal year 2009 GAA. Although this 4.22% decrease is necessary to achieve budgetary balance, the Administration has worked hard to maintain certain investments at levels provided in fiscal year 2009 such as Chapter 70 aid and Payment in Lieu of taxes (PILOT). More detail regarding the Governor's Local Aid proposal can be found in section 3 of this budget document.
Maintain Ch.70 at Current Year Funding Levels ($300 million - estimated value).
The decision to hold Chapter 70 funding harmless at fiscal year 2009 levels (an all-time high of $3.948 billion), in a budget characterized by many deep cuts in other important programs, demonstrates the Governor's commitment to education and maintaining a level course in difficult times. Running the Chapter 70 formula for fiscal year 2010 would have cost between $150 and $400 million depending on the formula parameters used in the calculation. For the purpose of developing a maintenance estimate, for fiscal year 2010, $300 million was used as a baseline estimate. This level of spending is unaffordable in the current economic climate and would have required unsustainably deep cuts in municipal aid or other programs in the budget. Consistent with this commitment is the belief that the recommendation to freeze funding at fiscal year 2009 levels - which, it should be remembered, meet or exceed the foundation criteria for every district in the current fiscal year -- is vastly better than creating "winners and losers" during the current economic climate
Non-Executive Branch Agencies - Comparison to FY09 GAA
|Government Area Name||GAA||Estimated Spending||House 1||H.1 %+- GAA|
Non-Executive Branch Agencies
Agencies outside of the Executive branch including the Constitutional Officers, the Judiciary, District Attorneys and Sheriffs, among others, make up $3.9 billion of the H.1 budget recommendations. These amounts have been reduced by $197.5 million from the maintenance level of funding. Our constitutional requirement for debt service increases $61.5 million in FY10 or 3% above FY09 appropriated levels. In addition, the transition of County Sheriffs into the state system distorts the increase. Sheriffs account for $71 million in new spending; however, revenue is being counted in the bottom line that was not previously included. Other decreases among the non-executive departments range from 8-13% and will have varying impacts on services and employee levels.
Executive Branch Agencies - Comparison to FY09 GAA
|Government Area Name||GAA||Estimated Spending||House 1||H.1 %+- GAA|
|Labor & Workforce Development||76,739,154||84,537,942||65,076,364||-15.2%|
|Administration and Finance||378,449,872||358,754,565||345,124,990||-8.8%|
|Energy & Environmental Affairs||241,347,928||221,427,483||223,752,800||-7.3%|
|Health & Human Services||5,115,755,000||5,012,653,514||4,778,183,925||-6.6%|
|Housing & Economic Development||260,736,373||230,421,070||351,286,119||34.7%|
Executive Branch Agencies
Overall the Executive Branch agencies are level funded at the fiscal year 2009 level of $22.9 billion. However, this masks varying levels of growth and reductions among Secretariats and agencies. To achieve growth in areas such as MassHealth and employee health insurance through GIC, deeper reductions were needed in other areas of the Executive Branch. It should also be noted that the fiscal year 2010 recommendations include $351.3 million in spending for the Executive Office of Housing and Economic Development (EOHED) and the agencies under the EOHED Secretary's leadership. In comparison to the fiscal year 2009 estimated EOHED spending of $230.4M, this represents an increase of nearly 35 percent from the GAA. However, the growth in EOHED spending is entirely attributed to the transfer of $133.7 million in homeless-related spending from the Department of Transitional Assistance to the Department of Housing and Community Development. After accounting for this increase, EOHED's spending actually declines from the fiscal year 2009 GAA by 16.5 percent in the H.1 recommendation. The ranges in reductions across the Executive branch are from 2-15% below the fiscal year 2009 GAA. Reductions in Public Safety and Education were limited in order to maintain priority investments made during the last two years.
Dedicated New Tax and Departmental Revenues
The Governor's budget includes enhanced revenue and enforcement initiatives that are expected to generate $587 million in additional revenue in fiscal year 2010. These initiatives are described below:
1% Statewide Meals and Hotel & Motel Tax to Support Local Aid ($149 million)
The current fiscal crisis makes it imperative to consider making new revenue sources available to communities and to shield cities and towns from even larger Local Aid cuts and limit harmful impacts on core services for our citizens. Raising the existing statewide meals and room occupancy taxes by one penny on the dollar and dedicating the proceeds to municipal aid will reduce Local Aid cuts for all communities in fiscal year 2010. Further, this proposal creates a recurring revenue source to help provide predictable and adequate Local Aid in the future. More detail regarding the Governor's Local Aid proposal and the impact that these new revenues will have on local aid can be found in section 3 of this budget document.
Commonwealth Wellness Fund ($150 million gross)
Alcohol purchased in a grocery or package store, sweetened beverages and candy have historically received the exemption from the Massachusetts state sales tax that is designated for non-prepared food products. Removing the tax exemption on these three non-nutritional food categories will yield $25 million in fiscal year 2009 and $150 million in additional revenue in fiscal year 2010. In fiscal year 2010, the Commonwealth Wellness Fund will receive $121.5 million of the $150 million in estimated new revenue collections. Monies appropriated from this fund will support programs and services that augment the health and well being of the citizens of the Commonwealth.
Wellness Fund FY10
|Account Distribution||Acct #||FY10 Allocation||% Wellness Fund||% GF||Total Wellness Fund Spend|
|Alcohol and Tobacco Control Services||4510-0700||$90,468,857||86%||14%||$78,000,000|
|Health Promotion, Violence Prevention and Workforce Expansion||4510-2500||$49,938,924||87%||13%||$43,500,000|
Bottle Bill ($20 million)
The Massachusetts Bottle Bill, enacted in 1982, was designed to promote recycling by encouraging consumers to return their empty soda and beer containers by offering a $0.05 deposit. In the FY10 budget, Governor Patrick proposes to expand the $0.05 deposit to include water, flavored waters, coffee based drinks, juices and sports drinks. Discarded cans and bottles are a major source of trash that impacts our communities while wasting precious natural resources and energy. When the bottle bill was enacted in 1982, the beverages covered by the law were limited to carbonated soft drinks, mineral water, beer and other malt beverages. Since that time, the beverage market has changed with bottled water, fruit drinks, iced tea and sports drinks now being some of the most popular choices available. Since 2000 non-carbonated beverages have experienced near double-digit growth and industry experts expect this trend to continue. However, these non-carbonated beverages are not covered by the bottle bill, often ending up in landfills or along the side of the road.
By revising the definition of "beverages" in outside section 15, the bottle bill can be brought up to date with modern trends. Consumers will be required to pay an additional $0.05 cents on water, flavored waters, iced teas and sports drinks. Of the estimated $20 million in additional revenue generated through this change, $5 million will be dedicated to the Department of Environmental Protection recycling and solid waste management programs with an additional $5 million pledged to other priority programs. Additionally, $10 million is provided for the Massachusetts Water and Sewer Rate Relief Fund, which allocates rate reductions to communities and residents served by the Massachusetts Water Resources Authority (MWRA).
Registry Fees ($74.5 million)
The Administration is proposing a number of steps to update and consolidate Registry of Motor Vehicle (RMV) fees to improve customer service by offering online discounts and streamlining the existing fee structure. In Fiscal Year 2010, Governor Patrick proposes to reform Registry of Motor Vehicle fees by consolidating the number of fees from 201 to 40. This will:
- Improve customer service at branches by offering online discounts and streamlining the current fee structure.
- Keep things simple; the new fees are easy to understand.
- Bring the RMV into the 21st century by moving transactions online and automating functions.
- Decrease costs at the RMV by automating processes and data gathering.
Comparison to Surrounding States
|Registration (Two year)||Licensing (Per year)||Title (One time)|
|Fees are estimates only and will be changed through the regulatory process, including public hearings.|
The proposed changes to the RMV fee schedule will raise $74.5 million dollars. Fees will be changed through the State's regulation process and are subject to public input prior to implementation. These funds are pledged to the Highway Fund for the operation of transportation agencies (e.g. regional bus services, highway department) and to pay debt service for road and bridge construction.
Additional Tax Auditors Initiative ($23 - $26 million)
The Audit Division at the Department of Revenue (DOR) is responsible for fostering voluntary compliance and narrowing the tax gap by identifying, educating, and auditing noncompliant taxpayers. The Audit Division audits the tax returns of businesses and individuals filed, including sales/use, meals, rooms' occupancy and special fuels are subject to examination by the Audit Division staff. Making investments in audit staff over the past several years has been an important part in maximizing tax revenue collections. For FY09 the hiring of additional auditors is expected to result in $60 million in new revenue. The FY10 recommendation for DOR represents a fully staffed Audit Division with 14 additional auditors to generate an additional $23 - $26 million on top of our current collections. Overall, this investment in auditors along with mitigating reductions taken at DOR will allow us to maintain our tax collection and enforcement levels.
Nursing Home User Fee ($75 million net)
The nursing home user fee is an assessment on nursing homes based on certain reimbursed patient days. In fiscal year 2009 the total amount of the nursing home assessment was $145 million. That amount is directed to the general fund and the Commonwealth appropriates $288.5 million to pay nursing home rates and then draws down federal financial participation (FFP) on rate expenditures. The fiscal year 2010 budget proposes to increase the assessment by $75 million (increasing the total aggregate assessment to $220 million) which will be directed to maintain current rates, fund a small rate increase and to fund performance-based incentive payments.
TANF (Temporary Assistance for Needy Families) Contingency Funds ($73 million)
The Governor's H.1 recommendation estimates that the State will be able to draw down $73 million in TANF Contingency funding in fiscal year 2010, which compares to roughly $87 million in estimated revenues in fiscal year 2009. The funding is in addition to Massachusetts' annual TANF block grant funding, which will be fully drawn in both fiscal year 2009 and fiscal year 2010.
The Fund was established by Congress to allow states that experienced substantial increases in caseloads or unemployment rates to access additional federal resources to mitigate these spikes. Massachusetts was found by the federal Administration for Children and Families to be eligible based on a large increase in the number of its recipients accessing benefits under the food stamps program. The amount a state is eligible to receive is determined by its annual expenditures on objectives aligned with the federal TANF program. Based on current H.1 spending projections for these purposes, the Governor's budget assumes an additional $73 million will be available. These additional federal funds have prevented deeper cuts to transitional assistance programs funded in H1.
The Administration strikes a careful balance in using one-time revenues in our fiscal year 2009 and fiscal year 2010 budget blueprints.
As part of the balanced approach to solving the fiscal year 2010 budget challenge, 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 is a general description of the Stabilization Fund and of the Administration's recommended use of it for balancing the fiscal year 2010 budget
General Information regarding the Stabilization Fund
The Stabilization Fund is established in Chapter 29, section 2H of the General Laws as a reserve of surplus revenues to be used for the purposes of: (1) covering revenue shortfalls, (2) covering state or local losses of federal funds or (3) for any event which threatens the health, safety or welfare of the people or the fiscal stability of the Commonwealth or any of its political subdivisions. The fund is sometimes referred to as the state's "rainy day fund," serving as a source of financial support for the state budget in times of slow or declining revenue growth and as the primary source of protection against having to make drastic cuts in state services in periods of economic downturns.
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 balance for fiscal years 2009 and 2010.
As illustrated in the table above, 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.
The Administration plans to use $1.417 billion in Stabilization Funds over fiscal years 2009 and 2010: $601 million has already been authorized for the current fiscal year and an additional $325 million is recommended to help close the remaining shortfall for fiscal year 2009. 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 our fiscal year 2009 and 2010 budget blueprints are based on current projections of temporarily enhanced federal Medicaid matching funds that will be available to Massachusetts in those years.
The Governor and his Administration have been active participants in the formulation of the federal recovery plan. 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 (Federal Medical Assistance Percentage) provision of the federal recovery bill is the one that is likely to be received soonest and have the most flexibility to address the immediate challenges facing this budget.
The most recent version of the federal bill recommends 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 October of 2008 and ending January of 2010. Thus we expect 9 months of fund to be available during fiscal year 2009 and a full 12 months would be available during fiscal year 2010. That amounts to approximately $533 million and $711 million respectively. The balance of FMAP funds, approximately $335 million, would be received during fiscal year 2011.
Consistent with this expected cash flow, the Administration plans to use $1.244 billion (of the projected $1.600 billion) of FMAP funds over fiscal years 2009 and 2010. $533 million is recommended to help close the remaining shortfall for fiscal year 2009. The fiscal year 2010 budget will rely on an additional $711 million. The balance of $355 million remaining, when combined with the expected 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 we used in 2010.
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 by building a bridge to a better economy. The chart below shows the cuts avoided though our judicious use of reserves: Stabilization Funds were used to avoid cuts across state government and FMAP funds were used to avoid cuts to health care related expenditures.
Cuts Avoided Through Use of Federal Resources
|Government Area Name||House 1||Federal Aid
|Stabilization (Allocated in Proportion to Total Budget)|
|Administration and Finance||751,648,512||(15,741,650)||-3.2%|
|Energy & Environmental 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%|
|Housing & Economic Development||351,286,119||(16,022,668)||-3.3%|
|Labor & 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)|
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