The Governor’s fiscal year 2011 budget is a balanced and fiscally responsible blueprint. Estimated fiscal year 2011 spending would grow by only 3% over estimated fiscal year 2010 spending, less than the projected 3.2% rate of growth in tax revenues.
In addition to delivering on many reforms, the Governor has once again proposed a balanced set of solutions that deliver on his commitment for a fiscally responsible budget that mitigates the impact on those most in need.
Of the $2.75 billion budget shortfall, the Administration anticipates that $1.394 billion will be funded with federal stimulus funds that will be required to spend – or lose – in fiscal year 2011. To close the remaining projected budget gap, the Administration has proposed budget cuts and savings and efficiencies totaling $797 million gross ($670 million net). The proposal includes $29 million of budget cuts that will be offset by contributions from the State’s independent and quasi-public agencies. It uses some select tax exemptions and dedicates the proceeds to fund wellness and other programs that will lead to cost savings in the long term. These solutions, along with a measured approach to the use of reserves and other one time revenues, have allowed the Governor to protect core services while responsibly balancing the fiscal year 2011 budget.
|1||BUDGET REDUCTIONS, SAVINGS AND EFFICIENCIES ($797 million gross)||670|
|Line Item Reductions||310|
|Mass Health Reductions ($265 million gross)||132|
|Line Item Reductions Offset by Quasi-Public Contributions||29|
|Debt Restructuring: Smoothing||199|
|2||FEDERAL STIMULUS FUNDS REQUIRED TO BE SPENT IN FY11||1,394|
|Federal Stimulus - Education Stabilization Funds||96|
|Federal Stimulus - Enhanced FMAP (first 1/2 of FY11) - Tier 3||690|
|Extension of FMAP (second 1/2 of FY11) - Tier 2||608|
|3||DISCRETIONARY RESERVES AND OTHER ONE TIME RESOURCES||489|
|Rainy Day Funds||175|
|Medicare Repayment for Special Disability Workload||160|
|Sale of State Land||19|
|Trust Fund Reconciliation and Closure||35|
|Administrative Provisions to Facilitate Tax Collections||31|
|Limiting Tax Expenditures||136|
|Departmental Revenue Increases||33|
|Non Executive||FY10 GAA||FY10 Estimated Spending||FY11 H.2|
|Committee for Public Counsel Services||168,298,481||201,277,524||167,964,898|
Agencies outside of the Executive branch including Constitutional Officers, the Judiciary, District Attorneys and Sheriffs, among others comprise $3.5 billion of the fiscal year 2011 budget recommendations. Some areas of note include –
|Executive||FY10 GAA||FY10 Estimated Spending||FY11 H.2|
|EO Adminisrtation & Finance||313,283,351||345,650,435||345,535,161|
|EO Energy & EnViromental Affairs||209,917,322||204,252,286||197,905,899|
|EO Health & Human Services||4,749,176,462||4,696,005,290||4,667,934,484|
|MA Department of Transportation||78,821,155||88,497,769||-|
|EO Housing & Economic Development||315,125,004||350,285,917||324,456,038|
|EO Labour & Workforce Develpoment||46,254,384||54,256,983||44,345,299|
|EO Public Saftey||932,767,320||928,545,292||1,072,853,430|
Funding for Executive Branch Agencies for programs and services that fall within each of these Secretariats totals $8.6 billion for fiscal year 2011. Several factors contribute to the varying levels of increases and decreases among them:
There are a few program in the budget that grow over the fiscal year 2010 levels for reasons that include the implementation of specific formulas, increased caseload assumptions and increased utilization.
|Areas of Growth||FY10 GAA||FY10 Estimated Spending||FY11 H.2|
|Group Insurance Commission||1,049,621,804||1,063,874,301||1,241,596,385|
The Administration’s fiscal 2011 budget includes $9.838 billion for the MassHealth program. The proposed spending for MassHealth is 6.5% higher than fiscal year 2010 estimated spending of $9.237 billion. The fiscal year 2011 budget continues to fund projected enrollment growth in the MassHealth program of 3%.
|FY10 GAA||FY10 Spending Plan||FY11 Maintenance||Percent growth in Maintenance from FY10 Spending Plan||FY11 Spending Plan||Spending Reductions from FY11 Maintenance||Percent Growth in FY11 Fianl Spending from FY10 Estimated Spending|
In order to manage spending growth at MassHealth and to achieve the $9,838 billion final spending number MassHealth is required to due some targeted spending reductions from the maintenance budget. The savings in the fiscal year 2011 H.2 budget total $265 million (gross), or $132 million (the $132 million net number only includes reimbursement at 50%, if enhanced FMAP were to be included the total state share would be $104 million) and can be categorized into the following; appropriate discipline on rates, program integrity, service restructuring and other initiatives (see below for a chart that highlights that amount in each savings category):
|Categories||FY11 Gross Value||FY11 Net Value (50% Federal Medical Assistance Percentage)||FY11 Net Value (Enhanced Federal Medical Assistance Percentage)||FY11 Net Value (State Share)|
Notes: Savings total does not tie with amount in chart above due to IT transfers of $4.5M and investments of $10.5M.
Rates - All providers have experienced rate reduction or freezes in the past year and a half due to the extreme fiscal pressures that the state and the overall economy have encountered. The providers highlighted above for fiscal year 2011 savings have experienced minimal or no rate-related cuts.
Program Integrity - Program integrity measures are changes that tighten and strengthen operations at MassHealth. Program integrity measures can include billing changes, changes in the redetermination process, cost avoidance and third party liability recoveries and other items that contribute to efficiencies in the program.
Service Restructuring - Service restructuring includes changes in the way that MassHealth delivers some services. The most notable service restructuring is for the MassHealth adult dental program. The MassHealth Adult Dental program will only cover preventative and emergency services and it will no longer cover restorative dental services. This change will not impact children or intellectually disabled members with active cases through the or intellectually disabled members with active cases through the Department of Developmental Services.
All Other - This item is a “catch all’ for the Administration’s other reductions that did not fall into one of the above categories. The most significant savings in this category is related to member cost sharing. The only additional cost-sharing is a $1 increase in co-payments for generic drugs (this will not be applied to antihyperglycemics, antihypertensives and antihyperlipidemics, which are used to manage and treat long-term chronic medical conditions).
The Administration’s budget also proposes a couple of revenue solutions to help offset increases in spending. Revenue initiatives include restructuring payments for prescription drug coverage in managed care plans to achieve higher drug rebate revenues, and expanding the Health Safety Net payer surcharge to Managed Care Organizations serving MassHealth and Commonwealth Care members to generate additional funding for MassHealth and Commonwealth Care.
In order to achieve the savings and revenue proposals highlighted above there are some moderate investments in the MassHealth program. The investments amount is $10.5 million gross or $5.25 million net (the $5.25M net number only includes reimbursement at 50%, if enhanced FMAP were to be included the total state share would be $4.1 million) for enhancements to UMASS’s pharmacy online processing systems (POPS) and additional resources for program integrity measures.
Since fiscal year 2009 the Patrick – Murray Administration has partnered with our Independent and Quasi-Public agencies to provide for nearly $90 million in funding to help preserve vital programs and services that would have otherwise been suspended or cut during this fiscal crisis. For fiscal year 2011, many of these agencies have once again stepped up to help preserve important programs and services for the coming fiscal year.
|Quasi||Program Preserved||Total Contribution|
|University of Massachusetts||Scholarship||3,500,000|
|University of Massachusetts||State Library||125,000|
|University of Massachusetts||Collins||541,000|
|Connector Authority||Enrollment Grants||2,500,000|
|MA Convention Center Authority||MOTT||5,000,000|
|Mass Housing Partnership||Soft Second||2,000,000|
|Mass Development Finance Authority||Mass Cultural Council||3,000,000|
|Mass Development Finance Authority||Office of Small Business||700,000|
|Mass Development Finance Authority||Permitting Office||335,000|
|Mass Tech Collaborative||STEM||500,000|
|Mass Tech Collaborative||HED Broadband||275,000|
|Mass Tech Collaborative||MOITI||300,000|
|Mass Tech Collaborative||Innovation Initiatives||500,000|
|Mass Education Finance Authority||McNair Scholarship||1,000,000|
Debt service on outstanding long-term bonds is a significant portion of the Commonwealth’s operating budget. As part of the comprehensive plan to address fiscal year 2011 budgetary shortfalls, the Administration proposes a two-part debt refinancing strategy. The first part is to refinance $200 million of fiscal year 2011 amortizing principal to smooth the fiscal year 2011 debt service spike. The second part is to refinance an additional $100 million of fiscal 2011 principal to achieve budgetary relief, if necessary.
As one limited component of a larger set of budget solutions, this debt refinancing proposal is a sound and reasonable proposal in the current fiscal context. This is particularly true based on the modest amount, the short amortization period, the historically low interest rate environment and the opportunity to pair this refinancing with another refinancing that will actually result in net present value savings. This refinancing will be taking into account and is consistent with our debt affordability policy.
2. Federal Stimulus Funds that Must be Spent in Fiscal Year 2011
Governor Patrick’s effective advocacy in Washington helped secure a total of $2.889 billion in enhanced federal Medicaid matching funds and $994 million in Education Stabilization funds for the Commonwealth as part of the larger American Recovery and Reinvestment legislation that was signed by President Obama in February of 2009. In the absence of these federal funds, the state would have had to make deeper, harmful cuts to core public priorities or draw larger amounts from its own stabilization fund to balance the budget. This strategy has resulted in a sizeable balance ($610 million) in the state’s stabilization fund heading into fiscal year 2011 to help continue to cushion the impacts of a prolonged national economic downturn.
The federal aid amounts included in the fiscal year 2011 budget blueprint are based on current projections of temporarily enhanced federal Medicaid matching funds (FMAP) that will be available to Massachusetts based on the Governor’s recommended appropriations for programs that generate matching federal funding under the State’s FMAP formula as well as the remaining balance of the fiscal Stabilization funds used to support education.
The fiscal year 2011 budget includes a total of $1.297 billion in enhanced FMAP, generated throughout fiscal year 2011. These resources reflect Governor Patrick’s ongoing advocacy and anticipated success in helping to secure the expected enactment of a six-month extension of enhanced federal matching relief as part of pending federal legislation. This approach is consistent with our actions last year in filing our fiscal year 2010 budget proposal while the federal recovery act was pending. In the unlikely event that Congress ultimately decides not to extend enhanced Medicaid matching funds, the Administration would re-file House 2 based on revised federal revenue projections (just as we re-filed House 1 last year based on updated state tax revenue projections). The fiscal year 2011 budget also includes $96 million in remaining federal recovery act Education Stabilization funds, which are used to fully protect higher education from budget cuts.
|Federal Stimulus Funds Used to Support the Operating Budget|
|FY09||Projected FY10||Proposed for FY11|
|Federal Medical Assistance Percentage (FMAP) Based Original ARRA Legislation(869)||(1,328)||(690)|
|Extension of FMAP Benefits - (6 monthc)||-||-||(608)|
|Fiscal Stabilization - Education Funds (81.8%)||(322)||(457)||(34)|
|Fiscal Stabilization - General Government Services (18.2%)||(90)||(29)||(62)|
|Transitional Assistance for Needy Families (TANF) Based on ARRA Legislation||(41)||(83)||(23)|
|SUBTOTAL OF ARRA FUNDS||(1,322)||(1,897)||(1,417)|
|Change in use of ARRA Funds Previous Year||575||(480)||-25%|
The total amount of federal stimulus funding used to support the operating budget is reduced by approximately 25%, or $480 million, from the amount that was used in fiscal year 2010. It is important to understand that any federal stimulus funds used to support the operating budget must be spent in accordance with the “use or lose” provisions of the federal legislation. In addition, there are federal maintenance of effort requirements that must be met as a condition of the stimulus funds and a state cannot use these funds to build up their reserves.
The Administration strikes a careful balance in using one-time revenues in our fiscal year 2011 budget blueprints.
The Governor’s use of the Commonwealth’s Stabilization Funds throughout the fiscal crisis has been measured and adjusted based on the changing economic conditions. For example, when the Governor filed his budget recommendations for fiscal year 2010 he proposed using approximately $500 million of Stabilization Funds. As the revenue picture worsened and more federal stimulus funds became available to help stabilize programs such as MassHealth and Chapter 70 education aid, the Governor reduced the Stabilization draw to $215 million. This amount was later increased by $34 million bringing the total authorization for fiscal year 2010 to $250 million. Ultimately, the total amount of Stabilization Funds that will be used in fiscal year 2010 will depend on revenue performance for the second half of the fiscal year. To the extent that revenues come in over benchmark, the Secretary of Administration and Finance may authorize a lesser amount to be drawn from the Stabilization Fund if revenues are sufficient to cover expenditures for the remainder of the year.
For fiscal year 2011, the Governor is proposing a modest draw from the Stabilization Fund of $175 million. This represents a 30% reduction in the use of Stabilization funds from fiscal year 2010 and preserves an ending balance of approximately $450 million. In addition, the Secretary of Administration and Finance intends to use his authority to reduce the amount of stabilization funds used in fiscal year 2011 to the extent supported by revenue collections. The following is a general description of the Stabilization Fund.
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 2010 and 2011.
* FISCAL YEAR 2010 and FISCAL YEAR 2011 Stabilization Fund totals are estimates based on current revenue projections
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.
Use of Other One-Time Discretionary Revenues:
As state tax revenues grow due to projected improvement in the economy – and the Governor continues to exercise care and restraint in spending – we project being able to reduce the total amount of one-time resources used to balance the budget in fiscal year 2011 by 23% compared to fiscal year 2010 and 38% compared to fiscal year 2009. Through fiscal discipline, we are able to minimize the use of the State’s Stabilization Fund – the state’s most flexible reserve. The budget proposes only a $175 million withdrawal from the State Stabilization Fund, an 87% decrease from fiscal year 2009 and 30% decrease from fiscal year 2010.
|FY09 Actual||Projected FY10||Proposed for FY11||% Change|
|Federal Stimulus Funds|
|Federal Medical Assistance Percentage (FMAP) Based Original ARRA Legislation||(869)||(1,328)||(690)|
|Extension of FMAP Benefits - (6 months)||-||-||(608)|
|Fiscal Stabilization - Education Funds (81.8%)||(322)||(457)||(34)|
|Fiscal Stabilization - General Government Services (18.2%)||(90)||(29)||(62)|
|Transitional Assistance for Needy Families (TANF) Based on ARRA Legislation||(41)||(83)||(23)|
|Subtotal: Federal Stimulus Funds||(1,322)||(1,897)||(1,417)|
|Change in use of Funds from Previous Year||575||(480)||-25%|
|Discretionary One-time Funds|
|State "Rainy Day" Funds||(1,390)||(249)||(175)|
|One-time Tax Settlement Revenue||(196)||(152)||-|
|TANF Contingency Funds (non- ARRA Funding)||(80)||(18)||-|
|Ma Convention Center Fund||(65)||-||-|
|Ma School Building Authority Repayment||-||(150)||-|
|Independent and Quasi Contributions||(46)||(21)||(29)|
|Trust Fund Balances||-||(28)||(35)|
|Special Disability Workload Federal Reimbursement||-||-||(160)|
|Sale/Proceeds from the Sale or Use of State Land||-||(9)||(19)|
|Debt Savings Proposal||-||-||(100)|
|Subtotal: Discretionary One-time Funds||(1,790)||(631)||(518)|
|Total Use of One-timers||(3,112)||(2,529)||(1,935)|
|Change in use of One-timers from Previous Year||(583)||(593)||-23%|
|Change in use of One-timers from FY09||(1,177)||-38%|
The budget does not include any broad-based tax increases. Based on a thorough, multi-agency examination of state tax exemptions, it proposes limiting select exemptions to provide sufficient resources to meet public priorities. This includes retaining existing film and life sciences tax credits, but temporarily capping the financial benefit they provide at levels calibrated to ensure Massachusetts remains a leader in both fields. The budget also repeals sales tax exemptions for candy and soda and ends the exemption of cigars and smokeless tobacco from the cigarette excise tax rate enacted by the Legislature in 2008. These measures promote public health and generate revenues that are dedicated to health care and wellness programs through the Commonwealth Care Trust Fund and the Commonwealth Health and Prevention Fund.
Limiting Certain Tax Expenditures ($135.9 million net of transfers to the School Building Authority and the Commonwealth Care Trust Fund)
Massachusetts law defines “tax expenditures” as “state tax revenue foregone as a direct result of [a] law which allows exemptions, exclusions, deductions from, or credits against, the taxes imposed on income, corporations, and sales.” Every year, as required by law, the Department of Revenue prepares a “Tax Expenditure Budget” that shows how much the Commonwealth spends for each of these tax expenditures. The current Tax Expenditure Budget is published as part of this document and can be viewed in it entirety under the section tab titled “Tax Expenditure Budget”.
To carry out the Patrick-Murray Administration’s policy of shared sacrifice during this fiscally challenging time, and based on an unprecedented, thorough review of the state tax code’s many preferences, we recommend limiting specific tax expenditures worth $161.6 million in fiscal year 2011.
Commonwealth Health and Prevention Fund ($51.7 million; $157.1 million after dedicating the alcohol tax signed into law in the previous fiscal year)
Massachusetts has long been an innovator in health care and public health. The public health programs that serve the people of the Commonwealth reflect the Administration’s commitment to preventative care and wellness services as a vital component of health care reform. The Commonwealth Health and Prevention Fund will receive a total of $151.7 million of revenue generated from eliminating exemptions on sweetened beverages and candy ($51 million) and by dedicating the alcohol tax revenue ($100 million) that was singed into law as part of the fiscal year 2010 budget. The fund will be used to support critical programs within the Massachusetts Department of Public Health, including addiction services, smoking prevention and cessation programs, violence prevention, and children’s nutrition.
|Account Distribution||Acct #||% Funded from Health and Prevention Fund||Total Health and Prevention Fund Spend|
|Addiction Control Services||100%||$81,184,876|
|Smoking Prevention and Cessation Programs||4590-0300||90%||$4,725,969|
|Health Promotion, Violence Prevention and Workforce Expansion||4510-2500||83%||$33,520,467|
|Children's Health and Nutrition||4512-0120||83%||$32,268,688|
|Total Wellness Fund Spending||$151,700,000|
Bottle Bill ($20 million)
Discarded cans and bottles are a major source of trash that impacts our communities while wasting precious natural resources and energy. 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 fiscal year 2011 budget, Governor Patrick proposes to expand the $0.05 deposit to include water, flavored waters, coffee based drinks, juices and sports drinks. 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 expanded and non-carbonated beverages have experienced near double-digit growth in the past decade.
Of the estimated $20 million in additional revenue generated through this change, $5 million will be dedicated to the Executive Office of Energy and Environmental Affairs for recycling and solid waste management.
Fraud, Waste and Abuse
It is critically important that the Commonwealth be focused on detecting fraud and abuse in the delivery of all state programs and services. In this difficult fiscal environment, the Commonwealth is experiencing increased caseloads in many important programs. These programs, especially those that protect our most vulnerable residents, are in greater demand during these difficult economic times. We need to make sure every dollar is spent appropriately.
Because fraud, waste and abuse prevention is a cross Branch / cross- Secretariat initiative the Governor’s budget recommendation for fiscal year 2011 proposes the creation of a task force comprised of all the state entities that play a critical role in the detection and prevention of fraud. The goal of the taskforce will be to create better coordination among these entities and to:
The Governor also proposes providing additional resources to these agencies by recommending a 10% increase in funding levels for those agencies that detect and prevent fraud and abuse.
|Department||Account Name||FY10 Estimated Spending||H.2||Increase||% Change|
|State Auditor||Bureau Special Investigations||1,647,654||1,812,419||164,765||10.0%|
|State Auditor||Medicaid Audit Unit||790,702||897,829||107,127||13.5%|
|Attorney General||Medicaid Fraud Control Unit||3,467,021||3,814,923||347,902||10.0%|
|Operational Services Division||HHS Provider Recovery RR||499,240||549,925||50,685||10.2%|
As a result of the work of the task force and the increased investment in fraud and abuse detection and recovery, the Administration conservatively estimates that it will save $15 million through increased recoveries.