Governor Deval Patrick's Budget Recommendation - House 2 Fiscal Year 2013

Governor's Budget Recommendation FY 2013

Summary of Fiscal Year 2013 Budget


Changing the Way Government Does Business

Governor Patrick’s FY 2013 budget proposes measured, strategic investments to keep Massachusetts moving toward a strong economic recovery and a better tomorrow, while making changes to the way state government does business in the face of unprecedented fiscal challenges.  The Patrick-Murray Administration will use this budget to advance its top four priorities: closing the achievement gap in our schools, addressing health care costs, creating jobs and improving positive youth development and youth violence prevention.

Governor Patrick continues to take a balanced, fiscally responsible approach to meeting the demands of state government in an economically challenging time.  The FY 2013 budget solutions include spending discipline, bold reforms and a modest use of one-time resources and new revenue. Like all other forty-nine states in the nation, Massachusetts continues to feel the impact of the deepest economic downturn since the Great Depression. The Governor’s approach to filing a responsible, balanced budget for next year ensures that the state can continue to make critical investments in education, health care and economic growth, while preserving our safety net for the most vulnerable among us.

Supporting Shared Values

Closing the Achievement Gap – The FY 2013 budget supports many initiatives aimed at improving our schools, closing the achievement gap and preparing every student for success in a global 21st century economy.  These investments include record-high state aid for K-12 education (Chapter 70) of $4.136 B, $10 M to promote efforts to reduce educational achievement gaps in the Commonwealth’s Gateway Cities, and $219 M to community colleges (an increase of $10 M from last year) to support the Governor’s vision for a unified system.  This budget supports ongoing efforts by the Department of Higher Education to promote reforms and improved outcomes at state campuses through performance incentive funding, and maintains funding for our public campuses.  Virtually all programs at the Department of Elementary and Secondary Education (DESE) and the Department of Early Education and Care (EEC) have been maintained at last year’s spending levels or better. 

Controlling Health Care Costs – Similar to last year, this budget maintains the Commonwealth’s nation-leading universal health care coverage, while preserving benefits and eligibility.  The Administration was extremely successful in containing growth in health care costs in FY 2012 achieving hundreds of millions in savings through MassHealth, Commonwealth Care, the Group Insurance Commission (GIC), the Department of Corrections (DOC) and municipal health care reform.  Similar to FY 2012, proposals this year will harness savings through re-procurement or re-contracting and other program efficiency measures.  The FY 2013 budget supports efforts in innovative procurement strategies, interagency alignment, achievements in healthcare reform and the implementation of payment and delivery system reform policies that will enable us to achieve state budgetary savings of roughly $730 M.

Job Creation – This budget invests in the Commonwealth’s economy by funding programs that help put people back to work through infrastructure building projects or assisting unemployed people with training to attain high-skilled jobs, supporting industries that help create jobs (such as life sciences and tourism) and improving the business climate in Massachusetts by easing burdensome regulations. Under the leadership of Governor Patrick, Massachusetts gained 51,600 jobs in 2011, which is by far the strongest job growth performance for the state since 2000. 

Positive Youth Development and Youth Violence Prevention – The FY 2013 budget supports many initiatives to provide opportunities for positive youth development and youth violence prevention through summer job programs, youth violence prevention funding and targeted services in communities with the greatest demand for intervention.  This budget invests $35.5 M in programs related to these efforts, including an investment of at least $8.6 M in summer jobs, $8 M in Senator Charles E. Shannon, Jr. Community Safety Initiative grants and $10 M for Safe and Successful Youth Initiative grants. 

Spending Discipline

FY 2013 marks the fifth straight fiscal year (since FY 2009) state agencies must control costs and reduce expenses below levels projected to be necessary to maintain the levels of service provided in the current year.  The Commonwealth’s tax revenues are growing, but only modestly, after having experienced an historic drop in tax revenues during the recession.  With many of our safety net and health care programs facing all-time highs in demand, the cost to continue our current level of services outpaces our budgetary resources.  In addition, the state is legally required to increase funding annually in a limited number of places, such as pensions, collective bargaining, debt service and K-12 school aid to cities and towns. Consequently, we are unable to support all but a few modest investments and service restorations, and further cuts to many programs and services will be necessary in FY 2013. 

FY 2012 vs FY 2013 Spending *
(Dollars in millions)
FY 2012
Estimated
Spending
FY 2013
Recommended
Spending
Annual
Change
%
Change
31,374.5 32,310.5 935.9 2.98%
*Exclusive of state pension transfer.

 

The Governor’s FY 2013 budget recommendation proposes state spending of $32.3 B, or a 2.98 percent increase from the current year estimated spending levels. This year-on-year spending growth of $935.9 M is significantly less than it would have otherwise been without significant program reductions, position eliminations and reforms.  A number of efforts are being made to control the largest cost drivers in the state budget, particularly health care costs. Even with these cost-saving measures, many areas of state government will see flat or reduced funding levels and, in the aggregate, total funding for state government outside of health care, safety net and certain legally-obligated fixed costs will be reduced from FY 2012 levels.

Projected Cost Growth in Selected Areas, FY's 2012 and 2013
Doilars in millions
  FY 2012
Estimated
Spending
FY2013
Recommended
Budget
FY 2013
vs.
FY 2012
Health Care:
MassHealth (Medicaid)* 10,619.5 11,137.8 518.3
Commonwealth Care** 687.4 737.1 49.7
Employee / Retiree Health Care** 1,577.6 1,582.0 4.4
       
Safety Net (non Health Care) 3,895.6 3,984.3 88.7
       
Legal Obligations:
Debt Service 2,257.0 2,435.5 178.5
Pensions 1,478.0 1,552.0 74.0
Collective Bargaining - 174.6 174.6
Chapter 70 3,990.8 4,136.4 145.6
       
All Other State Spending 8,346.6 8,122.7 (223.8)
       
Total 32,852.5 33,862.5 1,009.9
Total Budgetary Changes (Exclusive of Off-Budget Pension Transfer): 31,374.5 32,310.5 935.9
*Includes new investments for delivery systems reforms.
**Solely reflects budgetary contribution.

 

State Workforce

Since October 2008, the state has eliminated close to 6,000 budgetary positions across all branches of state government. The Governor’s budget recommendation assumes the elimination of an additional 297 positions from current-year budget levels. With these reductions, the total state budgetary workforce will have declined by over 9 percent over a four-year period, despite increased demand for state services across a number of state programs. State agencies will need to find more innovative and creative ways, including technology-driven solutions, to provide services to Massachusetts residents at permanently reduced staffing levels.

Government Reforms

In order to address a reduced workforce and the need to control costs, the Administration has explored options to help limit cuts to critical state services through reforms and other efficiencies.  The Administration continues to demonstrate that the state is stretching each tax payer dollar further and is relentlessly pursuing all avenues for changes that efficiently improve performance.  Governor Patrick has signed into law several bold reforms that change the way government does business, including pension reform, municipal health reform and changes to control health care costs resulting in over $900 M in annual savings.  The FY 2013 budget builds on these efforts and proposes many more reforms, including:

  • Focusing the community college system to coordinate and more effectively drive the preparation of those needing jobs for the types of jobs that are available in the Massachusetts economy;
  • Improving governance over local housing authorities to improve accountability and achieve efficiencies throughout the public housing system statewide;
  • Reforms developed across state government by an inter-secretariat budget team to stretch taxpayer dollars further in FY 2013 and improve the way that government does business. Reform examples include virtual hold and call back centers for unemployment insurance; consolidating drug testing at the State Police Crime Lab to improve efficiency; and enhancing fraud, waste and abuse prevention;
  • Requiring state agencies to manage and budget for better results by setting goals, evaluating what works and aligning resources to priorities, including additional investments in performance management; and
  • Prioritizing innovation with the appointment of a Government Innovation Officer and a Council of Innovation Advisors to identify creative ways to use technology to better serve the public and to save taxpayers money.

Revenue Initiatives and Other Budget Solutions

Tax Receipts: As the state continues its economic recovery, tax collections are projected to grow by $940 M from FY 2012. Of this amount, $100 M will be deposited into the state reserves, corresponding to the amount of capital gains receipts in excess of $1 B. Under a reform adopted in the FY 2011 budget, any collections above $1 B from this volatile revenue source must be withheld from general budgeting purposes. Annual transfers of state tax receipts and other revenues (e.g., transfers to the School Building Authority and the Massachusetts Bay Transportation Authority) increase in FY 2013 by $43.2 M.

Non-Tax Revenues: Annual non-tax revenue collections are expected to be $196 M more in FY 2013 than the preceding year. Significant changes include increased federal revenues for state Medicaid and other spending of $191 M and increased departmental revenues of $57 M.  These increases are offset in part by $52 M of reduced revenue from non-budgeted sources including the state’s unclaimed property receipts and fringe revenue collected from non-budgetary sources in FY 2013.

One-Time Resources: The FY 2013 budget relies on a responsible amount of one-time budget solutions, including: $400 M in Stabilization Fund reserves, $46 M from the delay of a tax deduction for a few large, out-of-state corporations, $84 M in one-time health care resources and $11 M in contributions from some quasi-public agencies.  In total, these measures equal $541 M, or $79 M less than the one-time resources utilized in FY 2012.  The total amount of one-time resources proposed for FY 2013 is well below the cyclical tax shortfall projected next year; therefore it is a sustainable level of one-time resources and the FY 2013 budget proposal is structurally balanced. The proposal will also leave a balance of over $1 B in the Stabilization Fund at the end of FY 2013, providing resources for future years until we reach a full economic recovery and serving as a reserve for any unanticipated needs that cannot be otherwise addressed.

New Revenue: The budget also includes two new revenue proposals to fund targeted investments in both public health preventative care services through the Commonwealth Health and Prevention Fund and health insurance programs through the Commonwealth Care Trust Fund.  One proposal would eliminate the sales tax exemption on candy and soda, while the other would increase the tax on cigarettes and other tobacco products. In addition, the Governor’s budget proposes to modernize the current state bottle redemption practices by expanding the required 5-cent bottle deposit to bottled water, sports drinks and other non-carbonated beverages.  These beverage types make up a larger portion of the bottled beverages sold in the Commonwealth every year. The Governor’s budget includes certain other revenue proposals including modest and targeted fees increases, enhanced tax collection initiatives and certain other tax-fairness related proposals.

Annual Change in Budgetary Resources, FY 2012 vs. FY 2013
(Dollars in millions)
  FY 2012 FY 2013 Change
Projected Tax Collections (excluding one-time FAS 109 Delay): 20,964.0 21,950.0 986.0
Required Transfers to/from Reserves*: (268.1) (238.0) 30.1
Prior Year Funds Used to Support Current Year Non-Recurring Budgetary Spending: 173.9 - (173.9)
Transfer for Annual Pension Contribution: (1,478.0) (1,552.0) (74.0)
Transfers of Tax Revenue to MBTA, SBA and Workforce Training Fund: (1,463.0) (1,506.2) (43.2)
Federal Reimbursements: 7,823.6 8,014.7 191.1
Departmental Revenues: 3,108.3 3,165.2 56.8
Transfers from Non-Budgeted Sources: 1,833.4 1,781.8 (51.6)
One-Time Sources for Recurring Budgetary Costs (including certain Prior Year Funds and FAS 109 Delay): 573.0 446.0 (127.0)
Proposed New Budgetary Revenues:
Modernize Bottle Redemption: - 22.3 22.3
Agency Revenue Initiatives: - 10.8 10.8
Enhanced Tax Enforcement: - 22.3 22.3
New Tax Initiatives (not-including one-timers): - 86.2 86.2
CHANGE IN BUDGETARY RESOURCES (INCLUSIVE OF PENSION CHANGE):     935.9
Additional Off-Budget Revenues Dedicated to Health Care Through the Commonwealth Care Trust Fund: - 72.9 72.9
Additional Off-Budget One-Time Resources: 47.0 95.0 48.0
TOTAL CHANGE, FY 2012 vs FY2013     1,056.8
*Includes one-time tax settlements transferred in FY 2012 to Rainy Day Fund, transfer to General Fund of Rainy Day funds for Gaming Oversight Costs, annual Statutory Carry Forward, Capital Gains receipts above $1 B transferred to Rainy Day Fund and FY 2013 transfer of 10% of Master Tobacco Revenue for retiree health care contribution.

 

Transparency

As part of the FY 2011 budget, the Legislature passed and the governor signed into law new transparency requirements, which include the development of an online searchable database for state spending. The Open Checkbook is based on the approach and technology piloted in the Massachusetts Recovery and Reinvestment Office website.

The Open Checkbook website provides payment details for over 50,800 vendors – identifying who was paid, how much was paid, which state entity made the payment and the purpose of the payment.  In addition to showcasing a breakdown of state vendor payments (which can be searched by vendor name, department or spending category), the website also provides state government payroll and pension information.  While the vendor details are updated every night, the payroll and pension figures are updated every two weeks and every month, respectively.

As part of the Patrick-Murray Administration’s ongoing efforts to make government accessible to all, the Executive Office for Administration and Finance has made changes to the budget document, so that it is more dynamic and user-friendly.  The FY 2013 budget will be divided into two volumes. Volume 1 will give readers insight into how the Commonwealth’s budget is developed and highlight the Administration’s priorities and reform agenda.  Consistent with prior years, a limited number of copies of Volume 1 will be printed. Volume 2 will be entirely online for the public to search, and it will be easy to download and print.  Volume 2 will contain lengthier narratives and financial reports. Putting parts of the budget online will improve accessibility and transparency, and will allow for more regular updates to the budget recommendations and other important information for our residents to access and research.  We are happy to note that by printing less than in previous years, we will save the Commonwealth more than $6,500 in printing costs.


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