Governor Patrick Outlines Emergency Recovery Plan to Stabilize Budget, Position State for Economic Recovery
Multi-pronged solution includes FY09 fix, FY10 budget and new revenue tools for communities
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BOSTON-Wednesday, January 28, 2009 - Amid a deep national recession and unprecedented fiscal crisis, Governor Deval Patrick today submitted his Fiscal Year 2010 budget proposal and an emergency plan for closing a $1.1 billion budget gap in the current fiscal year. Both are key components of the Patrick-Murray Administration's Emergency Recovery Plan that will help stabilize and position the Commonwealth for long-term economic success. The Governor will also file legislation to help municipalities increase revenue to offset local aid cuts.
"The national recession is inflicting serious pain across Massachusetts, from household budgets to the state's balance sheets, and like many residents throughout the Commonwealth, we have to make do with less," said Governor Patrick. "At the same time, we also have opportunities. The Economic Recovery Plan leverages reforms and responsible budgeting that could help alleviate the mounting pressure on our communities now and in the future."
The $27.97 billion FY10 budget proposal is a balanced and responsible plan, preserving core functions of government, while reflecting Governor Patrick's commitment to protecting safety-net services, assisting cities and towns and supporting education and public safety.
The budget includes difficult, yet necessary cuts to address a significant loss of revenue and unavoidable increases in health care costs and debt service obligations. Governor Patrick has not spared his own priorities, applying cuts to priorities such as the Commonwealth Corps and slowing investments in education reform and life sciences.
The budget is part of Governor Patrick's Emergency Recovery Plan, which will help manage the immediate impacts of the current economic crisis and lay a foundation for future economic growth. The emergency plan also proposes solutions to close the FY09 budget gap and seizes the opportunity to implement a number of state and local government reforms.
Both the FY10 budget and FY09 emergency plans will account for anticipated federal stimulus aid. Governor Patrick has been a close partner with President Obama's team and the state's congressional delegation to help secure this funding.
Closing Budget Gap for FY 2009
The unprecedented nationwide recession has complicated an already difficult budget process, with a second $1 billion budget gap to fill in FY 2009. Over the last five months, the Administration has had to solve a budget deficit of approximately $6 billion from fiscal year 2009 and fiscal year 2010.
In October, the Governor closed a $1.4 billion budget gap by issuing $1.053 billion in 9C cuts and spending controls, identifying $168 million in additional revenues and withdrawing $200 million from the state's Rainy Day Fund. Those solutions came on top of preparations made earlier in the year as the economy began to soften.
The Administration has now identified an additional $1.1 billion gap as the national economy continues to decline. To close this gap, the Governor is making an additional $191 million in 9C cuts; filing an Emergency Recovery Bill that includes $68 million in additional revenues and $327 million in Rainy Day Funds, and using $533 million in anticipated enhanced federal Medicaid funds.
Last week, the Governor announced he will make $128 million in cuts to Local Aid in FY09. In October, the Governor avoided reductions to Local Aid during the first round of cuts by making deeper cuts in other parts of the budget.
The Governor has protected the record high level of Chapter 70 education aid for FY09, and maintains that funding in FY10. The Governor has cut another $63 million from the Executive Branch, including $287,000 in the Governor's Office budget in addition to the $1.1 million cut in October.
To generate additional revenue, and provide a new, stable source of funding for public health programs, the Administration is proposing to eliminate the sales tax exemption on alcohol, candy and sweetened beverages - using $25 million from the new proceeds to close the FY09 budget gap. In FY10, $121.5 million will be deposited into a new Commonwealth Wellness Fund to pay for public health and wellness initiatives, such as tobacco control and violence prevention. The Governor is also proposing to use $25 million in anticipated Department of Revenue Tax Settlements and $18 million from updating and consolidating Registry of Motor Vehicle fees to close the FY09 gap.
Reserves and Federal Aid
The Governor is proposing a modest draw of $327 million on reserves from the state Rainy Day fund to help close the gap, leaving a balance of approximately $1.3 billion. The Administration will rely on $533 million in anticipated Medicaid federal matching funds from the pending federal economic recovery bill.
Blueprint for FY 2010
The FY10 budget proposal is lean, and reflects a commitment to maintaining core services. It is in line with Governor Patrick's reform agenda and is focused on priorities in education, public safety, health care and employment.
Highlights of the FY10 budget include:
- $13 million for Shannon Grants, matching historic highs
- $8 million for Summer Jobs programs for at-risk youth, maintaining FY09 spending
- Extended Learning Time grants funded at $17.4 million, equal to FY09 spending
- Universal pre-kindergarten funded at $11.6 million, providing the same number of classrooms with grants as in FY09
- Department of Veterans' Services receives approximately $6 million increase from FY09 to FY10
- Maintained funding for One-Stop Career Centers at $5.5 million
- Maintains the FY09 level of $1.8 million in funding for the State Ethics Commission, in line with recommendations of the Governor's Task Force on Public Integrity.
Given the economic climate, additional cuts are necessary for FY10, impacting individuals, families, businesses and government at all levels. Some cuts include:
- $220 million, or a 4.2 percent reduction, in aid to cities and towns, accounting for adoption of a 1 percent increase in the statewide meals and hotel taxes. Without the new revenues, the cut would be $375 million, or a 7 percent, reduction.
- Elimination of funding ($3.5 million) for health care outreach and enrollment grants;
- An 11 percent reduction to the budgets of the Judiciary, District Attorneys and Sheriffs.
- Priorities of the Administration are also scaled back in FY10, including a 33 percent cut to Commonwealth Corps.
Amid deep cuts, the budget proposes more flexibility for agencies to manage their budgets by consolidating 849 line-items into 480 line-items. This approach builds on the authority the Legislature gave the Administration to transfer limited amounts of funding between line-items to prioritize pressing needs.
To offset a portion of the cuts and take advantage of the unique opportunity presented by a fiscal crisis, the Administration is pursuing other wide-ranging reforms that will transform the face of state government, restructuring agencies and revamping services to make them more cost-effective and responsive to the needs of Massachusetts residents. Key reforms include:
- Reforming the way the state accounts for capital gains tax revenues to insulate the budget from the state's most volatile revenue source.
- Consolidating agencies and operations around homelessness services, information technology, energy management and county sheriff departments.
- Filing a second Municipal Partnership Act bill with reform tools to help communities better manage their bottom lines through regionalization of services and enrollment into the state's Group Insurance Commission (GIC) to contain health care costs.
- Re-introducing a plan to reform state employee health insurance from a system based on date of hire to a more rational system based on salary and affordability. The reform will save $60 million in FY10.
While reforms will help save the Commonwealth money, they alone cannot close the budget gap. The Administration has proposed a series of new revenue proposals to help protect key priorities and provide a more stable and sustainable funding base in the long-term. These proposals include:
- Meals and Hotel Taxes: $150 million from a 1-cent statewide increase dedicated to reducing local aid cuts; and $200 million for an additional 1-cent increase at local option.
- Commonwealth Wellness Fund: $121.5 million from eliminating sales tax exemption on alcohol, candy and sweetened beverages dedicated to public health programs.
- Bottle Bill: $20 million from expanding the 5-cent recycle deposit to include plain and flavored water, coffee-based drinks, juices and sports drinks dedicated largely to recycling and water and sewer rate relief.
- RMV fees: $74.5 million from updated and consolidated Registry of Motor Vehicle (RMV) fees dedicated to the state Highway Fund.
For more information on the Governor's Emergency Recovery Plan, go to: www.mass.gov/budget/governor.