FY05 Budget Overview

Transcription

1 FY05 Budget Overview

2 Agenda FY 2004 Update H1A Summary New Initiatives Essential Reforms Debt Position 2

3 Upon enactment, FY04 GAA relied on a limited amount of one-timers, but did not use reserves $518 million of one-time solutions One-time solutions: -$145 million from the transfer of the Hynes Convention Center and the Boston Common Parking Garage to the Pension Fund -$40 million from the sale of surplus land -$271million from FMAP monies -$62 million from the closure of the Teachers Quality Trust with remaining funds transferred to the the General Fund The FY04 budget did not rely upon: -Raising taxes -Deficit financing -Pension obligation bonds -Tobacco securitization bonds -Tapping the stabilization fund -Tapping the health care security trust (so-called tobacco settlement funds ) 3

4 However, recently passed legislation did tap reserves for funding... FY04 Supplemental Appropriation -Transferred $102.5 million from the Stabilization Fund to the General Fund $44 million for higher education costs including collective bargaining contracts $6 million for school health services $52.5 million for a variety of other items Economic Recovery Bill -Transferred $100 million to the Economic Stimulus Trust Fund from the following sources: $33.3 million from stabilization reserves $33.3 million from Health Care Security Trust $33.4 million from Jobs Growth Reconciliation Act of 2003 funds 4

5 ... yet, we still project healthy reserves at the end of FY04 Reserves as of June 30, (in millions) $2,500 $2,000 $1,500 $1,000 $500 $0 $2,140 $425 $1,563 $1,390 $1,106 $444 $139 $509 $438 $1,715 $478 $881 $641 $805 FY01 FY02 FY03 FY04 Stabilization Tobacco FMAP 5

6 FY04 projections FY04 Projection REVENUES Consensus Revenue Estimate 15,230.0 Pension Transfer (687.4) MBTA Transfer (684.3) Subtotal, tax revenue for budget 13,858.3 Federal reimbursement 4,838.7 FMAP Other revenues 3,106.6 Total Budgeted Revenue 22,108.6 EXPENDITURES Medicaid 6,197.0 K-12 Education 3,496.0 Debt Service 1,597.0 All Other Spending 10,580.0 Total Budgeted Expenditures 21,

7 Agenda FY 2004 Update H1A Summary New Initiatives Essential Reforms Debt Position 7

8 Underlying Principles No Tax Increases No Deficit Financing No Use of Stabilization or Health Care Security Trust No Tobacco Securitization No Cuts to Local Aid or changes to C. 70 or Additional Assistance No Major Fee Increases Pension Schedule Remains at

9 Revenue Summary FY04 Projection* FY05 House 1 Variance % Change Consensus Revenue Estimate 15, , % FY05 Tax Loopholes Closings N/A Total Taxes 15, , % Pension Transfer (687.4) (1,217.0) (529.6) 77.0% MBTA Transfer ** (684.3) (684.3) - 0.0% Subtotal, tax revenue for budget 13, , % Federal reimbursement 4, , % FMAP (166.0) -54.4% Other revenues 3, , % Total Budgeted Revenue 22, , % * Includes tax loophole closings from prior fiscal years and FY04 ** Based on recent inflation data, MBTA transfer will be $705 million in FY05 9

10 Economic data support projection of modest revenue recovery 3.75% assumed revenue growth is based on very modest recovery, compared to growth rates that neared double digits in the late 90s -UMass Benchmarks leading indicators project 2.8% real growth over next 6 months -Independent forecasts project real GSP growth of % for FY05 -National recovery in business investment and high-tech demand is favorable for MA -Associated Industries of MA s index of business confidence is now at its highest level since November Federal Reserve s last two Beige Books (Nov & Jan) report improving economy in Boston s region, including higher manufacturing demand, unlike previous reports Corporate taxes were a key component of the initial revenue collapse in FY02, but have already begun a strong recovery -Corporate & business taxes rose 9.1% baseline in FY03 -Up 44.3% YTD in FY04 -Corporate and business tax growth of 6% is assumed for FY05 Capital gains, the other key component of initial revenue collapse in FY02, were stronger than anticipated in FY03, but FY04 and FY05 projections conservatively assume no recovery 10

11 Economic data support projection of modest revenue recovery Sales tax (25% of the tax base) continues to be weak -FY04 YTD, sales tax revenue is flat -MA consumer confidence has steadily improved over the last year, but is still only at the July 2002 level (MassInsight) -Independent forecasts project retail sales growth of % -FY05 projection is 2.8% growth in sales tax revenue Withholding (50% of the tax base) depends on employment and wages -Average wage growth has already begun its recovery Year-on-year average wage growth rose to 1.6% by last spring (most recent data) January and February taxes indicate some reappearance of bonus income Forecasters anticipate average wage growth of % -Corporate profitability and business confidence indicators lead forecasters to predict employment growth of % in FY05 -FY05 projection is 3.6% growth in withholding Conservative forecast Independent forecasts project more robust total wage and salary growth ( %) 11

12 Fiscal 2004 Budgeted Tax Collections (1) $ in millions Tax Collections Change From Prior Year ($) Percentage Change Baseline % Change Prior Year Amount Above (Below) Revised FY04 Estimate (2) July $1,067 $54 5.4% 1.8% N/A August $1,090 $26 2.4% 6.6% N/A Sept $1,642 $84 5.4% (1.4%) N/A Oct $1,076 $ % 13.3% N/A Nov $1,046 $30 3.0% 4.3% N/A Dec (3) $1,454 $60 4.3% 4.0% N/A Jan (3) $1,507 $22 1.5% 5.1% $47 Feb (3) $901 $61 7.2% 13.6% $104 Total YTD $9,782 $ % 5.2% $151 (1) Total may not add due to rounding (2) The Executive Office for Administration and Finance and legislative leadership agreed to revise projected FY 2004 tax revenues on January 14, 2004 to $ BN (3) Figures are preliminary 12

13 FY05 pension payment was agreed upon as part of revenue consensus process $1.217 Billion Fiscal 2005 Payment Fully amortize the Commonwealth's un-funded pension liability by 2023 (unchanged) Use five-year actuarial smoothing for the valuation of assets -Unchanged methodology -Latest asset valuation date is December 31, 2003 Includes estimated actuarial losses during $250 million due to the 2003 early retirement incentive for state workers -$250 million for estimated actuarial losses on the teachers system The amortization growth rate is increased from 4.15 percent to 4.50 percent 13

14 The FY05 budget utilizes the remaining FMAP funds FY04 Revenue = $444M $216M General Fiscal Relief $228M Increased FMAP FY04 Uses = $305M $55M Transfer to UCP $33.3M Transfer to Economic Stimulus Fund $216M Transfer to General Fund for expenditures Remaining Balance Designated for FY05 = $139M 14

15 Almost 70 percent of one-time gains are a result of reform initiatives Turnpike Merger 190 SBA Refinancing 150 FMAP 139 Renewable Energy Trust 17 Debt Defeasement Fund 7 MassHousing Trust 4 Total:

16 Spending Summary FY04 Spending FY05 House 1 % Change FY04-FY05 % of FY05 House 1 Variance Medicaid 6, , % 29.1% K-12 Education 3, , % 15.7% Debt Service 1, , % 7.7% Subtotal, all of the above 11, , % 52.6% Turnpike Merger N/A 1.2% Subtotal, all other 10, , % 46.3% Total 21, , , % 100% 16

17 Approaching structural balance Use of "One-Timers" FY ($ in millions) $2,000 $1,800 $1,600 $1,400 $1,200 $1,000 $800 $600 $400 $200 $0 $1,778 $854 $621 $507 FY 2002 FY 2003 FY 2004 FY % 8.00% 7.00% 6.00% 5.00% 4.00% 3.00% 2.00% 1.00% 0.00% 17

18 Agenda FY 2004 Update H1A Summary New Initiatives Essential Reforms Debt Position 18

19 Education Spending Increase of $115M (Millions) $3,600M $3,611 $3,350M $3,496 $388 $42.5M Increase $430 K-12 K-12 $3,100M $72.5M Increase $3,180 $3,108 Chapter 70 $2,850M Chapter 70 FY 04 FY 05 H.1A *Excludes SBA appropriations 19

20 K-12 Education Initiatives $43.9M Investment in the Legacy of Learning Initiatives Intensive Support for Lowest-Scoring Districts $20M Full Day Kindergarten for Lowest-Scoring Districts $9.9M Disciplinary School Grants $5M Parent Orientation and School Participation $4M Math & Science Teacher Training, Retention & $3M Recruitment Intervention in Underperforming Schools $2M 20

21 Lowest-Scoring Districts Includes 24 municipal districts, 5 Charter Schools, and 13 Vocational Technical High Schools. Only 45% of their students passed the MCAS on the first try, compared with 77% in the rest of the state. Statistically, these districts include: 29% of statewide enrollment 61% of low-income students 54% of all 10 th graders failing the 2003 MCAS 90% of students statewide who are not proficient in English 70% of the state s minority students 21

22 John & Abigail Adams Scholarship Program Estimated annual investment: $13.4M Students in top 25% of their class on the 10 th Grade MCAS tests will be provided a tuition waiver to attend a public university or college in the Commonwealth Students in the top 10% will also receive a $2,000 fee waiver Projected cost of full implementation is approximately $50 million 22

23 EOHHS Initiatives Welfare to Work: $20M Increase work requirement from 20 to 24 hours families with children aged 2-5 and 34 hours per week for families with school-age children Help for Troubled Kids: $11.2M Foster Family Recruitment and Retention- $5.5M Child Psychiatric Access Project- $2.65M Mental Health Services for Female Juvenile Offenders- $2M Social Worker Safety Technology- $1M Assistance for the Homeless: $3M Specialized Housing for the Mentally Ill- $3M Shelter to Housing Pilot Program- $7M reinvested in family shelter program 23

24 Public Safety Initiatives $1.05B in total spending including $20.7M for the following initiatives: Two new State Police classes ($11M) Expanded State Police Counter Terrorism Unit (CTU) ($2.7M) Increased capacity for the Chief Medical Examiner s Office ($2.1M) New class of 100 correctional officers at DOC ($4.9M) Reform of Community Policing Grants Distribution based on a new formula factoring population and crime rate Account is level funded from FY04 24

25 Statewide Cherry Sheet Account Amount Change Chapter 70 $3.180B 2.3% Lottery Aid $661M - Additional Assistance $379M - Other Cherry Sheet $145M - Note: SBA transferred to capital budget 25

26 Agenda FY 2004 Update H1A Summary New Initiatives Essential Reforms Debt Position 26

27 The School Building Assistance program is critical to the delivery of a quality education to our children Historically, a successful partnership between the Commonwealth and its local governments Over 700 school projects are currently receiving at least half their project cost, including interest, from the state 27

28 ...unfortunately, the program s popularity caused an explosive growth in its waitlist Notwithstanding double-digit increases in state appropriations, the waitlist has grown to 420 projects worth more than $4 billion Even assuming a modest growth in funding, 50% of waitlist projects will not receive a first payment for a decade The current moratorium on the School Building Assistance program is neither sustainable nor desirable 28

29 Fully funding all projects under the current program would cost over $760M in FY05 Current Reimbursements Approved Waitlist $400M 300 CAGR % $400M 300 Moratorium Overridden CAGR % Reform Commission

30 Key SBA data School Projects on Waitlist School Projects on Waitlist with Shovels in the Ground School Projects on Waitlist Awaiting Construction Number of Projects: * = 222 Total Project Costs: $5.7B - $2.9B = $2.8B Commonwealth Share: $4.1B - $2.1B = $2.0B * Based on 12/03 DOE audit 30

31 Avoiding the problem is not a viable option; we need to step up and face reality Local governments have a right to know that the state will honor its commitment to this program Delay only costs more money for everyone -Extending the short-term borrowing period adds cost -Delaying construction adds costs The Commonwealth needs on-going school renovation and new school construction 31

32 Current interest rates provide a window of opportunity 15% Short-term Interest Rates '00 '01 '02 '03 15% Long-term Interest Rates '00'01'02'03 32

33 The Romney Legacy of Learning SBA Initiative Honors existing reimbursement rates for both projects receiving reimbursement and on the waiting list Clears 100% of the current waitlist by FY09 Switches to an up-front, cash payment and away from a multi-year reimbursement schedule Allows necessary streamlining of building costs through construction reform Establishes a commission to recommend rational project selection guidelines and other reforms for future school projects not currently on the waitlist 33

34 Construction Reform Frees state and local governments to use alternative procurement and delivery methods for projects valued at more than $5M Eliminates filed subcontractor bidding Requires municipalities to hire a project manager for projects valued at more than $5M Alternative Procurement and Delivery Methods Quality and cost-based procurement Design-Build - Allows construction to begin prior to final completion of design - Can dramatically reduce completion time Construction Manager at Risk - Single point of contact for owner - Contractor responsible for costs above agreed upon maximum price Both allow for contractor input on design 34

35 Construction Reform Eliminate Filed Subcontractor Bidding -Requires owner to prepare and bid out 17 separate subcontractor packages prior to selection of a general contractor -Prohibits development of strategic partnerships between generals and subs - Often results in large number of claims and change orders - Bid listing provision to prevent bid shopping by general contractor Municipal Project Manager Requirement -Municipalities often lack resources to oversee complex projects -Savings from professional management will far outweigh cost -Gives municipalities ability to pre-qualify contractors 35

36 State Workforce Reforms Collective Bargaining Statute (Ch. 150E) Outsourcing Restrictions Civil Service What s the Problem? 91% of Executive Branch unionized v. 35% of state government employees nationally Absence of market forces that would normally prevent monopoly Unique opportunity to influence management Structure allows little flexibility for Performance standards Incentive pay Competition 36

37 State Workforce Reforms Chapter 150E Even high-level supervisors unionized Reduce restrictions on outsourcing Overview Actual v. actual comparison All qualified current employees must be hired Eliminate wage regulations and benefit mandates Eliminate forgone tax revenue provision Auditor s Review Require full-cost accounting Limit to clear agency error or substantial failure to comply with process Limit to 30 days 37

38 State Workforce Reforms Civil Service Reform Eliminate for non-public safety positions - Exams no longer offered regularly - Almost half of those in civil service positions hired without protection - Virtually every civil service employee has overlapping union protection Retain civil service for public safety positions, where it has worked relatively well 38

39 Summary Merger Rationale Financial Distress Cash flow negative Non-strategic, shortterm decision making to address financial problems -Risky financial transactions -Disposition of critical infrastructure assets $20M Annual Savings Eliminating duplicate overhead -HR, finance, Admin, legal Toll collection optimization -Staffing levels -Complete the transition to electronic collection Insufficient Accountability Critical transportation assets are not controlled by the Commonwealth Capital spending and asset management is outside of Commonwealth control -The state needs to control transportation infrastructure Ratings downgrades Increasing facility and equipment utilization Surface artery park restoration is too important to be built and run by an independent 39 authority

40 The merger will be executed through an expansion of the Turnpike board Current members of the board will continue to serve -Matthew Amorello, Chairman, term expires 7/2006 -Jordan Levy, Vice Chairman, term expires 7/2006 -Christy Mihos, term expires 7/2004 -Richard Anderson, term expires 9/2005 -John Moscardelli, term expires 8/2008 Board will be increased by four new members, each of whom can be removed without cause -Secretary of Administration and Finance, ex officio -Secretary of Transportation and Construction, ex officio -Chair of the Commonwealth Coordinating Council, ex officio -An outside appointee -No more than 3 of 6 independent members can be of the same political party 40

41 The board will have four primary functions The board will enter into a contract for financial assistance with Commonwealth to pay its debt service -The Commonwealth will pay debt service for the Turnpike -Turnpike revenues will then reimburse the Commonwealth for these payments The board will enter into a contract with the Commonwealth for Turnpike road operations and maintenance The board will enter into a contract with the Department of Revenue to administer toll operations The contract for financial assistance will prohibit the board from taking actions that would adversely impact the Commonwealth s financial position 41

42 Agenda FY 2004 Update H1A Summary New Initiatives Essential Reforms Debt Position 42

43 The Commonwealth s direct debt load grew considerably over the past five years While tax revenues grew at a modest 1.1% CAGR from FY 1999 FY 2003, Direct Debt increased at a rapid 7.8% CAGR $ in million $2,500 $2,000 $1,500 $1,000 $500 Direct Debt Issuance and Retirement FY FY 2003 (1) $1,354 $659 $1,759 $1,184 $2,330 $770 $1,470 $692 $1,845 $738 $ in millions $20,000 $15,000 $10,000 $5,000 Direct Debt Oustanding FY FY % CAGR (2) $15,963 $14,955 $13,999 $12,383 $11,808 $0 FY 1999 FY 2000 FY 2001 FY 2002 FY 2003 Issued Retired $0 FY 1999 FY 2000 FY 2001 FY 2002 FY 2003 (1) Direct debt consists of General Obligation Bonds, Special Obligation Bonds and Grant Anticipation Notes. The graph does not include direct debt issuance and retirements associated with refunding transactions (2) Excluding $185 million of crossover refunding bonds reduces the 4-year compound annual growth rate to 7.5% 43

44 A&F estimated the Commonwealth s net taxsupported debt at $22.9 billion at the end of FY03 Contract bonds include MCCA, Foxborough, MWPAT, Devens and Turnpike payments. Budgetary payments include Plymouth, Chelsea, Saltonstall, SBAB and Lease payments. Excludes contingent liabilities. $5.6 $ $ in Billions 15 $13.7 $.8 $1.5 $ GO Bonds SO Bonds GANS Contract Bonds Budgetary Payments Total Net-Tax Supported Debt 44

45 Balance sheet and income statement changes Current SBA Payments New SBA Grants Turnpike Outstanding Debt Total Debt: $4.1B $4.0B $2.5B Debt Service: Was: $401M Will be: ~$250M ~$230M $0M Not new debt Accelerated debt Self-supporting debt 45

46 The SBA proposal will not materially affect the Commonwealth s debt position... Total Net-Tax Supported Debt (as of June 30th) ($ in millions) $30,000 $25,000 $20,000 $15,000 $10,000 $22,929 $23,517 $23,877 $24,833 $25,738 $26, % CAGR $5,000 $0 FY 2003 FY 2004 FY 2005 FY 2006 FY 2007 FY 2008 Direct Debt Contract Debt Budgetary Debt SBA Refinancing SBA Grants *Analysis does not include any contingent liability debt (e.g MBTA, UMBA), Turnpike debt or Convention Center Debt. 46

47 ... nor its credit ratios... $5,000 Net Tax-Supported Debt Per Capita (excluding self-supporting debt) 10.0% Net Tax-Supported Debt as % of Personal Inc. (excluding self-supporting debt) $4,000 $3,893 $4,010 $3,766 $3,556 $3,585 $3, % 8.0% 8.8% 8.6% 8.5% 8.5% 8.6% 8.5% $3, % 6.0% $2, % 4.0% 3.0% $1, % 1.0% $0 FY 2003 FY 2004 FY 2005 FY 2006 FY 2007 FY % FY 2003 FY 2004 FY 2005 FY 2006 FY 2007 FY 2008 *Assumes MA personal income growth of 3.1% per annum (Economy.com) and population growth of.3% per annum (Economy.com) 47

48 ... with debt service remaining as a manageable percent of total expenditures ($ in millions) FY 2005 FY 2006 FY 2007 FY 2008 Direct Debt Service $1,751 $1,802 $1,882 $1,950 Contract Debt Service Budgetary Debt Service SBA Refinance Debt Service SBA Grant Debt Service TOTALS $2,238 $2,283 $2,398 $2,535 Projected Expenditures $24,196 $25,164 $26,170 $27,217 Direct Debt Service as % of Exp. 7.2% 7.2% 7.2% 7.2% Total Debt Service as % of Exp. 9.2% 9.1% 9.2% 9.3% 48

49 Additional information 49

50 Approaching structural balance FY05 = $507 million = 2% of Total Resources ($24.8b) $190 million from turnpike transfer $150 million from SBA restructuring $139 million from FMAP monies $17 million from Renewable Energy Trust $7 million from Debt Defeasance Fund $4 million from Lead Abatement Trust FY04 = $620.5 million = 2.6% of total Resources ($23.6b) $145 million from the transfer of the Hynes Convention Center and the Boston Common Parking Garage to the Pension Fund million from the Stabilization Fund to support supplemental appropriations $40 million from the sale of surplus land $271 million from FMAP monies $62 million from the closure of the Teachers Quality Trust with remaining funds transferred to the General Fund FY03 = $854 million = 3.8% of total Resources ($22.7b) $413 million total one-time tax revenue (REITS, Inheritance, Amnesty, and Retro Personal Inheritance) $241 million Stabilization Fund transfer $142 million from minor fund transfer $58 million from FMAP monies 50