FY 07 Fiscal Recovery Strategy by qingyunliuliu

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									                           GAO Report
                 LONG-TERM BUDGET OUTLOOK
    Saving Our Future Requires Tough Choices Today
―My ―bottom line‖ message today is no surprise to members
  of this Committee:
• Our current financial condition is worse than advertised.
• Our long-term fiscal outlook is both imprudent and
  unsustainable.
• Improvements in information and processes are needed
  and can help.
• Meeting our long-term fiscal challenge will require tough
  choices, bi-partisan cooperation and compromise.
• The time for action is now!‖
David M. Walker, Comptroller General of the United States
             How we got here
• FY04 Budget
      • Removal of 6% GRT mid-year without adjustment to budget
        appropriations
• FY05 Budget
      • Expenditures exceeded revenues by $25 million ($16 million
        attributed to GPSS)
• FY06 Budget
      • Actual Revenues were less than estimated by $18 million
      • GovGuam closed with a preliminary operational deficit of $16
        million for executive line agencies (not including GPSS)
• Additional unanticipated costs: EITC, COLA, court orders
  (Consent Decree at $2 million and Permanent Injunction
  at $1.1 million)
     Quantifying the Deficit
• What makes up this $511 million
  Deficit?
  – $209 million as of FY2002
  – $90 million for EITC settlement
  – $42 million from GPSS
  – $123 million for COLA court ruling
  – $47 million for all others
        Where are we now
• Quantify Total Deficit:
• $511 million
• At status quo budget will balloon by at
  least the $40 million structural deficit
  amount ($551 million) and more likely by
  the actual spend rate of GovGuam $62
  million ($572 million)
    Current budget condition
• Appropriations and Spending Authority = $496
  million
• Adopted Revenues = $456 million
• STRUCTURAL BUDGETARY DEFICIT AT THE
  START OF FY07 WAS ALREADY $40 million
• $40 million needed to run all executive line
  agencies (excluding health, education and
  safety)
• $5.7 million is tied to real cash revenue sources.
• $34.3 million tied to carry over appropriations
  which are not supported by real cash in FY07.
   Current budget condition
• The gap between actual revenues
  (tracking at $434 million) and actual spend
  rate ($496 million): $62 million

• Outstanding Payables = $28 million
  (included in $62 million shortfall)
                       FY2007 General Fund
                          Cash Analysis
$550,000,000
               Cash               Cash In
               Gap
                                   $456.0M FY07 GF Adopted Revenues
               $62M
$500,000,000                      -$ 22.0M Projected FY07 Revenue Shortfall
                                   $434.0M Cash In – FY2007
                          Cash
$450,000,000              Out

               Cash       $496M   Cash Out
$400,000,000
                In                $456.0M    FY07 Appropriations
               $434M              $ 25.0M    Prior Year Unfunded Continuing Approp.
                                  $ 15.0M    Misc. Fund Sources for 25 Support Depts.
$350,000,000                      $496.0M    Cash Out – FY2007


$300,000,000
                                  Cash Gap
                                  $434.0M - $496.0M = - $62,000,000
$250,000,000
                  CreditWatch
            Standard and Poor’s
 ―Guam’s balance sheet continues to be plagued by long-term
 liabilities, mainly for tax credits, retirees, and payables to
 other component units. Income and gross receipts taxes (the
 main revenue sources, at roughly 84% of audited fiscal 2005
 general fund revenues) have been relatively stable over the
 past several years. However, the continued implementation of
 exemptions and credits has prevented those revenues from
 realizing stronger growth. The adopted fiscal 2007 budget
 assumed total general fund revenues of $456.3 million,
 whereas the fiscal 1998 general fund revenues were $503.7
 million. While total operating expenditures are also relatively
 stable, there has not been a definitive solution to the
 government’s long-term liabilities.‖
(March 9, 2007)
Understand the Financial Drivers
     What has led us to the current financial conditions?
Revenue Drivers:
• Economic slowdown and natural disasters
• Unreplaced revenue from Bush tax cuts
• Increased local tax credits
• Overly optimistic revenue projections
Cost Drivers:
• Unfunded, carryover appropriation authority
• Unfunded and unanticipated spending mandates
Other: budgets cast in stone; poor financial management, reporting
   and processes; lack of transparency & accountability
                                                                  REFUNDS
                  Individual Income Tax Returns – Average per Taxpayer


                                              1040, 1040A, 1040EZ and 1040X
                                                                                TY1993-2005
$3,000

$2,500

$2,000

$1,500




                                                                                                                                                                                                    2,650
$1,000
                                                                            1,683




                                                                                                                                        1,498




                                                                                                                                                                      1,351


                                                                                                                                                                                     1,307
                                                                                                                                                       1,271
                                                                                                                         1,195
                                                                                                          1,190
                                                                                           1,102
                         1,082




 $500
            960




                                                                  949
                                                     915
                                        897




   $0
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                                                             Department of Revenue and Taxation
  Immediate Action Needed
REVISIT THE FY07 BUDGET
 Reduce Appropriations and
  Expenditures
 Increase Revenues
 Provide Working Capital
  Financing
            Opinion Editorial
     Public Auditor Doris Brooks
―According to the Employment Reports issued by
  the Department of Labor, while total government
  employment has dropped from 14,640 in
  December 1998 to 11,740 at December 2006,
  average hourly wages in the government sector
  have increased from $16.37 to $17.75 in that
  same period. This is an increase of only 8.43%
  in wages over eight years. What is pushing
  GovGuam deeper into debt is the erosion of our
  tax base.‖
(Pacific Daily News, February 25, 2007)
           Reduce Spending
• Executive Order 2007-02
  – $12 million in cost reductions in personnel and
    operations projected
  – To apply to all Executive Branch instrumentalities
    receiving General Fund revenues
• Governor’s directive
  – Implement up to a 20% reduction in salaries of the
    Governor, Lt. Governor, all Cabinet and staff
  – In addition, he has ordered a 10% reduction in the
    salaries of all other unclassified employees funded by
    the General Fund
  – $1 million projected cost reduction
Remaining Gap Between Actual
 Revenues and Expenditures
• $62 million shortfall
• $12 million in cost reductions from EO2007-02
• $1 million in cost reductions from Governor’s
  directive
• Remaining shortfall = $49 million
Effects of immediate cash shortfall
Without an amended budget and in order to live
  within the current FY 07 budget provisions,
  expenditures must be adjusted downward by
  $49 Million.
The potential impact:
2,222 employees must be
furloughed no later than April 1 st
     • Total GF employee base (to include
       teachers, Police, Fire, nurses, etc.) = 6,348
     • 2,222 = 35% of GF employees
                Opinion Editorial
       Public Auditor Doris Brooks
 ―The fiscal problems of our government did not happen overnight.
  Through many legislatures and administrations, Republican and
  Democrat alike, we have seen a slow but steady erosion of our tax
  base. Gross receipts tax exemptions—such as the Dave Santos Act,
  which exempts small businesses with half a million in gross receipts,
  wholesale tax exemptions, medical insurance tax exemptions, most
  recently exemption of wholesale cellular phone services, to name a
  few—are a major reason that the tax base is not growing despite
  increased economic activity.‖

(Pacific Daily News, February 25, 2007)
 Alternative - Increase Revenues
• The decrease in expenditures must be
  accompanied by additional revenues to minimize
  impact on operations and personnel:

  - Immediately increase fees to meet the cost of service
     via legislative action, as opposed to lengthy Triple A
     process
  - Immediate restoration of full tax base (remove
     exemptions and credits)
         New FY07 Budget
 Overall reduction in expenditures via the Executive
  Order and the Governor’s Directive will likely reflect
  $13 million total
 Overall increase in revenues is projected to amount to
  $15 million through the remainder of FY07
 $62 million - $13 million - $15 million =
$34 million Remaining Shortfall
In order to reduce expenditures by $34 million:
1,511 employees will need to be furloughed no later
  than April 1, 2007
Working Capital Financing
    Working capital financing must be acquired to make up the
     shortfall as we plan for longer term reduction and
     expenditures


 • Large cash infusion needed immediately to meet
   ongoing operations and payroll requirements

 • Estimated requirement is $34 million minimum
        Inject Working Capital
Further, Immediate Actions to Stabilize
• Breathing space needed for time to transition and change
• Line of credit injects working capital almost immediately
• $34 million line of credit to reasonably sustain operations
• Timeframe: March 2007 planning with April implementation
    Financial Summary of
Short-Term Recommendations
                     Cash In Cash Out
General Fund (Mar’07) $434 M       $496 M
 Cost Containment                  -$13
  Revenue Restoration +$15
  Working Capital Injection +$34
General Fund (Sep’07) $483 M       $483 M
             What’s Next?
  – Revised FY07 Budget to be submitted by
    Governor by Monday, March 19, 2007
  – Request for Legislature to address budget
    immediately for an April 1 implementation
    date
• Fiscal Recovery and Deficit Elimination
  Plan to be released for discussion within
  FY08 Budget

								
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