Financial Statement Review Budget by kgb20889

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									                                                                                                                     June 4, 2010
                                                                                                                                         

    2010/11 General Fund Budget: Financial Statement Update
Following is a review of General Fund income and                            estimate reflects $190 million from tax amnesty but
expenditure assumptions contained in the February                           deposits to-date have been disappointing. As a
Executive Budget and proposals to close the budget                          reminder, the estimated revenue shortfall is $775 million
gap.                                                                        higher than the Executive Budget prediction last
                                                                            February. Therefore, compared with the Executive
Financial Statement                                                         Budget proposal, a budget gap of at least $1.592 billion
                                                                            is expected.
Revenues fell below estimate in May bringing the year-
to-date shortfall to $1.234 billion. Our most recent                        The financial statement below shows the February
estimates anticipate that we will lose between about $66                    proposal adjusted by downward revisions to the revenue
and $176 million in June. Unfortunately, more specific                      estimates (Row 7). Note that an estimated $1.3 billion
predictions for the fiscal year continue to be complicated                  revenue shortfall in 2009/10 combined with an $821
by uncertainty around revenue receipts from corporate                       million downward revenue adjustment in 2010/11 results
taxes and the tax amnesty program. The June revenue                         in a total budget gap of about $1.592 billion (Row 18).  
                           1                   General Fund Financial Statement
                           2                                                2008/09       2009/10        2010/11
                           3                                                             $ in millions
                           4   Beginning Balance                           $      585      ($2,030)        ($737)
                           5   Revenues
                           6    Revenue Estimate                               28,784          27,335
                                                                                            28,825
                           7    Adjustment to Estimate                         (3,255)           (821)
                                                                                            (1,300)
                           8    Proposed Transfer                                                 180
                           9    Revenue Subtotal                           $ 25,530 $ 27,525 $ 26,694
                          10    Less: Refunds                                (1,225)  (1,250)  (1,275)
                          11    Plus: Prior Year Lapses                         164       60
                          12    Total State Funds Available                $ 25,054 $ 24,305 $ 24,682
                          13   Expenditures
                          14    Appropriations                                 27,084 25,173   26,273
                          15    Supplemental Appropriations                                4
                          16    Less: Current Year Lapses                               (135)
                          17    Total State Expenditures                   $ 27,084 $ 25,042 $ 26,273
                          18   Ending Balance                               ($2,030)   ($737) ($1,592)

                          19     Appropriations                                27,084       25,173        26,273
                          20     Plus Federal Fiscal Relief
                          21       Enhanced FMAP                                1,177        1,777         1,835
                          22       State Fiscal Stabilization Fund                 63          921           921
                          23     General Fund Obligation /1                    28,324       27,871        29,030
                               /1 equals state appropriations plus federal fiscal relief. Does not include current
                               year lapses or supplemental appropriations because these have not yet been
                               finalized.

                                                                                                                                    1
Expenditures (rows 14 -17) on the financial statement       Following is detail on the major cost drivers by agency.
reflect the 2009/10 appropriations enacted October 2009
and the 2010/11 appropriations requested by the             Department of Education:
Governor in the Executive Budget. The 2009/10
appropriation amount is adjusted by a proposed $4.15        •   $354 million for the basic education subsidy.
million supplemental appropriation and $135 million in      •   $65 million for school employees’ retirement.
“current year lapses” that represent the budgetary          Department of Public Welfare/Aging:
freezes placed on current year spending.
                                                            •   $335 million to replace prior year funds used to fund
Some have expressed concern about the magnitude of              Medical Assistance.
the increase that the 2010/11 Executive Budget                     o Reflects impact of the MA expenditure
proposes. A closer look reveals the effective increase is               rollback in the 2009/10 budget.
much more conservative than the often cited $1.1 billion    •   $100 million to fund increased Medical Assistance
figure. This smaller growth amount takes into                   caseload and utilization.
consideration: the impact of a bookkeeping maneuver                o The number of Pennsylvanians on MA is
that shifted (“rolled back”) Medical Assistance                         projected to grow three percent to 2,131,000
expenditures ($335 million) to the 2008/09 year and the                 average monthly recipients.
effect of the “clawback savings” that Pennsylvania will
                                                            •   $189 million to fund rising health care costs in the
realize due to a recent federal announcement ($275
                                                                MA program.
million). An upcoming briefing will lay out how the
                                                                   o Most of these increases are driven by
“clawback savings” will be allocated between the current
                                                                        Federal mandates, including the
and budget years and further explain the effective
                                                                        requirement for states to pay: actuarially
expenditure increase in the proposed budget year.
                                                                        sound managed care rates ($130 million);
The financial statement also illustrates the impact of                  and Medicare Part A and Part B premiums
federal fiscal relief (rows 21-23) from “Enhanced FMAP”                 for qualified low-income elderly and disabled
and the “State Fiscal Stabilization Fund.” The Executive                individuals ($17 million).
Budget assumed roughly $2.7 billion in federal funds per    Department of Corrections:
year that replace state funds for the 2009/10 and
2010/11 budget years. Note the Executive Budget             •   $118.5 million to house inmates in state correctional
assumes Congress will extend the ARRA FMAP through              institutions (includes $32 million for contracted beds
June 2011, which accounts for $848 million of the               at institutions located in Michigan and Virginia).
$1.835 billion enhanced FMAP shown for 2010/11.             •   $17 million for inmate medical costs.

                                                            Treasury Department:
Major Budget Drivers
Following is a reminder of the major cost drivers in the    •   $91 million for principal and interest and other costs
Executive Budget. However, keep in mind that                    related to General Fund debt service.
significant budget cuts and cost containments are
proposed in order to bring spending in line with            See Proposals to Offset the Budgetary Gap on Page 3.
available revenue.

The agencies receiving additional state General Funds
are led by:

•   Department of Education ($442.8 million).
•   Department of Public Welfare/Aging ($424.4 million).
•   Department of Corrections ($136.8 million).
•   Treasury Department ($94.9 million).




                                                                                                                         2
Proposals to Offset the Budgetary
Gap                                                              
The following table shows $1.2 billion in options that
policymakers may employ to help bridge the budget gap.
Between $377 and $487 million in additional cuts or
other adjustments would still be needed. The proposed
Hospital Assessment ($100 million) is not yet agreed to
and the proposed Tax Package ($350 million) has been
discussed but no conclusions reached. Some tax
proposals that have been proposed include a tax on
smokeless tobacco and cigars, a severance tax on
natural gas, and an increase in the existing cigarette tax.

                                             Options to Close the Budget Gap
      ($s in millions)
                                                                              Based on downward revenue
      Estimated Budget Gap                                           ($1,592) adjustments.
      Option                                                        State $s                 Comment
                                                                              2-year savings over current and budget
                                                                              fiscal years due to a change in federal
      Payment to Federal Government-- Medicare Part D                     275 policy.

                                                                             2-year savings over current and budget
      Reserves for Tax Refunds                                           150 fiscal years due to revised estimates.
                                                                             Assumes state share of the proposed
                                                                             assessment is $125 million. The current
                                                                             proposal by the Hospital Association
                                                                             (HAP) only provides $80 million to the
      Proposed Statewide Hospital Assessment                             100 state.

                                                                             One-time cash flow savings associated
                                                                             with changing the allocation of
                                                                             payments received from tobacco
      Tobacco Settlement Fund Timing Change                              340 manufacturers. Holds fund harmless.
      Proposed Tax Package                                               350 Depends on Legislation
      SUBTOTAL Offsets to Budget Gap                                  $1,215
      Low Estimate: $s Still Needed to Close Gap                      ($377)
      Plus Risk of Additional Revenue Shortfall                        (110)
      High Estimate: $s Still Needed to Close Gap                     ($487)



                                                                QUESTIONS AND COMMENTS
                                                                717-783-1540

                                                                Miriam A. Fox, Executive Director
                                                                mfox@hacd.net
                                                                Beth Balaban, Senior Analyst 
                                                                Eric Dice, Budget Analyst 
                                                                Wendy Lewis, Budget Analyst 

                                                                Barbara Fellencer, Communications Director
                                                                http://www.hacd.net


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