arizona budget status
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January 08, 2010 Office of Governor Janice K. Brewer 1
Arizona Budget Status
FY 2010 and FY 2011
January 08, 2010 Office of Governor Janice K. Brewer 2
Topics
• What’s the Problem?• How did we get here?• What action has the State taken?
January 08, 2010 Office of Governor Janice K. Brewer 3
What’s the Problem?
There are three interconnected problems
Current year deficit
Structural deficit
Cash flow
January 08, 2010 Office of Governor Janice K. Brewer 4
What’s the Problem?
The 5th Special Session reduced the budget by $193 million $75.2 million GF Reduction $45.5 million Other Fund Reduction $53.6 million Fund Sweeps $19.0 million Other
January 08, 2010 Office of Governor Janice K. Brewer 5
What’s the Problem?
Remaining Deficit
$0.0
$500,000.0
$1,000,000.0
$1,500,000.0
$2,000,000.0
$2,500,000.0
$3,000,000.0
$3,500,000.0
Special Session FY 2010 FY 2011
$3.2 B
$1.4 B
$0.2 B
January 08, 2010 Office of Governor Janice K. Brewer 6
What’s the Problem?Current Year Deficit
Current year deficit is anticipated to be $1.4 billion $480 million left over from FY 2009
The $1.4 billion deficit is approximately:• 46% of the General Fund revenues anticipated for the rest of
the year• 36% of the remaining General Fund appropriations for the
fiscal year
January 08, 2010 Office of Governor Janice K. Brewer 7
What’s the Problem?Structural Deficit
Arizona has a structural deficit – our revenues and expenditures are out of alignment.
This misalignment will produce a $3.2 billion deficit in FY 2011.
A $3.2 billion deficit in FY 2011 amounts to:• 47% of anticipated General Fund revenues in FY 2011.• 33% of the General Fund “continuation” budget for FY 2011.
January 08, 2010 Office of Governor Janice K. Brewer 8
What’s the Problem? -Structural Deficit
General Fund Ongoing Revenue and Expenditures before Solutions
5,000
6,000
7,000
8,000
9,000
10,000
11,000
12,000
13,000
14,000
FY 2002 FY 2003 FY 2004 FY 2005 FY 2006 FY 2007 FY 2008 FY 2009 FY 2010Est.
FY 2011Est.
FY 2012Est.
FY 2013Est.
FY 2014Est.
$ in
mill
ion
s
Expenditures with ARRA & Rollover GF Expenditures GF Revenue
Assumptions: Revenue: Ongoing revenue does not include one time items such as fund transfer, asset sales, etc. Growth rates assumptions: FY10: -9.2%, FY11:7%, FY12 and 7%. Expenditure: Ongoing expenditure does not include rollover or ARRA. FY10 and FY11 estimated Expenditure from most current S&U, FY12 and beyond assuming 7% growth.
January 08, 2010 Office of Governor Janice K. Brewer 9
What’s the Problem?Cash Flow
Every day the General Fund is borrowing every dollar of uncommitted state cash in the state’s custody approximately $1.5 billion. The General Fund plus these uncommitted dollars are known as the Operating Fund.
In addition, the State has created two facilities to borrow non state funds, an internal line of credit worth approximately $500 million and an external line of credit with Bank of America worth $700 million.
Total available daily credit of $2.7billion.
Currently the State makes daily calculations to determine if the state has sufficient cash to cover expenses.
January 08, 2010 Office of Governor Janice K. Brewer 10
Cash Flows
Operating Cash Balance
($1,000,000.0)
($800,000.0)
($600,000.0)
($400,000.0)
($200,000.0)
$0.0
$200,000.0
$400,000.0
$600,000.0
July Aug Sept Oct Nov Dec
January 08, 2010 Office of Governor Janice K. Brewer 11
Topics
• What’s the Problem?• How did we get here?• What steps has the State taken?
January 08, 2010 Office of Governor Janice K. Brewer 12
How did we get here?There are at least six reasons that led us to
this point: The Economy Reduced Revenues Added Spending State Actions Constraints Imposed by the Voters The Federal Government
January 08, 2010 Office of Governor Janice K. Brewer 13
How did we get here?
The EconomyJob Losses
Peak Employment – 2.68 million jobs– August 2007
Current Employment – 2.4 million jobs– Total loss of 280,000 jobs
January 08, 2010 Office of Governor Janice K. Brewer 14
How did we get here?Arizona
Number of Months needed to surpass a peak in employment.
-12%
-10%
-8%
-6%
-4%
-2%
0%
2%
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49
Number of Months After Peak Employment
Pe
rce
nt
Ch
ang
e fr
om
Pe
ak E
mp
loym
ent
1948 1953 1974 1981 1991 2001 2007
January 08, 2010 Office of Governor Janice K. Brewer 15
Arizona Jobs Projection
1,500.00
1,700.00
1,900.00
2,100.00
2,300.00
2,500.00
2,700.00
2,900.00
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
How did we get here?
7 yrs
Developed by the AZ Department of Commerce
January 08, 2010 Office of Governor Janice K. Brewer 16
How did we get here?Reduced Revenues
Before the recession• A series of tax cuts in personal income and
corporate income taxes. When the recession hit
• Since FY 2007 Sales (TPT) Tax down 22%• Since FY 2007 Personal Income Tax down 38%• Since FY 2007 Corporate Income Tax down 57%
January 08, 2010 Office of Governor Janice K. Brewer 17
How did we get here?
State tax revenues have declined 34 percent in three years. Arizona Base Revenues
3,000.0
4,000.0
5,000.0
6,000.0
7,000.0
8,000.0
9,000.0
10,000.0
FY2001
FY2002
FY2003
FY2004
FY2005
FY2006
FY2007
FY2008
FY2009
FY2010Est.
January 08, 2010 Office of Governor Janice K. Brewer 18
How did we get here?Added Spending
Before the recession• The State took on major expenditure programs without
any adjustments to revenues, e.g. property tax reform shifted the support of the cost of K-12 to the General Fund; courts forced responsibility for building and maintaining school facilities; voter initiative expanded AHCCCS
When the recession hit• Major increases in the AHCCCS population
January 08, 2010 Office of Governor Janice K. Brewer 19
How did we get here?
K-12 Spending ShiftQualified Tax Rate
FY 1998 Rate: $4.40 FY 2010 Rate: $2.74
Approximate Value: $700 million
January 08, 2010 Office of Governor Janice K. Brewer 20
Growing Populations – Including FY 2011 EstimatesCurrent revenues = FY 2004 Since FY 2004, Arizona has added 121,500 K-12 students and more than $1.0 billion
in annual costs to the K-12 system.
Since FY 2004, enrollment in State universities has increased enrollment by 18,100 students and annual General Fund costs of $393.5 million.
Since FY 2004, Corrections has added 10,800 prisoners and annual General Fund costs of $405.4 million.
Since FY 2004, AHCCCS has added 475,000 new members and annual costs of nearly $1.5 billion (General Fund). -- In calendar 2009, AHCCCS has grown by 203,000 members --
How did we get here?
January 08, 2010 Office of Governor Janice K. Brewer 21
How did we get here? AHCCCS All TXIX Capitation Member Months
600,000
700,000
800,000
900,000
1,000,000
1,100,000
Jan-
02
Apr
-02
Jul-
02
Oct
-02
Jan-
03
Apr
-03
Jul-
03
Oct
-03
Jan-
04
Apr
-04
Jul-
04
Oct
-04
Jan-
05
Apr
-05
Jul-
05
Oct
-05
Jan-
06
Apr
-06
Jul-
06
Oct
-06
Jan-
07
Apr
-07
Jul-
07
Oct
-07
Jan-
08
Apr
-08
Jul-
08
Oct
-08
Jan-
09
Apr
-09
Jul-
09
Oct
-09
FY 03 FY 06FY 05FY 04 FY 09FY 08FY 07
January 08, 2010 Office of Governor Janice K. Brewer 22
How did we get here?Constraints Imposed by the Voters
Two primary areas
• “Proposition 108” - requires either a two thirds vote of the Legislature or a vote of the people to increase “State revenues”
• “Proposition 105” - effectively prohibits the legislature from modifying programs or revenues approved by the voters, e.g. portions of the AHCCCS, K-12 programs, and First Things First (preschool)
January 08, 2010 Office of Governor Janice K. Brewer 23
How did we get here?The Federal Government
Through ARRA, Arizona is scheduled to receive, over all, $4.8 billion in formula grants from FY 2009 through FY 2011.
A good portion of the ARRA formula grant money will be received by the State and concentrated in education and AHCCCS.
When the State accepted the money, it agreed to a maintenance of effort (MOE) requirement – through the end of FY 2011 for education, through December 2010 for AHCCCS.
January 08, 2010 Office of Governor Janice K. Brewer 24
How did we get here?The Federal Government (cont’d)
The MOE for education prohibits reducing funding below the FY 2006 funding the state provided to education (K-12, Community Colleges, Universities).
The MOE for AHCCCS provides that as long as we accept the ARRA funds for the program, we cannot reduce eligibility. ARRA funds for AHCCCS are currently scheduled to end on December 31, 2010.
January 08, 2010 Office of Governor Janice K. Brewer 25
FY 2010 ARRA MOE Requirements
Federally Protected Expenditures
$0.0
$500,000.0
$1,000,000.0
$1,500,000.0
$2,000,000.0
$2,500,000.0
$3,000,000.0
$3,500,000.0
$4,000,000.0
Unprotected
Protected
Approximately $2.4 billion unprotected
January 08, 2010 Office of Governor Janice K. Brewer 26
FY 2011 ARRA MOE Requirements
Approximately $3.2 billion unprotected
(note: Federal MOE for Medicaid currently ends on December 31, 2010)
FY 2011 Federally Protected Expenditures
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
3,500,000
4,000,000
4,500,000
AHCCCS Community
Colleges
Corrections Economic
Security
Education Health Services Universities Debt Service All Other
Agencies
Unprotected
Protected
January 08, 2010 Office of Governor Janice K. Brewer 27
How did we get here?
Federally Protected Expenditures
0
2,000,000
4,000,000
6,000,000
8,000,000
10,000,000
12,000,000
FY 2010 FY 2011
Protected Not Protected
27%
73%
33%
67%
January 08, 2010 Office of Governor Janice K. Brewer 28
How did we get here?
Unprotected Funds Judiciary $120 m Juvenile Corrections $68 m Legislature $55 m Public Safety $44 m Revenue $41 m Kids Care (AHCCCS) $30 m State Only DD (DES) $57 m State Hospital (DHS) $65 m State Only SMI (DHS) $79 m
January 08, 2010 Office of Governor Janice K. Brewer 29
How did we get here?
The Federal Government (cont’d) In FY 11, the majority of the ARRA funds will discontinue and the
State will have to replace the funding that the federal government has provided in FYs 2009, 2010 and continuing into 2011.
The Table on the following page illustrates that in FY 2011 General Fund monies are to replace over $900 million of ARRA funds.
January 08, 2010 Office of Governor Janice K. Brewer 30
How did we get here?
The ARRA FY 2011 CliffAHCCCS 201,806.9
DHS 90,343.5
DES 105,151.6
K-12 Education 379,314.0
Universities 64,000.0
Community Colleges 20,000.0
Corrections 50,000.0
TOTAL 910,616.0
January 08, 2010 Office of Governor Janice K. Brewer 31
How did we get here?
TimeThere is not a lot of time to correct the problem.
• Half of FY 2010 will be gone by the time the Legislature returns for its Regular Session.
• FY 2011 will begin in less than six months.
January 08, 2010 Office of Governor Janice K. Brewer 32
Topics
• What’s the Problem?• How did we get here?• What action has the State taken?
January 08, 2010 Office of Governor Janice K. Brewer 33
Since FY 2008, the State has aggressively used one-time options.
What Actions Has the State Taken?
Temporary Solutions FY 2008 FY 2009 FY 2010 TotalK-12 & University Rollovers $602.6 $100.0 - $702.6BSF Sweep $560.0 $150.0 - $710.0Fund Transfers $290.2 $667.7 $326.9 $1,284.8DPS to HURF and SHF $42.0 $106.0 $106.0 $254.0Midnight Reversion $50.0 - - $50.0SFB NC Recapture - $344.0 - $344.0SFB New Construction - $237.0 - $237.0DES & AHCCCS Rollovers - $25.0 $159.9 $184.9Federal Funds - $667.4 $1,587.4 $2,254.8K-12 Local Fund Balances - - $184.0 $184.0Sale Leaseback - - $735.4 $735.4Total (in millions) $1,544.8 $2,297.1 $3,099.6 $6,941.6
January 08, 2010 Office of Governor Janice K. Brewer 34
What Actions Has the State Taken?
Additionally, the State has made significant budget reductions that total 31percent of unprotected funds:
As part of these reductions, the State has reduced its workforce by 10% since January 2008 (figure does not include universities or reductions made in the 5th SS).
Budget Reductions FY 2009 FY 2010 Total
Reductions as a Percent of
Unprotected Base
AHCCCS $19,000.0 $20,000.0 $39,000.0 18%K-12 $123,000.0 $149,000.0 $272,000.0 101%Universities $90,000.0 $0.0 $90,000.0 9%DES $203,000.0 $143,000.0 $346,000.0 53%DHS $28,000.0 $46,000.0 $74,000.0 27%Corrections $18,000.0 $98,000.0 $116,000.0 43%Other $69,000.0 $87,000.0 $156,000.0 20%Total (in thousands) $550,000.0 $543,000.0 $1,093,000.0 32%
January 08, 2010 Office of Governor Janice K. Brewer 35
Summary
FY 2010• FY 2010 remaining deficit - $1.4 billion• FY 2010 remaining unprotected fund - $1.2 billion
FY 2011• FY 2011 deficit - $3.2 billion• FY 2011 unprotected funds - $3.2 billion
Cash• Borrowing nearly $1 billion each day to cover cash needs
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