GOPB

2010 GENERAL SESSION BUDGET REVIEW

Phillip Jeffery, Deputy Director for the Governor’s Office of Planning & BudgetAssociation of Government AccountantsJuly 15, 2010

2010 GENERAL SESSION BUDGET OVERVIEW

o THE ENVIRONMENT: Revenue Downturn

o THE CHALLENGES: Pre-Session Budget Situation

o THE PRINCIPLES: Responsible Solutions

o THE SOLUTIONS: Cuts, One-time “Backfill”

o MOVING FORWARD: Upcoming Challenges, Available Tools

CONSENSUS REVENUE ESTIMATES

Revenue Assumptions Committee (RAC) Economists from:o Governor’s Office of Planning & Budgeto Tax Commissiono Legislatureo State Agencieso Higher Educationo Local Governmento Private Sector

Economic Outlook

November 2008

CONSENSUS REVENUE ESTIMATES (cont’d)

3.4%

0.0%

2.1%

7.1%

1.5%

1.7%

2.2%

-4.5%

1.5%

7.8%

-1.5%

1.7%

-7.9%

-6.5%

0.8%

7.3%

-4.9%

1.5%

-10.0% -8.0% -6.0% -4.0% -2.0% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0%

Retail Sales

Home Prices

Average Pay

Unemployment Rate

Nonfarm Employment

Population

Change in Selected Economic Indicators: 2009, 2010f, 2011f

CONSENSUS REVENUE ESTIMATES (cont’d)

Revenue Estimates Committee

o Quarterly CONSENSUS Revenue Estimates

• Point Estimates in November & February• Range Estimates in June & September

o Committee Members Include Directors of:

• Governor’s Office of Planning & Budget• Office of the Legislative Fiscal Analyst• Tax Commission

THE ENVIRONMENT: REVENUE

FY 1

980

FY 1

981

FY 1

982

FY 1

983

FY 1

984

FY 1

985

FY 1

986

FY 1

987

FY 1

988

FY 1

989

FY 1

990

FY 1

991

FY 1

992

FY 1

993

FY 1

994

FY 1

995

FY 1

996

FY 1

997

FY 1

998

FY 1

999

FY 2

000

FY 2

001

FY 2

002

FY 2

003

FY 2

004

FY 2

005

FY 2

006

FY 2

007

FY 2

008

FY 2

009

FY 2

010f

FY 2

011f

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

General Fund/Education Fund Revenue CollectionsAnnual % Change FY 1980 – FY 2011 forecast

THE ENVIRONMENT: REVENUE

State Budgeto FY 2008

• $11.5 billion total• $5.3 billion General Revenue

o FY 2011• $11.6 billion total• $4.3 billion General Revenue

Revenue Pictureo Loss of $1.1 billion or

21% top to bottom

2009 LEGISLATIVE ACTION

Working Rainy Day Fund

o Utah funded $516 million in capital investment for FY 2009o Of this amount $346 million is from ongoing revenue sources

One-time Funding Sources Available

o $418 million Rainy Day Fundso $103 million Student Population Growth Account

Federal ARRA Package allowed us to maximize working rainy day fund and save one-time sources for future needs.

Revenues dropped $950 million from original FY 2009 projection (about 18%)

How Utah dealt with the shortfall

o Agency budget reductions $355 million• Pub. Ed. held to 6% reduction ($182 M)• Higher Ed. held to 9% reduction ($77 M)

o Capital funding reductions including buildings & roads of 28% ($134 M)

o Structural Deficit of $460 million (10%) funded mostly with ARRA

2009 LEGISLATIVE ACTION

THE CHALLENGES: PRE-2010 SESSION BUDGET SITUATION

Shortfall and One-time Funding

o Additional $177 Million Shortfall in FY 2010

• Ongoing Base Budget Reductions ≈ 18% partially backfilled with • American Recovery & Reinvestment Act and other One-Time funds

o Total One-Time Funding of $460 Million• Public Education: $293 Million• Higher Education: $66 Million• Health & Human Services: $76 Million

THE CHALLENGES: PRE-2010 SESSION BUDGET SITUATION (cont’d)

New Costs and Resources

o New Costs• Enrollment Growth • Medicaid & Human Services• Employee Health & Retirement

o One-time Funding Sources Available• $418 Million Rainy Day Funds• $103 Million Student Population Growth Account• $73 Million Additional ARRA anticipated

THE PRINCIPLES: RESPONSIBLE SOLUTIONS

Governor’s Budget Recommendation Principals

o Protect Public and Higher Education

o Avoid exacerbating the structural budget imbalance

o Retain a responsible Rainy Day Fund balance

o Balance the budget with no tax increases

THE SOLUTIONS: FY 2010

December Executive Order

o Reduced state agency and higher education budgets by $39 million

o Instituted a flexible hiring freeze

o Delayed IT purchases

o Provided other spending guidance

THE SOLUTIONS: FY 2010

FY 2010 BUDGET ACTIONS

GAP: $177 Million

Budget Cuts: $57 Million

Rainy Day Funds: $86 Million

Restricted Funds, Unallocated, etc: $14 Million

Medicaid Lawsuit Settlement: $20 Million

$177 Million

THE SOLUTIONS: FY 2011

FY 2011 BUDGET ACTIONS

GAP: $482 Million

Budget Cuts/Funding Shifts: $75 Million

Rainy Day Funds: $123 Million

Student Population Account: $103 Million

ARRA FMAP: $73 Million

Tobacco Tax: $43 Million

Restricted Funds, Unallocated, etc: $65 Million

$482 Million

THE SOLUTIONS: FUNDING FOR EDUCATION

Public Educationo Additional cut could have been as high as $400 Million, limited to

$10 Million in non-classroom cuts

o Ongoing budget cut of approximately 6%

Higher Educationo Additional cut could have been as high as $100 Million, limited to

$33 Million

o Ongoing budget cut of approximately 13%

2010 General Session PENSION REFORM

In 2008 Pension lost 30% of its value creating a $6.5 billion dollar gap

o Increased contributions $400 million per year for the next 25 years

Three Goals

o Fully Fund Pension Liabilityo Meet 100% of obligation to current and retired employeeso Remove bankruptcy risk imposed on state

2010 General Session PENSION REFORM (cont’d)

SB 43, Post-retirement Employment Amendments

SB 63, New Public Employees’ Tier II Contributory Retirement Act

o Applies to new employees after July 1, 2011o Limits State contributions to 10%o Can elect DB or DC plano Increases years of service to 35 years (25 public safety)

FY 2003 FY 2004 FY 2005 FY 2006 FY 2007 FY 2008 FY 2009 FY 2010$0

$50

$100

$150

$200

$250

$300

$350

$400

$450

$27.1

$66.9

$146.1

$254.9

$313.4

$418.5$413.8

$209.3

MOVING FORWARD

2010 GENERAL SESSION OUTCOMESo Reductions to Public and Higher Education Minimized

o Structural Imbalance reduced from $460 Million to $320 Million

• $210 Million left in Rainy Day Funds• Revenue Enhancements like Quarterly Estimated Payments• Revenue Growth?

MOVING FORWARD, ECONOMIC DEVELOPMENT

Economic Vitality

o Utah was ranked #1 by the American Legislative Exchange Council as the state most likely to emerge first from the economic recession.

o Utah was ranked top ten states for business in 2010 by Chief Executive Magazine.

UTAH’S ECONOMIC STIMULUS PACKAGE

Home Run Program

Utah Science, Technology, and Research Initiative (USTAR)

Motion Picture Incentive

Energy Development Initiative

Transportation Infrastructure

EXAMPLE: 1-15 SOUTH

Largest Road Project in Nation

Agreed upon configuration $1.7 billion

GOPB

Phillip JefferyGovernor’s Office of Planning and BudgetUtah State Capitol350 North State StreetSalt Lake City, Utah 84114www.governor.utah.gov/gopb801-538-1027pjeffery@utah.gov

Questions