2010 General session budget review

1. 2010 General session budget review Phillip Jeffery, Deputy Director for the Governor’s Office of Planning & Budget Association of Government Accountants July 15, 2010

3. 2010 GENERAL SESSION BUDGET OVERVIEW • THE ENVIRONMENT: Revenue Downturn • THE CHALLENGES: Pre-Session Budget Situation • THE PRINCIPLES: Responsible Solutions • THE SOLUTIONS: Cuts, One-time “Backfill” • MOVING FORWARD: Upcoming Challenges, Available Tools

4. CONSENSUS REVENUE ESTIMATES Revenue Assumptions Committee (RAC) Economists from: • Governor’s Office of Planning & Budget • Tax Commission • Legislature • State Agencies • Higher Education • Local Government • Private Sector • Economic Outlook • November 2008

5. CONSENSUS REVENUE ESTIMATES (cont’d)

6. CONSENSUS REVENUE ESTIMATES (cont’d) • Revenue Estimates Committee • Quarterly CONSENSUS Revenue Estimates • Point Estimates in November & February • Range Estimates in June & September • Committee Members Include Directors of: • Governor’s Office of Planning & Budget • Office of the Legislative Fiscal Analyst • Tax Commission

8. THE ENVIRONMENT: REVENUE

9. THE ENVIRONMENT: REVENUE • State Budget • FY 2008 • $11.5 billion total • $5.3 billion General Revenue • FY 2011 • $11.6 billion total • $4.3 billion General Revenue • Revenue Picture • Loss of $1.1 billion or 21% top to bottom

10. 2009 LEGISLATIVE ACTION • Working Rainy Day Fund • Utah funded $516 million in capital investment for FY 2009 • Of this amount $346 million is from ongoing revenue sources • One-time Funding Sources Available • $418 million Rainy Day Funds • $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.

11. 2009 LEGISLATIVE ACTION • Revenues dropped $950 million from original FY 2009 projection (about 18%) • How Utah dealt with the shortfall • Agency budget reductions $355 million • Pub. Ed. held to 6% reduction ($182 M) • Higher Ed. held to 9% reduction ($77 M) • Capital funding reductions including buildings & roads of 28% • ($134 M) • Structural Deficit of $460 million (10%) funded mostly with ARRA

12. THE CHALLENGES: PRE-2010 SESSION BUDGET SITUATION • Shortfall and One-time Funding • Additional $177 Million Shortfallin FY 2010 • Ongoing Base Budget Reductions ≈ 18% partially backfilled with • American Recovery & Reinvestment Act and other One-Time funds • Total One-Time Funding of $460 Million • Public Education: $293 Million • Higher Education: $66 Million • Health & Human Services: $76 Million

13. THE CHALLENGES: PRE-2010 SESSION BUDGET SITUATION (cont’d) • New Costs and Resources • New Costs • Enrollment Growth • Medicaid & Human Services • Employee Health & Retirement • One-time Funding Sources Available • $418 Million Rainy Day Funds • $103 Million Student Population Growth Account • $73 Million Additional ARRA anticipated

14. THE PRINCIPLES: RESPONSIBLE SOLUTIONS • Governor’s Budget Recommendation Principals • Protect Public and Higher Education • Avoid exacerbating the structural budget imbalance • Retain a responsible Rainy Day Fund balance • Balance the budget with no tax increases

15. THE SOLUTIONS: FY 2010 • December Executive Order • Reduced state agency and higher education budgets by $39 million • Instituted a flexible hiring freeze • Delayed IT purchases • Provided other spending guidance

16. 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

17. 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

18. THE SOLUTIONS: FUNDING FOR EDUCATION • Public Education • Additional cut could have been as high as $400 Million, limited to $10 Million in non-classroom cuts • Ongoing budget cut of approximately 6% • Higher Education • Additional cut could have been as high as $100 Million, limited to $33 Million • Ongoing budget cut of approximately 13%

19. 2010 General Session PENSION REFORM • In 2008 Pension lost 30% of its value creating a $6.5 billion dollar gap • Increased contributions $400 million per year for the next 25 years • Three Goals • Fully Fund Pension Liability • Meet 100% of obligation to current and retired employees • Remove bankruptcy risk imposed on state

20. 2010 General Session PENSION REFORM (cont’d) • SB 43, Post-retirement Employment Amendments • SB 63, New Public Employees’ Tier II Contributory Retirement Act • Applies to new employees after July 1, 2011 • Limits State contributions to 10% • Can elect DB or DC plan • Increases years of service to 35 years (25 public safety)

22. MOVING FORWARD • 2010 GENERAL SESSION OUTCOMES • Reductions to Public and Higher Education Minimized • Structural Imbalance reduced from $460 Million to $320 Million • $210 Million left in Rainy Day Funds • Revenue Enhancements like Quarterly Estimated Payments • Revenue Growth?

23. MOVING FORWARD, ECONOMIC DEVELOPMENT • Economic Vitality • Utah was ranked #1 by the American • Legislative Exchange Council as the state • most likely to emerge first from the economic • recession. • Utah was ranked top ten states for business • in 2010 by Chief Executive Magazine.

24. UTAH’S ECONOMIC STIMULUS PACKAGE Home Run Program Utah Science, Technology, and Research Initiative (USTAR) Motion Picture Incentive Energy Development Initiative Transportation Infrastructure

25. EXAMPLE: 1-15 SOUTH Largest Road Project in Nation Agreed upon configuration $1.7 billion

26. Questions Phillip Jeffery Governor’s Office of Planning and Budget Utah State Capitol 350 North State Street Salt Lake City, Utah 84114 www.governor.utah.gov/gopb 801-538-1027 pjeffery@utah.gov