HomeMy WebLinkAbout10/27/2009 Council Presentation - Financial Status Update
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Joint Legislative Budget Committee
Staff Memorandum
1716 West Adams
Phoenix, Arizona 85007
Telephone: (602) 926-5491
Facsimile: (602) 926-5416
DATE: October 22, 2009
TO: Members, Joint Legislative Budget Committee
FROM: Richard Stavneak, Director
SUBJECT: FY 2010 REVENUE AND ENDING BALANCE PROJECTION
Pursuant to Laws 2009, ls` Regular Session, Chapters 11 and 12, the JL,BC Staff is required to report to
the Committee by October 15, 2009 as to whether the estimated FY 2010 General Fund revenues and
ending balance are expected to change by more than $50 million from budgeted projections. We
postponed our response pending today's Finance Advisory Committee (FAC) meeting.
The JLBC Staff projects that the FY 2010 ending balance will fall short of the budget by $(2.0) billion
due to an FY 2009 ending balance shortfall, the impacts of the FY 2010 budget vetoes, lower than
anticipated revenue collections in FY 2010, and changes in other FY 2010 budget projections as noted in
the table below:
Components of FY 2010 Estimated Shortfall
Impact $ in millions
FY 2009 Shortfall $ 478
FY 2010 Veto Impact 483
FY 2010 Revenues 698
Other FY 2010 Projections 300
Total $1,959
FY2009 Shortfall
In May 2009, the Legislature approved budget legislation designed to address an estimated $(650) million
shortfall and leave a projected FY 2009 ending balance of $0. Subsequent to the passage of that bill,
revenue collections fell short of projections and Federal stimulus funding was not available in time to
offset General Fund spending. As a result, FY 2009 had a negative ending balance. The preliminary
estimate of the FY 2009 ending balance from the Executive Branch is $(478) million. The FY 2009
ending balance will not be finalized until the Department of Administration publishes the state's Annual
Financial Report.
FY2010 Veto Impact
The FY 2010 budget as transmitted to the Governor was balanced. The Governor's veto of SB 1025 and
line-item vetoes of the Department of Economic Security and Arizona Department of Education budgets
(returning them to higher, previously-signed levels) created an additional shortfall of $(483) million.
FY2010 Revenues
The enacted FY 2010 budget forecast would require a base revenue growth rate of 0.9%. FY 2010
revenues are likely to fall substantially short of that target. Based on preliminary data, year-to-date
revenues through September are (16.1)% below last year and $(233) million below forecast.
(Continued)
JLBC
-2-
With today's FAC meeting, a new 4-sector consensus revenue forecast is available. The 4-sector results
are based on 2 models from the University of Arizona, the Finance Advisory Committee panel survey,
and the JLBC Staff forecast. The 4-sector consensus forecasts a revenue decline of (7.2)% in FY 2010.
Given the year-to-date declines, however, for this projection, the JLBC Staff is using its own FY 2010
forecast of a (8.7)% decline. At this rate, revenues would fall short of the budgeted forecast by $(698)
million.
Other FY2010 Projections
The need to adjust other FY 2010 budgeted projections would add $300 million to the shortfall. The $300
million shortfall estimate includes $135 million for supplemental spending in AHCCCS and DHS due to
higher than budgeted caseloads. The shortfall estimate also includes $165 million for potential unrealized
budget savings assumed in the FY 2010 budget; these potential lost savings include AHCCCS fraud
savings and the prison concession agreement, as well as other smaller items.
The enacted FY 2010 budget assumed that AHCCCS could save $50 million by reducing fraudulent
expenditures. While several statutory changes to revise AHCCCS fraud procedures were discussed
during the legislative session, none were enacted. In addition, AHCCCS has solicited ideas for additional
administrative proposals but has not adopted any significantly revised policies. Regardless of the actual
level of fraud, substantial new fraud reduction savings seems unlikely without some change in statutory or
administrative procedures.
The budget also assumed that $100 million would be generated in an upfront payment from a private
vendor in exchange for a long term contract to operate an existing state prison facility. The procurement
process for this contract will commence shortly, but will likely take most of the fiscal year as the
Executive is statutorily required to issue a Request for Information (RFI) initially and then the actual
Request for Proposals (RFP). Based on preliminary feedback, we may find it difficult to generate an
upfront payment of this magnitude. As a result, it may be better to move forward with the procurement
process so as to determine the state's possible gain, but not score any FY 2010 revenue until we have
more information.
The budget also includes $735 million in revenue from alease-back transaction on state buildings. Based
on input from the state's financial advisors, there appears to be a sufficient market to generate this level of
proceeds. We will know more in the next several months as the offering is made.
Based on the JLBC Staff forecast and the added expenditure/savings changes noted above, the FY 2010
shortfall would be $(2.0) billion.
Please let us know if you have any questions.
RS/TE/SSh:sls