The state's budget shortfall has been nearly cut in half, according to new information from the Joint Fiscal Office (JFO), the Legislature's nonpartisan fiscal research arm.
Steve Klein, the chief fiscal officer for JFO, told the House Ways and Means Committee on Jan. 3 that the budget gap, which had been pegged at $74.5 million in November in a consensus forecast with the Shumlin administration, had been revised downward to $46 million.
Klein said Medicaid costs were $16 million less than expected and assumptions for the budget adjustment (the mid-year true up of the state budget) were $13 million lower than anticipated (in effect, base spending was flat in the first six months of the fiscal year, and the budget adjustment increase was zero).
The number of Vermonters who use Medicaid services has declined, and utilization rates have also gone down, Klein told lawmakers. JFO estimated a 6 percent growth rate for the program.
Officially, the gap forecast is still $74.5 million until the Shumlin administration confirms the numbers and agrees to consensus figures, Klein said. He called the new shortfall figure of $46 million a “placeholder number.”
Contributing factors to the gap include:
• $13.6 million use of one-time funds
• $19.6 million related to a 1 percent increase in the Medicaid match rate
• $25 million in additional pension obligations and health care costs for retired teachers and state workers
• $7 million for technology infrastructure replacement
• $8 million in transfers, $6 million to the Education Fund and $2 million from reserves
• $4 million in rest area funding pressure
• $10 million for autism treatment costs
Klein predicted that the governor would delay implementation of the “autism mandate,” a requirement that the state pay for specialized services for young children with the developmental disability. The mandate is projected to cost about $10 million annually.
If the postponement occurs, the budget gap projection would drop to $36 million, according to Klein.
Klein explained that the budget shortfall projections are now calculated by JFO based on predicted total changes in expenditures rather than a straight percentage based on past budgeting. This shift caused a disconnect last fall between JFO and the administration when the two parties didn't issue a consensus gap analysis because they had calculated the shortfall differently.
JFO based its analysis on a 3.5 percent base increase; the Department of Finance and Management looked at projected pressures reported by departments in state government.
The new shortfall number came to light as part of a list of financial issues Klein suggested that House Ways and Means put on its “menu” for the session.
The chief fiscal officer told lawmakers that projected revenues for fiscal year 2013 will be $41.6 million higher than the current fiscal year.
The new revenue forecast will be presented to the Emergency Board on Jan. 18 – the week after the governor's budget address. Klein said Gov. Peter Shumlin will seek language from the Legislature that will give him the flexibility to salt away unanticipated revenues in reserve funds.
At this time, the state has $17 million in the Emergency Relief and Assistance Fund, which will be used to cover unanticipated Irene costs; $22 million in the Agency of Human Services caseload reserve fund, which is often used to buy down the state's Medicaid match; $1.9 million in contingency money for federal cuts to programs; $3.88 million in a one-time setaside that kicks in when revenue forecasts exceed $10 million.
The revenue shortfall reserve fund, a new “all-purpose” vehicle for reserve monies funded by the Legislature in the last session, may be reupped this year. The state also has roughly $55 million in the budget stabilization fund.
State officials say it's crucial to have plenty of money available in reserve because of the uncertain economic environment and because Congress, in debt reduction mode, will likely reduce funding for state programs.