1	Looking Ahead: 2004 -2006 Budget
2	House Bill 1400 Overview Actual revenue collections in FY 2002 fell $237.0 million short of the forecast After taking into account cash balances, $216.2 million of the FY 02 shortfall rolls forward into FY 2003 Based on continued economic weakness in FY 03 and a below trend rebound in FY 04, the Governor has reduced the anticipated general fund revenue collections for the 2002-04 biennium FY 2003: ($523.2) million FY 2004: ($759.2) million
3	House Bill 1400 Overview In addition to the revenue shortfall, approximately $550 million in spending requirements must be met Medicaid: $142.4 million Car Tax Relief: $127.6 million K-12 (SOQ, Lottery): $ 97.1 million Other Health & Human Services: $ 93.2 million Public Safety: $ 29.3 million State Employee Health Ins.: $ 16.4 million Other Spending: $ 38.4 million
4	House Bill 1400 Overview The Governor also proposes approximately $57.0 million in new spending Majority of new spending is related to strategies that either generate savings or enhance revenues Medicaid Critical Care (PATH): $30.0 million Enhanced Tax Compliance Efforts: $11.3 million Debt Service for Supplanted Capital Projects: $7.6 million
5	The Budget Gap is $2.1 Billion
6	House Bill 1400 Actions to Close the Budget Gap General fund reductions: $1,035.6 billion Agency cuts - $764.8 million October reductions ($618.8 million) Reduction to Local Aid - $133.1 million Supplant GF - $104.0 million Literary Fund for teacher retirement, TANF Funds Technical Reductions - $33.7 million Adjust SOQ for sales tax, K-12 participation in Incentive Accounts Rainy Day Fund: $374.4 million Non-general Fund Transfers: $174.1 million FY 02 balances, October reductions, December ìtargetedî cuts FY 2002 GF Operating Balances: $86.2 million Reversion of Prior Year Capital Balances - $98.1 million $84.9 million in debt to replace cash Lottery Profits: $72.8 million Revenue Enhancements/Other Transfers - $257.0 million Sale of Housing Portfolio - $ 40.8 million Tax Amnesty/enhanced compliance - $57.7 million Retain NGF interest earnings - $34.0 million
7	Actions to Close the General Fund Gap House Bill 1400 = $2.1 Billion
8	Facility Closings DMV-close 12 customer service centers DOC-close Staunton Corr. Center (accelerated) DOC-close 6 P&P District satellite offices DJJ-eliminate private contracts (boot camp, KYDS, TEP) Museum of Natural History-close Charlottesville and Blacksburg branches Forestry-close ten local offices, transferred employees Department of Game and Inland Fisheries-close one fish hatchery DCR-close Fredericksburg regional office DEQ-close Kilmarnock satellite office
9	Agency Consolidations DIT, DTP and VIPnet into new agency Public Broadcasting Board under Sec. of Administration VA Liaison Office into Govís Office Comm. On Local Govt. into DHCD Human Rights Council into OAG Treasury Board moved under Dept. of Treasury Milk Commission into VDACS CBLAD into DCR Chippokes into DCR Museum of Natural History into Science Museum Study to move Richard Bland into VCCS
10	HB 1400 Actions to Balance the Budget One Time Versus On-going Savings Approximately 45 percent of the budget gap is addressed through one-time savings actions One-time saving actions create structural imbalance between revenue and spending that pushes problem from one fiscal year to the next Imbalance in FY 04 totals $352.2 million or 32 percent of the HB 1400 actions Does not include the Literary Fund Does not reflect one-time actions contained in Chapter 899
11	Use of One-time Actions Chapter 899 and House Bill 1400 use one-time actions to help ìmanageî the budget problem The use of one-time actions in FY 04 create a structural imbalance in the 2004-06 budget One-time ìfixesî would include actions that are not on-going (Rainy Day Fund, Tax Amnesty, Capital Balances) or that require Code override (Transportation funds, Game Fund, $4 for Life) In total, Chapter 899 and HB 1400 (introduced) contain approximately $545.0 million in FY 04 one-time actions, excluding Literary Fund and sales tax acceleration Some of these Code overrides could be continued next biennium Literary Fund transfer totals $180.7 million in FY 04 Under the Constitution can be used for Teacher Retirement Sales tax acceleration totals $138.0 million Adopted in FY 2002 and continued in Chapter 899 During the 1990ís recession, one-time actions were used to help manage the budget problem
12	Budget Outlook for 2004-06 Biennium What does it cost to keep doing what we are doing? Base budget equals fiscal year 2004 Back out any one-time spending What are the known budget drivers? Mandatory and statutory What are the ìdiscretionaryî priorities? How does it all fit?
13	2004-06 Budget Mandatory Spending Include spending increases resulting from State or Federal Law Re-benchmark SOQ, Medicaid, CSA, Foster Care payments, Employee health insurance premium increase, VRS rate changes, economic development incentive payments, jail payments, 599 funding increase Discretionary spending includes Salary increases, capital outlay, higher education
14	ÝWhat Will 2004-2006 Biennium Look Like? Based on the December Forecast, the outlook assumes general fund economic tax growth of 5.8% in FY 05 and 5.1% in FY 06 Based on historical spending drivers, the budget shortfall could total approximately $900 million. Assumes Car Tax remains at 70% and no further reduction in Food Tax Does not reflect repeal of Estate Tax Assumes 100% diversion from the Literary Fund for Teacher Retirement ($180.0 million per year) Assume the continuation of the Sales Tax Acceleration ($138.0 million per year) Assumes no pay raises for employees and teachers
15	What Will 2004-2006 Biennium Look Like?
16	What Does It All Mean? Structural imbalance will continue During early 1990ís recession, it took 5 years to structurally balance the budget Will have to relay on non-general fund transfers and budget cuts Some of the spending drivers will have to be deferred: Insurance premium tax for Transportation, economic development incentives, defer VRS rate increases, no funding for capital maintenance, or higher education enrollment No flexibility in discretionary spending in 2004-06 Biennium
17	The Go-Go Years - Where Did the Money Go? From 1998 to FY 2001, Virginia experienced strong revenue growth, with each year stronger than the last and health year-end surpluses. Three consecutive years of growth above 10 percent Growth drivers of the early 1990ís had abated. Corrections, Medicaid and K-12 enrollment New spending and commitments were made. Car tax, tax policy changes (military income, double weight, coal tax credit, sales tax on food, etc), school construction, Medicaid provider rate increase, repaid the TTF, full funding of ì599î, deputy sheriff 1:1500, special pay and benefit increase for public safety employees, rollback and freeze college tuition.
18	The Go-Go Years - Where Did the Money Go? In FY 2002, 11 categories accounted for approximately 85 percent of the general fund budget, up from 79 percent in FY 98 Total growth in these categories exceeded the overall growth in the general fund budget Does not reflect payments into the Rainy Day Fund GF Funding for Higher Education has been reduced over $300.0 million annually. Nearly all of the new Higher Education funding has been removed to balance the budget
19	General Fund Budget Growth FY 1998 - 2002