On Friday, Governor Doug Ducey released his proposed Executive Budget. After eight straight years of budget deficits Ducey is proposing a plan that closes the current state deficit and, by 2017, will eliminate the structural budget gap.
While the Brewer Administration squandered both money and opportunity it relied on temporary revenue that buoyed the State for a short time. That money is gone, and an existing structural deficit is left.
According to Ducey, without immediate remedial measures, the structural deficit, which has been masked by temporary revenue and carryover balances, will become an actual deficit that threatens State Government’s current operations and long-term health. As a result, Ducey is recommending total General Fund
expenditure levels of $9.09 billion in FY 2016, $9.30 billion in FY 2017, and $9.54 billion in FY 2018. FY 2018 ends with a $154.6 million structural balance and a $303.5 million ending balance.
The Governor has little control over spending as court decisions have limited State fiscal flexibility and have trapped the General Fund in to perpetual automatic spending increases that place at risk State Government’s fiscal viability, according to the Executive Summary.
The Executive Summary reads:
One of the major unanswered budget questions is the ultimate resolution of the K-12 funding controversy. While the Court has ordered the State to fund inflation, how that amount is to be calculated remains in doubt. The Executive Budget Recommendation assumes that the State’s position is correct, fully funding the required inflation for FY 2016 and providing a $74 million catch-up payment.
As a result, the Executive baseline projection forecasts a current fiscal year budget deficit of $159.6 million. Ducey proposes several measures to resolve that shortfall:
• The Executive budget will impact counties by eliminating a “$550,000 direct payment to the three largest eligible counties and asking each county to cover 25 percent of the cost of youth committed to the Department of Juvenile Corrections.
• The Budget also recommends cities and counties cover costs of the Department of Revenue in proportion to the revenue generated for those entities.
• Effective April 1, 2015, reduce Medicaid provider rates by 3%.
• Shift additional Disproportionate Share Hospital (DSH) federal funds to the General Fund.
• Eliminate funding for certain programs at the Department of Economic Security.
• Eliminate the Water Infrastructure Finance Authority Water Supply Development Fund.
• Close the remaining deficit by making withdrawals from the Budget Stabilization Fund, or “Rainy Day Fund.”
• Implement hiring freeze.
• Additional investments in capital and information technology.
To that end, Ducey is targeting traditional schools with a 5 percent reduction to non-classroom spending for traditional schools and only a 3.5 percent reduction in additional assistance for charter schools.
MAJOR GENERAL FUND BUDGET SOLUTIONS, FY 2015:
AHCCCS: DSH Raise the DSH Hardcap………………. $ (11.0 million)
AHCCCS and DHS: 3% Provider Rate Reduction ……. (8.4 million)
DES: Additional Federal Funding ………………. (4.0 million)
DES: New Programs ……………………………. (1.1 million)
WIFA: Water Supply Development Fund ………………… (1.0 million)
MAJOR GENERAL FUND BUDGET ISSUES, FY 2016:
K-12: Inflation Funding …………………………. $ 159.7 million
Administration: Capital …………………………… 10.0 million
Corrections: Litigation Settlement ………………. 8.1 million
Corrections: Inmate Healthcare …………………… 4.9 million
Corrections: New Beds ……………………………. 5.3 million
Administration: New Accounting System …………………. 1.9 million
DEMA: Federal Funds Backfill ……………………….. 1.5 million
DES: Adult Protective Services …………………….. 1.2 million
DES: Division of Developmental Disabilities Dental … 1.1 million
Attorney General: Federalism …………………….. 1.0 million
MAJOR NEW GENERAL FUND BUDGET SOLUTIONS, FY 2016
PUBLIC SAFETY
DPS: Self Funding ………………………………. $ (30.0 million)
Juvenile Corrections Reform …………………….. (3.0 million)
DEMA: Camp Navajo Fund …………………………. (1.0 million)
EDUCATION
K-12 Administrative Reduction …………………… $ (113.5 million)
Universities: Reduction …………………………. (75.0 million)
K-12: 1% Reform …………………………………. (20.2 million)
K-12: Charter Additional Assistance ……………….. (10.3 million)
Community Colleges: Reduction ……………………… (8.8 million)
K-12: District-Sponsored Charter Phase-Out …………. (0.4 million)
K-12: Homeowner Rebate Cap ………………………… 3.6 million
HEALTH AND WELFARE
AHCCCS: Restore Ambulance Rates …………………….. $ (6.0 million)
Child Safety: Foster Care Recruitment ………………….. (2.0 million)
AHCCCS: Fraud Prevention …………………………….(1.3 million)
GOVERNMENT
Revenue: TPT Collectors ……………………………… $ (32.6 million)
Financial Institutions: Reform ……………………….. (6.8 million)
Revenue: Fraud Prevention …………………………….. (5.7 million)
Tourism Reduction …………………………………….. (4.5 million)
Veterans: Fund Shift ………………………………….. (0.9 million)
Insurance: Raise Fees ………………………………… (0.5 million)
LOCAL GOVERNMENT
Juvenile Corrections Fee ……………………………………… $ (12.0 million)
Direct Payments to Counties ……………………………………. (1.7 million)
MAJOR NEW GENERAL FUND BUDGET SOLUTIONS, FY 2017
Maintain HURF Shift ……………………………………. $ (30.0 million)
Hiring Freeze/Restructure……………………………….. (20.7 million)
Land Department: Self-Funding ……………………………. (12.5 million)
PROJECTED ENDING BALANCES
FY 2016 ………………………………………………….. $ 136.8 million
FY 2017 …………………………………………………. 148.9 million
FY 2018 …………………………………………………. 303.5 million