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More on State Finances
Friday, 03 September 2010

September 3--  Senator Jack Hill of Reidsville reports the latest on state finances in his "Notes from the Senate" column.

LOOKING AGAIN AT FY2011 AND FY012 BUDGET ISSUES

The partial renewal by Congress of the Federal Medicaid Assistance Percentage. (FMAP)  resulted in approximately $220 million in funds continuing for the state to keep the percentage of Federal Medicaid within $140 million level for the FY011 Budget year ending in June of 2011.  Of course, since the appropriation only completes the FY011 fiscal year, this means that there will be no enhancement of this rate for the next year, leaving a $740 million hole in the FY012 budget. 

A positive development was the federal Education Funds recently passed by Congress resulting in over $300 million dollars going to local school systems.  How those funds are spent can be a factor in the calculations of FY012 budget for the QBE formula.  If local systems spend these funds and bank local funds, cuts at the state level could be affected.

TAX REFUNDS AND TRENDS IN SALES TAXES

July individual tax refunds were markedly lower than one year ago in number and amount indicating a more timely payout this year by the Department of Revenue.  July Personal Income Tax Refunds numbered 120,703 returns versus the July 2010 total of 257,402.   July refund amounts totaled $130.3 million versus a year ago in July totaling $190.9 million, a decrease of over $60 million.

For July, Sales tax categories trended upward with food increasing 4.5%, accommodations increasing 16.3%, automotive up 4.4%., and general merchandise up 2.8%.  Utilities were up 6.5%.  Negatives for the month under last July were Home Furnishings and Equipment, down -15.5%, construction down 11.5% and manufacturing down 4.3%.

ISSUES FOR FY2011 

The Governor’s Revenue Estimate has about 5.09% in growth built into the FY2011 budget.  Most economists are predicting 3-3 ½%.

 There is a $140 million shortfall built into the 011 budget due to Congress not funding the recession level Medicaid match (FMAP).

 There will be growth in K-12 enrollment and other enrollment-driven formulas of Board of Regents and Technical colleges. Those must be funded.

ISSUES FOR FY2012

A number of issues cloud the horizon for FY2012 and the shortfall could reach over one billion dollars.

   Assuming Congress does not extend the FMAP percentage beyond next June, there will be a difference of approximately $740 million dollars that must be made up in FY012.

   There is no doubt that enrollment will continue to grow in K-12 schools, colleges and technical schools.  This growth and increases in Medicaid could take up whatever revenue growth the state picks up.  Economists have predicted about 5% growth in the economy for FY012 at this juncture.

  • Tax cuts phasing in the eliminating of income taxes for senior citizens and eliminating the ¼ mill property tax presently going to the state will cost some $30 million in FY 2012.
  • Medicaid enrollment is sure to increase due to the economy.  Provider payments may be reduced to make up any deficit.
  • The state has put $70 million in new funds into the Behavioral Health System mostly for mental hospitals in response to federal actions.  Will there be an additional investment required?

So, with stimulus funds disappearing, enhanced Medicaid match disappearing, the state continuing to grow with the associated costs, the question becomes:  What combination of tax collection growth along with cuts to state agencies will produce what could well be a $1.3 billion hole to fill?

 

 
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