Governor Closes $1.1 Billion Spending Gap Using Questionable Budget Tactics

On Monday, February 1, Fiscal Services Division of LSA released its complete review of the Governor Culver’s FY 2011 Budget Recommendations. The review outlines how the Governor was able to close the $1.1 billion spending gap that he and the Democrats in the Legislature created by overspending the past three years.

The report states that while the Governor says he will close the spending gap by reducing state spending and not raising taxes, he proposes some questionable tactics that leave a mess for the next Governor and the new Legislature.

According to Fiscal Services, the Governor closes the gap using the following tactics:

  • Assuming $341.0 million in savings from reorganization and efficiencies. The Governor does not specifically delineate what appropriations will be reduced due to the savings.
  • Appropriating $207.5 million from the Cash Reserve Fund.
  • Making revenue adjustments, including reducing tax credit redemptions by $52.5 million.
  • Not fully funding the built-in and anticipated expenditures and shifting programs typically funded from the General Fund to other funding sources. ($214 million)
  • Reducing the General Fund School Aid appropriation by $170.2 million.
  • Not funding the increase for the collective bargaining costs. ($86 million)

Here are the concerns that Fiscal Services has with each of the above items:

  • “The Governor’s budget recommendation assumes that all savings will impact the General Fund. This is clearly not the case, as stated specifically by Public Works LLC in the Report and as clarified by the LSA through additional research.” (Summary of the FY 2011 Budget and Governor’s Recommendations, Page 50)
  • “Under the Governor’s recommendation, the combined reserve fund balance for FY 2010 is reduced to $265.2 million. This is $278.7 million below the statutory maximum balance of $543.9 million or 48.8 percent of the statutory goal.” (Summary of the FY 2011 Budget and Governor’s Recommendations, Page 23)
  • “The Governor is recommending unspecified action to reduce tax credit redemptions impacting FY 2011 General Fund net receipts by $52.5 million. The Governor’s recommendation does not target any specific tax credit for reduction or elimination.” (Summary of the FY 2011 Budget and Governor’s Recommendations, Page 15)
  • “The FY 2011 General Fund built-in increase based on the Governor’s recommendation totals $199.7 million, while the amount of State aid (including ARRA and Cash Reserve Fund) is $170.2 million less than the estimated amount needed to fully fund the State’s portion of the 2.0 percent allowable growth rate. With no reduction in the FY 2011 allowable growth rate or State cost per pupil, school districts will maintain the budget authority on their portion of the unfunded State school aid. School districts may address the State aid shortfall by reducing costs, borrowing funds, or using cash reserves (which increases property taxes) to replace the State aid shortfall.” (Summary of the FY 2011 Budget and Governor’s Recommendations, Page 63)
  • “The Governor does not include a recommendation to fund collective bargaining in FY 2011. In FY 2010, the General Assembly did not appropriate additional funds for salary expenditures. State agencies used existing funds to pay the cost of salaries, including the cost to fund negotiated contracts with various bargaining units, and similar increases for noncontract employees. The total estimated need to fund salary increases for FY 2011 is $143.5 million, including $85.7 million from the General Fund. The estimate includes $60.3 million for the Board of Regents, including $36.4 million from the General Fund.” (Summary of the FY 2011 Budget and Governor’s Recommendations, Page 26)

Prior to the release of the Governor’s budget recommendations, House Republicans said it would review it to see if it does the following:

  • The budget does not spend more than the state takes in
  • Does not raise taxes, including property taxes
  • Proposes real government efficiency and reorganization

Since the Governor’s budget violates all three of these items, House Republicans will now turn the focus to the budget working its way through the Legislature to ensure it follows the three principles.