General Fund Fiscal Outlook l d l l k Presentation to the New - - PowerPoint PPT Presentation

l d l l k General Fund Fiscal Outlook

Presentation to the New Mexico Tax Research Institute December 15, 2011 David Abbey Director N.M. Legislative Finance Committee

Overview

• New Mexico kept its “head above water” during the last 4 years.

‐No required furloughs or layoffs No required furloughs or layoffs ‐Maintained class sizes and school year ‐Maintained Medicaid eligibility and most benefits Kept courts parks museums and MVD offices open ‐Kept courts, parks, museums and MVD offices open ‐Balanced budget, adequate reserves, top bond rating

• After falling $1 2 billion or 20 percent in 2 years revenues recovered in
• After falling $1.2 billion or 20 percent in 2 years, revenues recovered in

FY11 and FY12 to‐date.

• FY13 revenue outlook suggests steady, but moderate growth consistent

with a slow economic recovery. with a slow economic recovery.

• FY13 “new money” is $250 million, almost 5 percent of spending.
• Challenge is not to go back to old spending practices, but to invest in

programs that will yield better results. p g y

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$6 300

One-Time Funds Supplanting General Fund (million dollars)

$5,700 $5,900 $6,100 $6,300 $4 900 $5,100 $5,300 $5,500 $4,500 $4,700 $4,900

FY07 FY08 FY09 Op Bud FY09 Solvency FY10 Solvency /EO FY11 Post Sanding & 2 d Sti l FY12 Approp FY13 Forecast

Source: LFC calculations.

w/EO 2nd Stimulus

General Fund Federal Funds Other State Funds Recurring Revenue

• Recurring revenue fell by over 20% from FY08 to FY10.
• FY12 spending is down 10.9% from the peak.
• FY13 revenue is projected to be 7% below the peak appropriation in FY09.

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Total Appropriations Including Temporary Funds (Dollar amounts in millions)

Change From FY11 Change From FY09 Post-

FY12 Appropriation

pp p g p y $ Change % Change $ Change % Change (63 2) $ 2 6% (223 8) $ 8 6%

Adjusted OpBud Change From FY09 Post Solvency

P bli S h l

Category: (63.2) $

• 2.6%

(223.8) $

• 8.6%

(45.8) $

• 6.0%

(146.3) $

• 17.0%

15.9 $ 1.6% 10.0 $ 1.0% (47.3) $

• 3.3%

(303.6) $

• 17.9%

Public Schools Higher Education Medicaid* Other

Source: LFC calculations.

( ) $ 3.3% (303.6) $ 17.9% (140.4) $

• 2.5%

(663.7) $

• 10.9%

Other Total

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Total New Mexico Employment

820.0 840.0

• bs

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Forecast Actual

780.0 800.0

usands of Jo

740.0 760.0

Thou

• Little growth seen in FY11

Source: FOR-UNM forecasting service.

FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16

• Little growth seen in FY11
• Growth average 1.2% per year for next 5 years
• Previous high not reached for 5 more years
• In October 2011, New Mexico employment increased by 4,900

jobs, or 0.6%, over October 2010

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New Mexico Oil & Natural Gas Prices

$10 $12 $14 $100 $120 $140

c feet History Forecast

$4 $6 $8 $40 $60 $80

housand cubic $/barrel

$0 $2 $4 $0 $20 $40

$/th

Source: Consensus revenue estimating group Oil Price ‐ left axis Natural Gas Price ‐ right axis

December 2011 Consensus forecast:

• Oil Price (bbl):

$86.75 FY12, $87.75 FY13

• Gas price (mcf): $5.20 FY12,

$5.60 FY13 p ( ) ,

• $1/bbl: $4 million for General Fund
• $1/mcf: $92 million for General Fund

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Taxable Gross Receipts by Quarter

10% 15% 20% 12 0 12.5 13.0 13.5

p y

‐5% 0% 5% 10 5 11.0 11.5 12.0

$ billions

‐20% ‐15% ‐10% 9.0 9.5 10.0 10.5

Taxable Gross Receipts (left axis) Year over Year Growth in TGR (right axis)

• Taxable gross receipts (TGR) has grown 12 percent in the last 6 months.
• Growth rate turned positive in the first quarter of FY11 for the first time in 2 years

Source: NM Taxation & Revenue Department, RP-500.

Growth rate turned positive in the first quarter of FY11 for the first time in 2 years.

• The level of TGR is less than 1 percent below the peak level in the fall of 2009.

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Table 1 D b 2011 C G l F d R i R O tl k December 2011 Consensus General Fund Recurring Revenue Outlook (Dollar amounts in millions) FY11 (Prelim) FY12 FY13 Post session estimate $5 164 $5 413 $5 638 Post-session estimate $5,164 $5,413 $5,638 December 2011 consensus $5,402 $5,533 $5,688 Annual amount change $604 $130 $156 Annual percent change 12.6% 2.4% 2.8%

• FY11 grew by 12.6 percent from FY10.

Source: Consensus revenue estimating group.

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FY11 grew by 12.6 percent from FY10.

• About 4 percent of FY11 growth is due to legislated tax increases.
• Growth is expected to average about 2.5 percent annually from FY12 to FY14.
• “New money,” defined as FY13 revenue less FY12 appropriations is projected to

New money, defined as FY13 revenue less FY12 appropriations is projected to be $250 million.

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Public School Outcomes are Persistently Disappointing Disappointing

Measure

FY10 Actual FY11 Target FY11 Actual FY11 Rating Percent of fourth-grade students who achieve proficiency or above on Percent of fourth grade students who achieve proficiency or above on standards-based assessments in reading 51% 74% 46.5% Percent of eighth-grade students who achieve proficiency or above on the standards-based assessments in reading 61% 72% 53.3% Percent of fourth-grade students who achieve proficiency or above on the standards-based assessments in mathematics 45% 67% 44.4% Percent of eighth-grade students who achieve proficiency or above on the standards-based assessments in mathematics 39% 63% 40 8% standards-based assessments in mathematics 39% 63% 40.8% Percent of recent New Mexico high school graduates who take remedial courses in higher education at two-year and four-year schools 47.1% 40% Not Reported Current year’s cohort graduation rate using the four-year cumulative method 66.1% 80% 67.3% Annual percent of core academic subjects taught by highly qualified teachers, kindergarten through twelfth grade 99.5% 100% 97.1%

Overall Program Rating

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New Administration Drew Attention to h l d l School Funding Formula Issues

• PED’s evaluation of 80‐day to 80‐day enrollment data revealed

k d l d a spike in units despite only a 1 percent increase in student enrollment, “suggesting potential inconsistencies or error in the data provided and intentional gaming of the system to receive additional funds ” Sec Skandera receive additional funds. – Sec. Skandera

• PED identified 34 districts and 28 charter schools for review

that sho ed ann al gro th in special ed cation membership that showed annual growth in special education membership, related services staff, or teacher training and experience index units that exceeded annual statewide growth by more than 200 percent 200 percent.

• Results of reviews have not yet been released by the

department department.

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LFC and LESC Joint Evaluation of d l Funding Formula

• NM’s funding formula is too complicated and

NM s funding formula is too complicated and difficult to administer.

• The combination of unclear statutes rules and

The combination of unclear statutes, rules, and weakening management and oversight undermine the fair and effective allocation of undermine the fair and effective allocation of resources.

• Report outlines findings specific to: Special

Report outlines findings specific to: Special Education, Ancillary FTE, T&E Index, School Size Adjustment Units, At‐Risk Index, Bilingual Units j , , g

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For Example For Example

Photo 1. Lovington’s Freshman Academy (marked with a red X) sits adjacent to two Lovington High School Buildings (marked with green checkmarks).

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Generated an additional $584 thousand in size adjustment funding in FY11

Early Childhood Learning Initiatives y g

• Secretary‐Designate Skandera’s focus on social

Secretary Designate Skandera s focus on social promotion appropriately evolved into focus on early childhood education and improving early early childhood education and improving early math and reading proficiencies.

• Currently New Mexico funds several programs
• Currently, New Mexico funds several programs

aimed at early childhood education with a history of demonstrated success including history of demonstrated success, including prekindergarten and kindergarten‐three‐plus.

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Higher Education Funding Issues Higher Education Funding Issues

• A task force of institutional, executive and legislative leaders and

staff proposed a draft formula last September.

• The HED delivered a revised formula and budget request

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• Funds statewide outcomes, including increased certification and degree

procurement, especially for priority workforce areas and by financially at-risk students

• Funds workload based on completed coursework, not enrollment
• Maintains budget stability near FY12 operating levels
• The revised formula moves the state in the right direction to fund
• utcomes.

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Higher Education Funding cont. Higher Education Funding cont.

• Additional funding is needed to guarantee success in FY13

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• Change in direction may not go far enough
• No components in place to ensure budget stability over time

For example the tuition credit and waivers are gone for FY13

• For example, the tuition credit and waivers are gone for FY13
• More work may need to be done during the 2012 interim -

develop better data, strengthen statewide outcomes and performance targets, establish mission-specific measures

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Human Services Department (HSD) Human Services Department (HSD)

• HSD is requesting $1.017 billion from the general fund, which

q g $ g , is a $50.1 million increase (5.1 percent) over FY12. The majority of this increase, $48.9 million, is for Medicaid.

• HSD has held costs in the physical health managed care area,

where the majority of over 500,000 Medicaid clients are served essentially flat since FY09 at about $1 1 billion served, essentially flat since FY09 at about $1.1 billion annually.

• FY13 Medicaid budget assumes 2 percent enrollment growth ,

1 percent growth in utilization and continued cost controls on provider rates.

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Medicaid Issues Medicaid Issues

• Medicaid modernization plan has not been released but expect a

move towards fewer federal waivers and managed care contracts, with behavioral health likely to be “carved back in” with physical health.

• Cost growth of Coordination of Long Term Services (CoLTS) waiver

program is a concern. FY13 cost projected at $917 million, a $120 million increase over FY10 cost of $798 million. $

• HSD has submitted a $48 million deficiency requests to help their

cash shortfall resulting from the repayment of funds back to CMS for over expenditures Shortfall may grow pending outcome of for over‐expenditures. Shortfall may grow pending outcome of $40.8 million request to feds for reimbursement of under‐reported state expenditures.

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Children, Youth & Families

• Under budget pressure, CYFD started a waiting list for

childcare and cut provider rates. Child Protective Services and Juvenile Justice Programs are also challenged with increased caseloads, staff burnout and excessive overtime.

• LFC recommends lower vacancy rates with direct service

positions such as social workers and youth care specialists, and expansion of early childhood services such as home‐ p y visiting, high‐quality childcare, and prekindergarten, all of which have been shown to have high rates of return on investment investment.

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General Fund Financial Summary - Dec 2011 Consensus Revenue Estimate

(Millions of Dollars) Preliminary Estimated Estimated FY2011 FY2012 FY2013 APPROPRIATION ACCOUNT REVENUE T l R i R 5 402 4 $ 5 532 8 $ 5 688 2 $ Total Recurring Revenue 5,402.4 $ 5,532.8 $ 5,688.2 $ Total Non-Recurring Revenue 66.8 $ 18.3 $ (3.3) $ TOTAL REVENUE 5,469.2 $ 5,551.1 $ 5,684.9 $ APPROPRIATIONS Total Recurring Appropriations 5,212.9 $ 5,431.3 $

• $

Total Nonrecurring Appropriations 18.3 $ 105.8 $

• $

TOTAL APPROPRIATIONS 5,231.2 $ 5,537.1 $

• $

GENERAL FUND RESERVES

S LFC fil

Beginning Balances 278.0 $ 501.9 $

• $

Net changes 223.9 $ (0.5) $ Ending Balances 501.9 $ 501.4 $

• $

Reserves as a % of Recurring Appropriations 9.6% 9.2% ***

• LFC assumes $100 million in specials, supplementals and deficiencies

in FY12.

• Under this scenario reserves reach $501 4 million or 9 2% of recurring

Source: LFC files

Under this scenario, reserves reach $501.4 million or 9.2% of recurring appropriations in FY12.

• National ratings agencies have traditionally considered 5% reserves as

sufficient.

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General Fund Reserves

14% 16% 18%

Percent of Appropriations

8% 10% 12% 14% 2% 4% 6% 8% 0% 2% FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11* FY12*

*Forecast Source: LFC files

• FY11 reserves of 4.5% assume no increases to FY11 allotments
• Forecast risks require higher reserves

Source: LFC files.

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NM UI Trust Fund Revenue and Benefits

$400 $500 $200 $300 $400 ions $0 $100

FY07 FY08 FY09 FY10 FY11

mill

• Due to benefit expansion high unemployment and suppressed employer contributions the

FY07 FY08 FY09 FY10 FY11

Revenue Benefits

Source: WSD

• Due to benefit expansion, high unemployment, and suppressed employer contributions, the

trust fund faces insolvency.

• The partial veto of House Bill 59 eliminated the prescribed employer contribution schedule 3,

subsequently creating a void for the 2012 employer contribution schedule.

• With no schedule in place for 2012, U.S. Department of Labor representatives have indicated

that New Mexico contributing employers might not qualify for the maximum 5.4 percent tax credit against their federal Unemployment Tax Act (FUTA) liability. The result would be a tax increase for the majority of New Mexico employers.

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Pension Fund Solvency

• ERB

– Unfunded Accrued Actuarial Liabilities

• $5 9 billion
• PERA

– Unfunded Accrued Actuarial Liabilities

• $4 9 billion
• $5.9 billion

– Funded Ratio

• 61.6 %

– Funding Period

• $4.9 billion

– Funded Ratio

• 70.5 %

– Funding Period

• Infinite

– Annual Required Contribution

• $357 million
• Actual: $309 million (87.7%)
• Infinite

– Annual Required Contribution

• $328 million
• Actual: $296 million (88.7%)
• Solvency for both funds has deteriorated for many years
• Ways to improve solvency:

Investment returns and increasing contributions are not sufficient

• Investment returns and increasing contributions are not sufficient
• Reducing COLA would lower the compounding rate
• Create incentives for employees to work longer or increase minimum age
• f retirement

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Capital Outlay

• Gross Senior Severance Tax Bond (STB) capacity in FY12 =

$264.2 million:

– $187.7 million long‐term – $76.5 million short‐term (“sponge”)

• Net senior STB capacity – after water fund, tribal fund and

$ colonias fund earmarks and $81 million authorized during the 2011 special session ‐‐ is estimated at $130.3 million. S l t l STB it i ti t d t $148 7 illi i

• Supplemental STB capacity is estimated at $148.7 million in

FY12 (dedicated for public school construction).

• General obligation bonds issued at full capacity are $298
• General obligation bonds issued at full capacity are $298

million; capacity is $180 million to maintain a flat mill levy.

• Funding for roads and local governments will be major

Funding for roads and local governments will be major 2012 issue.

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