House Poised To Slice Into Perdue Budget

By TRAVIS FAIN - tfain@macon.com
Macon Telegraph
January 28, 2010


ATLANTA — Gov. Sonny Perdue’s budget proposals are balanced on hundreds of millions of dollars in unpopular ideas, and killing them off will require hundreds of millions worth of spending cuts that leaders in the Georgia House of Representatives say they intend to make.

Where those cuts will come from, House leaders either aren’t sure or won’t say. But the effect on some state departments could be massive, and House Appropriations Committee Chairman Ben Harbin made it clear Wednesday “there are no sacred cows” in this year’s budget.

The House’s first target is Perdue’s proposal to place a 1.6 percent tax on hospital revenue. That essentially would charge paying customers to help fund the state’s Medicaid health-care program for the poor. That tax, and a similar one on managed care providers, would raise an estimated $345 million for the state in fiscal 2011.

It’s a major building block in Perdue’s $18.2 billion budget proposal for next year. But Harbin said he doesn’t think it will ever pass the House, where the Republican majority has taken a stand against tax increases.

“We’re going to make the cuts (to do away with it),” Harbin, R-Evans, said Wednesday. “Every department, I think, is going to have to take cuts.”

There are no obvious $100 million cuts in the budget, Harbin acknowledged. The state budget has already yielded more than $2 billion in state revenue cuts over the past two years, an effect of the recent recession.

Perdue and his economists predict some revenue growth in the next year. Perdue hopes it’s enough to stop furloughing teachers and other state employees after July 1. But these new cuts contemplated by the House would be game-changers.

“We’ve pulled the easy fruit,” Harbin said Wednesday.
“Now we’ve got to climb up into the tree. ...Every program is in play.”

Perdue’s administration has said it’s willing to consider other options, but after several months of budget preparation, it doesn’t see any good ones. The only other way to offset the need for new hospital tax revenues it has suggested has been a 16.5 percent cut in the Medicaid reimbursement rate paid to hospitals, doctors and other health-care professionals.

That “would be devastating,” Perdue’s communications director Bert Brantley said Wednesday. Many doctors probably would stop accepting Medicaid altogether, Brantley said. Hospitals with no choice but to stay in the program would lose millions or pass the loss on to customers.

And since the 1.6 percent tax would allow the state to draw down federal money for Medicaid, the pass-along cost to paying patients likely would be much higher if reimbursements are cut.

Another key budget proposal that’s proving unpopular is the governor’s plan to take some of the loans the state has made to help local governments fund water and sewer projects and sell them to private entities. It would be like a bank packaging mortgages together to raise cash. The state would get nearly $300 million to balance the budget next year, and the buyers would collect the debt later from the local governments.

It’s not clear how much the companies and other buyers stand to gain over the life of the deal, but it could be as much as $275 million over the $300 million they’d have to pay in cash up front, figures from the governor’s office suggest.

These Georgia Environmental Facilities Authority loans are a major source of financing for government infrastructure projects across the state. Perdue has promised loans still would be available, albeit in amounts akin to 2005 levels instead of the higher amounts of more recent years.

But many outside the administration are concerned that selling off a revolving source of funding for a one-time cash infusion will devastate the program and force more local governments into the more expensive private borrowing market.

That means Wall Street bankers and “very expensive bond attorneys,” said Todd Edwards, who focuses on these issues for the Association County Commissioners of Georgia, a group that works with county governments.

“The bottom line: This means higher (borrowing) prices for local governments, taxpayers and rate payers,” Edwards said.

Harbin said House budget writers aren’t rejecting the GEFA proposal outright, but they are “going to ask some tough questions” about it.

But, as with the hospital tax proposal, Perdue’s office said the governor has tried to choose the best of a lot of bad options. Packaging the GEFA loans would net the state nearly $300 million for fiscal 2011. The hospital tax would bring in an estimated $345 million more, plus the 3-to-1 match in federal dollars, pushing its full impact over $1 billion.

Education spending makes up 57 percent of the state budget. How, Brantley asked, do you cut hundreds of millions from the budget without seriously impacting that?

Democrats would like to see the state do a better job of collecting sales taxes, possibly by allowing local governments to take over some of the process and certainly by merging state databases with local business license records to better catch scofflaws. Those ideas seem to be gaining steam among the Republican majority at the Capitol, and proponents believe it could net the state hundreds of millions in the coming year.

But no one can be certain how much that actually would raise or how fast.

Teachers, who are planning on furlough days in the coming months and increases in class sizes, just want the bleeding to stop, Jeff Hubbard, president of the Georgia Association of Educators, said Wednesday.

Hubbard called on legislators to bring in new revenue, despite the Republican majority’s repeated mantra that raising taxes in a struggling economy is the worst thing government can do.

Hubbard said his organization wants to see a new half-cent sales tax for education, and he doesn’t care what it’s charged on.

“It could be hotels, it could be rental cars ... they could do it in conjunction with the tobacco tax,” he said.

“(The education budget) is not even hemorrhaging,” he said. “It’s not even bleeding. I would call (this tax) a tourniquet.”

To contact writer Travis Fain, call 361-2702.

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Notes From The Senate

Georgia State Senator Jack Hill of the Fourth District took these notes last week at the Capitol in Atlanta.


BY STATE SENATOR JACK HILL
4th District
January 22, 2010

Budget Briefings
Governor Sonny Perdue released his amended FY10 and FY11 budget recommendations to the General Assembly on Friday, January 15, 2010. During Senate and House Appropriations Committee hearings last week, lawmakers heard presentations from state agencies regarding their individual budgetary concerns and the impact that can be expected in FY10 and FY11.

In July, Governor Perdue announced a $900M reduction in the revenue estimate for the FY 2010 Budget due to the sharp drop in revenues the last 6 months of FY09. The 2010 Amended budget presented by Governor Perdue raises that reduction to $1.44B.

2010 AMENDED BUDGET PROPOSALS
The FY10 Amended revenue estimate is 7.3% below FY09 actual revenues and 8.5% below the original FY10 General budget revenue estimate of $16.99B. The FY10 Amended revenue estimate represents a 23% decline from the original FY09 General budget ($20.1B) proposed by Governor Perdue just 2 short years ago. Governor Perdue is now projecting a $1.44B shortfall for FY10.

To combat this shortfall, Governor Perdue has proposed an additional 3 furlough days for state employees and teachers, bringing the total to 6 for this fiscal year. This measure alone would save the state nearly $245M. For additional funds, the Governor has chosen to liquidate $140M from the Other Post Employment Benefit reserve fund designated for the health benefits of future retirees. The budget also proposes to shift the State Health Benefit Plan to a cash basis using $67M in funds set aside for bills that are funded from “Incurred but Not Reported” (IBNR).

Education
Governor Perdue has allocated an additional $92.8M to the QBE formula to fund K-12 enrollment growth of 0.67%. Although this is an increase, the Governor’s recommended budget reduced the QBE formula by $188M for the 6 furlough days. This paired with a $281M across the board reduction brings the total QBE base funding to a -5.6% reduction, although partially offset by federal stimulus funds to local systems.

The Governor has called for a $9.7M reduction in Georgia’s school nutrition program and a $4M reduction to its Special Needs Scholarship Fund. Pupil transportation would also be cut by $24.7M and the Equalization formula would decrease by 4% or $17.5M.

To meet increased growth in enrollments, the FY10 HOPE program includes an increase of $146,963 for the HOPE GED, $49.3M for the HOPE Grant, $2.1M for private school HOPE Scholarships, and $26.9M for public school HOPE Scholarships.

Higher Education
The Amended budget recommends a net cut of 7.76% to the Regents funding formula, a net cut of 7.48% to the Technical Colleges funding formula, and the elimination of the Guaranteed Educational Loans Program. $33.7M in Lottery funds would supplant State General Funds to finance the HERO Scholarship, Leveraging Educational Assistance Partnership Program (LEAP), North GA Military Scholarship Grants, North GA ROTC Grants, and Tuition Equalization Grants.

Medicaid, Peachcare, and Public Health
Governor Perdue has designated $20.3M in additional funds to the Department of Behavioral Health for state hospital improvements and $8.6M in state matching funds for private hospitals to assist in indigent and uncompensated care.

The Governor has also called for an 11% reduction in Low Income Medicaid, a 3% reduction to the Medicaid Aged Blind and Disabled fund, and a 9% reduction to Georgia’s Public Health Grant in Aid, generating the state nearly $90M in savings.

Corrections
The FY10 Amended budget recommends the closure of Scott State Prison (closed August 2009), Bostick State Prison (May 2010), and the Bill Ireland Juvenile Facility (January 2010) for a total savings of nearly $20M.

Next week’s column will include a summary of Governor Perdue’s FY2011 General budget proposals.

JOBS PROGRAM FOR EMPLOYERS
The Department of Human Services (DHS) has received nearly $200M in federal stimulus funds to be put towards a temporary, subsidized employment program for 5,000 adults. All families with dependent children and incomes of less than 300% of the federal poverty level (approximately $60,000 for a family of four) are eligible to participate.

Employers who choose to participate in this program will receive an 80% subsidy for employing adult workers for up to six months at minimum wage or above. The subsidy expires September 30, 2010.

For more information regarding eligibility requirements please send all inquiries to:
Employers: TANF-Employers@dhr.state.ga.us
Job Seekers: TANF-Jobseekers@dhr.state.ga.us


I may be reached at
234 State Capitol, Atlanta, GA 30334
(404) 656-5038 (phone)
(404) 657-7094 (fax)
E-mail at Jack.Hill@senate.ga.gov
Or Call Toll-Free at
1-800-367-3334 Day or Night
Reidsville office: (912) 557-3811



Angela Touhy
Senate Appropriations
234 State Capitol
Atlanta, Georgia 30334
404-656-5038

Notes From the Senate

The Georiga State Senator is concerned about some tough choices regarding the state budget.

BY SENATOR JACK HILL,
4th DISTRICT
January 8, 2010

Although I am optimistic about the future of Georgia, in the coming session we will face some hard realities regarding the budget. In this column, I want to outline some of my thoughts about our likely approach to these tough choices.

Last year, the General Assembly approached the budget with an emphasis on fiscal discipline, and by trying to prudently manage reserves and stimulus funds for future years. This year we are going to have to repeat this process, but under even tougher conditions and with an eye towards long term change.

Based on last fall’s revenue projections, our total revenues can now only sustain a $15.7 billion state budget, roughly the same as in 2005. The drop in tax collections has been so precipitous that the Senate Budget Office projects the state may not recover to its previous levels until after 2015.

What this means is that we need to begin the process of rethinking the business of state government. Not all issues are going to be resolved this session, but we cannot continue furloughing state employees for the next five years. Fundamentally, the Governor and legislators are going to have to make tough decisions in five major state policy areas: K-12 education, higher education, corrections, health care, and revenues.

K-12 Education as a whole represents 42% of Georgia’s annual budget. Teacher salaries alone make up one-third of the state’s budget. The Governor and the General Assembly have worked hard to protect teachers. This year eligible teachers received step increases for training and advanced degrees and in the 2009 budget they received a cost of living increase, which no other employees received. In 2010, the Governor was forced to implement a three day furlough for all state employees, including teachers, to save almost $129 million. Because education makes up such a large portion of the budget, the Governor is likely to propose additional cuts.

That being said, the General Assembly will be looking for ways to help school districts leverage their existing funds. Both the House and Senate are considering new legislation to give school districts more flexibility to manage their own funds, such as suspending the 65% expenditure requirement and finding new ways to reward high performing teachers. They will also examine ways to improve administrative efficiencies and to assist with innovations through technology.

Higher Education: Around 13% of the state budget is directed to the state’s University System and Technical Colleges. According to the Southern Regional Education Board, 43% of Georgia’s University system revenues came from appropriations compared to 33% in other southern states, meaning the state’s system is much more reliant on state appropriations. That may be partially due to the fact that Georgia’s average tuition is 38% below the southeastern states’ median. If budget reductions result in significant tuition increases, the state may need to implement some sort of needs based assistance.

However, the problem is not entirely tuition. University System institutions’ endowment income only makes up around 1.4% of the University system revenues, compared to a 6.7% average in other southern states. The Board of Regents should also take an in-depth look at student fees, which compound the cost of education for students, but are often not directed towards essential educational services. A sharper focus on 4-year graduation could include disincentives to lengthier timelines.

Finally, the higher education system should continue to examine its own internal operations and phase out low demand programs, while looking for ways to consolidate administration and other services.

Medicaid: 16% of the state budget goes to health care for low-income children and mothers, the elderly, and disabled, or $222 for every man, woman and child in the state not on Medicaid. Last year the Governor proposed to increase taxes on hospitals and insurance companies as a way of avoiding provider rate cuts. Due to the stimulus, the General Assembly was able to avoid doing either. This year we may not be so fortunate.

If the state does take up a hospital or insurance tax, measures should ensure that hospitals heavily affected by uncompensated or indigent patients are protected.

Medicaid waste, fraud, and abuse has also been an ongoing concern and the General Assembly will review ways to save money by better enforcing stricter regulations for both recipients and providers.

Corrections: Around 6% of the budget is Department of Corrections. Georgia ranks 18th in the nation in per capita spending on Corrections – yet 4th in the number of adults incarcerated per capita and 1st in the number of adults under some form of correctional supervision.

Since the beginning of the economic downturn, the Department has worked closely with the legislature to find ways to reduce the burden of corrections on taxpayers, while still ensuring the safety of Georgians. The Department has already closed five inefficient state prisons and has proposed closing three additional ones this year. In order to manage the population, the Department is adding beds within existing facilities, a cheaper option than maintaining an entirely separate prison, and is investing in private prisons. The state is also examining paroling low-risk, geriatric patients to nursing homes, and making better use of electronic monitoring and community facilities.

Revenues: While the state is obviously examining every way possible to lower expenditures, the General Assembly may also choose to consider ways to increase funds coming into the state. As many local governments have pointed out, the state needs to first turn to enforcement of tax collections. We have heard numerous anecdotal stories of businesses that are not paying sales taxes or are ringing up cash items as untaxed “lottery.” Maybe private enterprises could help identify fraud and provide collection services.

There are other options as well. A recent audit pointed out that some state fines and fees have not been updated for 20 years, many of which could be adjusted for inflation. It stands to reason that a fee should cover the cost of delivering a service.Another consideration may be to develop a “tax expenditure” report to help legislators assess whether the various credits, deductions or exemptions provided throughout the tax code are still serving their original purposes.

This session legislators are going to be faced with many tough decisions that will have serious implications on the state’s future. It is going to take the cooperation of the Governor and the General Assembly to make strategic, well-informed decisions to ensure the state’s future fiscal stability and to rethink how we manage our way out.

I may be reached at
234 State Capitol, Atlanta, GA 30334
(404) 656-5038 (phone)
(404) 657-7094 (fax)
E-mail at Jack.Hill@senate.ga.gov
Or Call Toll-Free at
1-800-367-3334 Day or Night
Reidsville office: (912) 557-3811

Angela Touhy
Senate Appropriations
234 State Capitol
Atlanta, Georgia 30334
404-656-5038