Budget Target Agreement: Reading the Tea Leaves

Legislative leadership and Administration officials came to an agreement on FY2014 GF/GP budget targets Tuesday afternoon, an action that sets the stage for final budget decision-making by legislative conference committees.  The target agreement provides each budget conference committee with a fixed limit on GF/GP appropriations that it must work with in making final budget decisions.  Thus, the target plays a critical role in determining what stays in and what’s left out of final budgets.  Already this morning, the Community College and Higher Education budgets were approved in conference committee with six other budgets having conference committee meetings officially posted for today.

Details on the target agreement have begun to come out through various news outlets, including a copy of the formal GF/GP target list, which includes both on-going and one-time GF/GP allocations under the deal.  Reports indicate that key pieces of the agreement include $350.0 million in additional revenue for roads, $140.0 million for K-12 education, concurrence with the Governor on depositing $75.0 million in the state’s Budget Stabilization Fund, and a $16.0 million increase for local revenue sharing.   The table below outlines the new GF/GP targets and compares them with GF/GP appropriations recommended by the Governor and passed by the House and Senate for each budget.

Targets

Decision-making on individual budget items is generally (though not always) left to legislators that make up budget conference committees.   Conferees are likely beginning to meet now with conference committees following either next week or shortly thereafter.   However, the target agreement itself provides a useful framework to budget watchers on where key decisions are likely headed.   In particular, the document suggests that most of these major increases are being designated as one-time appropriations within the agreement.  Some of the key areas to watch are reviewed below.

Transportation Funding:  The new funding for road work appears to come in two pieces.   First, a direct GF/GP appropriation of $121.3 million is included in the target for the Transportation budget.   This is slightly below the $150.0 million GF/GP allocation included in the House-passed budget to address road funding needs.  The remaining $230.0 million is tied to a new “Roads and Risk Reserve” item included in the agreement.   Both of the new funding allocations are designated as “one-time” within the agreement.   What parameters are put on the use of the new reserve funding remains to be seen.   In particular, will other “risks” beyond “roads” be addressed with the funding?

Local Revenue Sharing:  The agreement includes a bump of $16.0 million over the original Executive recommendation for local revenue sharing.  This is equivalent to the total revenue sharing increase provided in the Senate version of the General Government budget bill.   The Senate bill added $10.8 million to the Economic Vitality Incentive Program for municipalities, $4.1 million for county revenue sharing, and $1.0 million for the County Incentive Program – equating to a 4.8 percent increase for each program.

While the target agreement matches the Senate increase in dollar amount, it differs with the Senate in designating the $16.0 million as a one-time appropriation.   The Senate appropriated its new funding as an ongoing appropriation that would become part of the FY2015 base.  The Governor’s original recommendation included $10.0 million in one-time revenue sharing funding.  The new target document shows the one-time allocation increasing to $26.0 million, incorporating the $16.0 million increase.  Thus, it appears the intent is to provide a larger one-time increase to local units for FY2014.

School Aid:  Early reports indicate that the target agreement includes $140.0 million in additional revenue for K-12 education.   However, the GF/GP target document does not include any additional GF/GP revenue appropriated for School Aid.  The GF/GP allocation remains $230.0 million ($50.0 million one-time), which is consistent with the Executive recommendation.   Thus, it appears the $140.0 million will come from School Aid Fund (SAF) revenue growth.   The recent May consensus revenue estimates project an additional $85.7 million in SAF revenue for FY2013 and $37.6 million for FY2014.   That adds to $123.3 million in new revenues across the two fiscal years.  Further, the consensus pupil estimates reduce the FY2013 pupil count by 800 pupil memberships and the FY2014 count by 1,500 memberships.   The Senate Fiscal Agency estimates state savings at $5.5 million with the 800 pupil decline in FY2013.   Assuming the FY2014 savings are roughly double that amount, the new revenue plus the pupil count savings add to around $140.0 million.   Thus, it looks like the additional K-12 appropriations will come from newly available SAF revenue.

For schools, the bad news is that revenue estimates for FY2015 call for only $43.9 million in additional School Aid Fund revenue.   That means that likely only around $50-55 million of the $140.0 million can be consider permanent in terms of baseline revenues.  Without an increase in the GF/GP appropriation or some other revenue enhancement for School Aid, a significant component of the $140.0 million might end up being one-time in nature rather than a permanent increase.

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