On Wednesday, September 23, 2009, RIPEC released its analysis of the state’s FY 2009 deficit and projections of out-year deficits. Based on a preliminary audit by the State Controller the fiscal year 2009 will close with a deficit of $61.7 million. The deficit is due to a revenue shortfall. Further exacerbating the situation are the projected out-year deficits in the state’s budget. Assuming expenditures stay at the level that was previously projected by House Fiscal Staff, and only a slight increase in revenues, RIPEC projects a deficit of $122.3 million in FY 2010, which includes the $61.7 million prior year deficit. Further, RIPEC projects a deficit of $244.4 million in FY 2011, and a deficit of $483.8 million in FY 2012.
RIPEC estimates the state will face a cumulative deficit of $728.2 million in FY 2012. These projections assume that prior year deficits will be addressed in the current fiscal year and new deficits carried forward into the next fiscal year. For example, it assumes that in fiscal year 2010, the FY 2009 deficit of $61.7 million will be resolved, and the FY 2010 deficit of $60.6 million rolled into FY 2011. Then, in FY 2011, it is assumed that the FY 2010 deficit will be resolved and the FY 2011 deficit of $244.4 million carried over into FY 2012. In fiscal year 2012, the cumulative deficit will reach $728.2 million, which is a combination of the carried forward deficit from FY 2011 in the amount of $244.4 million and the FY 2012 deficit of $483.8 million. If, however, prior year deficits are not resolved in their respective fiscal years and all deficits are carried forward, this would lead to a cumulative deficit of $850.6 million in FY 2012.
The state faces a difficult fiscal situation moving forward. Immediate action is required to address the current and out-year deficits. Therefore, RIPEC recommends that the state review all expenditure commitments for FY 2010, and assess if the savings included in the FY 2010 budget can be implemented. In addition, the General Assembly leadership and Governor should work jointly to address questions such as: what options are available to the state to balance FY 2009; and what is the impact of these options on the state’s overall fiscal situation?
As the state works on addressing current year deficits, implications for future year budgets need to be considered. The budget for fiscal year 2012 is especially critical given the fact that revenues from the American Reinvestment and Recovery Act run out that year. Therefore, RIPEC recommends that in conjunction with working on next year’s budget, work should begin now on the development of the FY 2012 state budget that will also address areas impacting local governments; and consider changes to FY 2010 that will have long-term structural changes effecting FY 2012 and beyond.
Furthermore, it will be necessary for the state to reassess its fiscal situation after the November Revenue and Caseload Estimating Conferences have met to incorporate the updated revenue picture. At that time, the state will need to address if ongoing resources are adequate to support current operations. If needed, the Governor should submit a supplemental budget in early January 2010. The General Assembly should act upon the supplemental budget as soon as possible in order to have sufficient time to implement any additional fiscal control measures.