RIPEC today released its analysis of the state’s FY 2010 completed budget year, as well as projections of out-year deficits. Based on a preliminary audit by the State Controller, FY 2010 ended with a slight surplus of $17.7 million due to lower than expected spending. However, out-year deficit projections show an increase to between $361.5 and $369.9 million by FY 2012. If current growth projections hold, the state is projected to face FY 2015 deficits ranging from $411.5 to $555.0 million.
In addition to the FY 2010 surplus of $17.7 million, there is $3.4 million reappropriated surplus that is available for FY 2011, bringing the total FY 2011 opening surplus to $21.1 million. FY 2011 also opened with an estimated $38.0 million increase in expenditures relating to the lower than expected Federal Matching Assistance Percentage (FMAP) payment. Consequently, RIPEC projects that the state faces an estimated $16.9 million deficit in the current fiscal year.
Based on the most recent estimate, current revenue collections are $38.1 million ahead of what was estimated, indicating that revenues may be rebounding. However, expenditure growth is still projected to outpace revenue growth, resulting in continued out-year deficits. While it appears that the worst of the recession may be over, revenues may not rebound as quickly as in past recessions and economic factors such as high unemployment will continue to affect the demand for social services and expenditures. The November Revenue and Caseload Estimating Conference will provide an update on the state’s fiscal position.
The projected deficit growth to $361.5 to $369.9 million for FY 2012 is due to a significant increase in spending related to the elimination of ARRA-related funding and other spending growth, as well as continued weak revenues. How the state addresses the FY 2012 budget will set the course for the next few years. Consideration should be given to whether potential changes in FY 2011 might ease the impact of the loss of ARRA funding in FY 2012 and create long-term structural change that will have an impact on out-year deficits.