The FY 2012 budget comes at a time when the state is recovering from one of the most severe economic downturns in the past century; the decisions the state makes now will be critical to sustained recovery and to future growth.   As proposed, the Governor’s FY 2012 budget closes a projected $295 million deficit through a combination of revenue increases and expenditure changes.  These proposed changes are far-reaching, and should be carefully evaluated in the context of the state’s long-term economic and social policy goals.

The May 2011 REC revised the November estimates, increasing total FY 2011 projected revenues by $53.8 million when compared to November, and by $70.5 million when compared to the enacted budget.  The REC also increased their FY 2012 projections when compared to the November estimates (NOTE: estimators are required to base their estimates on current law; these figures do not include the changes proposed by the Governor).  

Based on the REC estimates, the state will end FY 2011 with approximately a $65 million surplus (not including the $22 million repayment to the Rainy Day Fund), the first such surplus in a number of years.  While these numbers are not yet final, and RIPEC urges the state to exercise caution when building these figures into its FY 2012 budget, the projected surplus indicates that the fiscal trends of the past three years are beginning to reverse.  As revenues begin to increase, it is incumbent on the state to ensure that the budget is structurally balanced before pursuing new programs.  

RIPEC recommends that the state first use these funds to repay the Rainy Day Fund, rather than to delay expenditure modifications in FY 2012.  Second, the state should consider taking action on issues that will have a long-term impact on the state’s expenditures, for example, pre-paying long-term obligations.  These funds should not be used to fund the expansion of programs that will require ongoing support.  

The budget must guide the delivery of a finite amount of resources through expenditures prioritized to reflect the concerns and needs of citizens while accounting for out-year fiscal implications of those spending decisions to ensure continued delivery of services.  In recognition of these challenges, RIPEC notes the following questions that should be considered as the General Assembly evaluates the Governor’s proposed budget:

Does the proposed budget address the underlying structural deficit?  

• Are the primary budget drivers – Medicaid and personnel – addressed in a meaningful and systematic way?
• Do ongoing revenues support ongoing expenditures and are new initiatives funded in a manner that is sustainable?
• Are proposed revenue changes practical in the current economic environment?

How does the budget promote economic development?

• Do the proposed tax changes undermine efforts to develop a consistent and predictable tax system?
• Are there unintended consequences that may arise from the proposed tax changes, specifically as they relate to the State’s ability to attract or retain business?
• Is the budget consistent with economic development goals as outlined by the State or does the budget promote a different set of priorities?

Will the expenditure and revenue initiatives outlined in the budget promote job growth?

• Does the budget adequately address education and workforce development needs?
• Will the proposed revenue and tax changes encourage business development, or will they serve to push business out of the State?
• Are there additional issues – such as regulatory changes – that should be considered in conjunction with the proposed tax and fee changes?