Mr. Chairman, members of the committee. Thank-you for inviting me to speak today on the state’s cash flow position. Good news is we do not anticipate a need to borrow funds just to pay bills during the year. A good job on part of the Legislature for righting the ship and balancing the budget without new additional borrowing or gimmicks. You all made tough choices, and more need to be made.
For the first five months of 2012, the average monthly balance was up 28% compared to last year and we averaged $858 million a day balance in November. However, for the General Fund to be in a safe zone, we need balances of about $1.3 billion to $1.5 billion a day.
This slide zeroes in on cash flow versus forecast for the last fiscal year. You can see that since September of a year ago, the actual cash flow outperformed the forecasts for the remainder of the budget year.
This slide zeros in on the first five months of the year compared to the same time frame from last year. At this point, we are seeing cash beginning to outperform starting in October compared to a year ago.
When analyzing investments, a standard approach is to examine cash flow, balance sheet and income statements. Now that cash flow is positive, I believe the next step is to focus on cleaning up the balance sheet. Then there are key longer-term fiscal problems that need to be addressed.
Whether it’s a business, a family or a non-profit organization, having a “rainy day fund” is prudent. Having some cushion for emergencies is a must. The next item is the elimination of fund transfers. Either you make them permanent or you reverse them. Prepare for the elimination of the temporary sales tax. If you hold the line on spending through 2014, you should be able to do so. At some point you have to decide to either pay-off rollovers or write them off.
At the same time you are cleaning up the balance sheet you have the following big ticket items. First, all your budget savings will be wiped out if President Obama’s Health Care Reform is implemented in 2014. The next election will decided this. Second, you have $900 million or so formulas that are suspended each year. Either you have to fund them or make the suspension permanent . Third, you have $1.5 billion of operating debt that is not producing anything of value – as opposed to debt for a capital project. The state’s pension systems are underfunded. The Study committee you tasked me with is examining part of this issue. Regulatory and Tax reform issues. This is key for longer term growth.
So in conclusion: Good job in righting the ship and getting us balanced in the past 18 months. Continue to focus on those balance sheet items. Fix the longer term issues Then, and only then, can you really say there is a budget surplus.
Subcommittee On Debt
12.8.2011 House Appropriations Sub-Committee on Debt
STATE CASH FLOW TOTAL OPERATING ACCOUNT AVERAGE MONTHLY BALANCE Up 28% through Nov. 2011 $858 million in Nov.
STATE BALANCE SHEET <ul><li>$0 set aside for emergencies </li></ul><ul><li>$382 million in use of fund transfers and </li></ul><ul><li>one-time revenue sources </li></ul><ul><li>$905 million of temporary 1-cent sales tax </li></ul><ul><li>$1.3 billion of bill deferments: K-12 rollover, AHCCCS; Universities, DES </li></ul>
LONGER TERM ISSUES <ul><li>Medicaid : President’s health care plan wipes out budget in 2014 and beyond </li></ul><ul><li>$900 million of formula suspensions </li></ul><ul><li>$1.5 billion of operating debt leftover </li></ul><ul><li>Pension Funds : Unfunded liability of 4 plans is $16.2 billion, with +/- $3.7 billion of that state’s responsibility split between employees and taxpayers. </li></ul><ul><li>Regulatory and tax reform issues </li></ul>