SUMMARY The Executive Budget FISCAL YEAR 2013 Janice K. Brewer GOVERNOR JANUARY 2012 Provisions for Individuals with Disabilities Individuals who have a disability and require reasonable accommodation in order to use this document are encouraged to contact the Governor’s Office of Strategic Planning and Budgeting at 602‐542‐5381. State of Arizona Janice K. Brewer Governor Office of the Governor 1700 West Washington, Phoenix, AZ 85007 Main Phone: 602-542-4331 Facsimile: 602-542-7601 January 2012 To the Honorable Members of the 50th Arizona Legislature: As we begin this, Arizona’s Centennial year, we have much to celebrate. First and foremost, the engine of commerce that powers our economy and fills State coffers is once again in motion. That said, we in State government must be mindful not to repeat the mistakes of the past, when economic recovery and fiscal exuberance too often went hand-in-hand - leading to unwise and unsustainable expenditures. With that in mind, it’s worth remembering how far the state has come since the recession began. Three years ago, Arizona confronted the most dire budget situation of any state in the nation. Our shortfall numbered in the billions of dollars, and elected officials - you and I - faced decisions that were heart-rending but necessary as we struggled to right this ship of state. Like all Arizonans, we have been severely tested by this recession, but I firmly believe the worst is behind us. The good news? Today, I present to you a budget that is balanced, fiscally conservative and smart. This is a plan that furthers the financial blueprint I’ve followed since taking office in 2009. We will keep state government lean, knowing that the most effective government is one that focuses upon core functions and does them well. We will pay down debt, mindful not to allow past decisions of necessity to become an anchor against future prosperity. And we will use surplus dollars sparingly but smartly, directing limited funding to boost economic development, improve Arizona’s competitive position and repair the most critical services for Arizonans in need. This is a time of opportunity. We must take advantage - not by squandering temporary funds, restoring old programs or expanding the reach of state government. Rather, we can prudently modernize state infrastructure long in need, begin retiring debt accumulated to bridge the fiscal crisis and reserve funds in case of future budget troubles. I have structured my budget recommendation according to the following four principles: 1. Short-term decisions must be evaluated in light of their impact on the State’s longterm fiscal health. 2. Funding for a program will not be restored simply because funding has been provided in the past. January 2012 Page 2 3. Spending decisions must respect the wishes of citizens who, in voting for Proposition 100, recognized the importance of funding for education, health care and public safety. 4. Temporary resources will be used to improve the State’s long-term position. Consistent with the fourth principle, most of the funding recommendations in this proposal are confined to the next fiscal year and address the most glaring needs with respect to State infrastructure or debt. Further, the Executive Recommendation includes several needed reforms that update our statutes and modernize State operations. Some examples include:       paying down long-term debt; retiring a portion of the K-12 rollover and addressing soft capital needs; reforming our system of hiring, promoting, managing, terminating and compensating State employees; modernizing and updating the State’s information technology infrastructure; reforming the funding of school construction; and expanding prison capacity. Every proposal for ongoing funding relates to an existing program or mandate within the State’s core functions. The Executive Budget Recommendation does not expand the size or scope of State Government. We may take heart in having successfully navigated the State of Arizona’s worst fiscal downturn in memory. However, risks remain. The national and global economies are uncertain. Federal health reform, if implemented, will impact our state budget beginning in FY 2014. Lastly, the federal government appears on the cusp of finally addressing its own fiscal crisis, with unclear ramifications for state finances. As these and other events unfold, Arizona must be prepared. Consistent with that approach, my budget recommendation leaves significant cash balances at the end of both FY 2013 and FY 2014. By budgeting wisely and using our one-time surplus prudently, we can leave the State of Arizona better positioned and prepared for the future - whatever it brings. Sincerely, Janice K. Brewer Governor JKB/neh TABLE OF CONTENTS BUDGET MESSAGE Budget Plan .................................................................................................. 1 General Fund Sources and Uses................................................................ 3 General Fund Structural Shortfall ............................................................. 4 Good Government....................................................................................... 5 Public Safety and Criminal Justice ............................................................ 9 K‐12 Education........................................................................................... 12 Higher Education ...................................................................................... 17 Health and Welfare ................................................................................... 20 Capital Outlay............................................................................................ 25 Economy and Revenues ........................................................................... 28 General Fund Revenue Summary ........................................................... 31 BUDGET SUMMARY Budget in a Flash ....................................................................................... 33 All Funds FY 2012 Executive Recommendation ................................... 35 General Fund FY 2012 Operating Budgets Summary .......................... 38 Other Appropriated Funds Operating Budgets Summary.................. 40 Resources ......................................................................................................... 50 ACKNOWLEDGEMENT Budget Plan Summary for FY 2013 The Executive Recommendation improves infrastructure, attacks structural balance sheet weaknesses, and modernizes how the State does business T STATE’S BALANCED BUDGET at the end of Fiscal Year 2011, as well as the projected ending balances for FY 2012 and 2013, while driven by economic expansion, were achieved only after a series of necessary, one‐time fiscal solutions, a temporary boost in sales taxes, and a temporary reduction in Medicaid spending. The devastating recession, combined with federally required budget restrictions, eliminated any possibility of providing State government’s core functions without these solutions. Notwithstanding the efficacy of employing temporary budget steps, the one‐time solutions have left the State’s balance sheet in tatters. The temporary nature of the revenue boost and the real threat of federal healthcare reform create both a funding cliff and an expenditure cliff that the State will have to resolve in FYs 2014 and 2015. The Executive Recommendation recognizes the improved position of the State’s budget as well as future risks and demands. To prepare, the Recommendation makes key improvements to the State’s infrastructure, attacks structural weaknesses on the State’s balance sheet, and modernizes how the State does business. The majority of recommended spending is one‐time in nature, with perma‐ nent spending growth of 4.9% in FY 2013 and 2.4% in FY 2014. This conservative approach addresses key structural risks and preserves cash balances that will be needed to address future cliffs and risks. The outline that follows summarizes major General Fund components of the Executive Recommendation. The Executive statement of Sources and Uses of Funds and a detailed discussion of the issues summarized below follow this section. HE FY 2012 BUDGET RECOMMENDATIONS THE FY 2012 EXECUTIVE RECOMMENDATION begins the process of addressing one‐time budget steps and providing funds for major infrastructure needs for the School Facilities Board and the State’s information technology. FY 2013 BUDGET RECOMMENDATIONS Good Government. The Executive Recommendation provides funding for several critical IT projects including replacement of the State’s accounting system. The Recom‐ mendation also addresses K‐12 soft capital needs, rollover repayment and tourism funding. Finally, the Executive recommends modernizing the State’s personnel system in conjunction with a modest State employee compensation package. Public Safety. Under public safety, the Executive Recommendation addresses capital needs at the Department of Corrections (building an additional 2,500 beds) and the Department of Public Safety (accelerating the replacement of high‐mile Highway Patrol vehicles). The Recommenda‐ tion also expands the correctional officer force to address safety concerns and provides DPS operating dollars to cover increased retirement costs. Education. The Executive continues to reform State edu‐ cation funding by recommending several K‐12 and higher education funding changes. For K‐12, the Executive recommends changing K‐8 Group A weights to address third grade reading standards, changing the charter school statutes to clarify the role of the district‐sponsored charter school, and overhauling the School Facilities Board statutes. For higher education, the Executive Recommendation implements performance funding for the Universities and calls for a review of the Community College funding formulas to move the colleges toward a performance‐based system. The Recommendation also establishes a community college scholarship program and funding to revamp univer‐ sity education delivery. Health and Welfare. Future Medicaid expansion con‐ tinues to be the major concern for the State’s health and welfare programs. The Executive Recommendation explores these costs as potential risks contingent on court and congressional action over the next two years. The Executive does recommend a Medicaid provider rate adjustment, and, outside of Medicaid, the Executive Recommendation addresses behavioral health and Child Protective Services issues. CONSISTENT WITH FY 2012, the FY 2013 Executive Recom‐ mendation addresses one‐time budget steps and provides resources for the core programs of State government. Budget Message 1 MAJOR RECOMMENDATIONS FY 2012 Debt Reduction .....................................................$106 million SFB Building Renewal..........................................$100 million Midnight Reversion Retirement ...........................$41 million AFIS Replacement ..................................................$10 million DHS State Hospital................................................$2.5 million AG Tobacco Litigation ..........................................$1.4 million PROJECTED ENDING BALANCE: ..................................$392 million NATURAL RESOURCES Land Department to General Fund...................$11.4 million Apache Water Settlement........................................$2 million Forester ......................................................................$1 million FY 2013 PROJECTED ENDING BALANCE ..................... $588 million FY 2014 PROJECTED ENDING BALANCE .................. $329.6 million FY 2013 SOURCES AND USES OF FUNDS MODERNIZING GOVERNMENT AFIS Replacement/IT Modernization ..................$95 million Rollover repayment/Soft Capital ........................$200 million Tourism......................................................................$7 million Pay Package..........................................................$53.7 million HITF Reduction................................................. ($21.8) million DOR Systems Refurbishment...............................$7.1 million THE GENERAL FUND SOURCES AND USES OF FUNDS statement that follows this section summarizes the Executive Recom‐ mendation in tabular form. The Statement presents the following: • The “FY 2011 Actual” column reflects actual revenues and expenditures for FY 2011 taken from the State’s Accounting and Financial Information System. PUBLIC SAFETY DOC Maximum Beds .............................................$50 million DOC New Officers.................................................$9.3 million DJC Close Catalina Mountain ........................... ($3.8) million DPS Retirement Adjustment ................................$9.2 million DPS Highway Patrol Vehicles..............................$2.8 million • The “FY 2012 Baseline” column reflects the Execu‐ tive’s FY 2012 revenue and expenditure projections based on updated caseload forecasts. EDUCATION K‐12 CORL...............................................................$40 million EduJobs Backfill ......................................................$35 million K‐12 Adult Education ...........................................$4.6 million K‐12 Move on When Reading ...............................$50 million Classroom Safety ...................................................$0.7 million University Performance Funding .........................$15 million University Classroom Redesign ........................$15.3 million Community Colleges SMART Scholarships........$10 million • The “FY 2014 Executive Baseline” column reflects the Executive’s calculation of the State’s fiscal situation in FY 2014 based on the FY 2013 Recommendation. HEALTH AND WELFARE Behavioral Health ................................................$38.7 million Attorney General Tobacco Litigation..................$1.2 million Medicaid 3% Provider Rate Increases...............$27.8 million 2 Child Protective Services......................................$3.7 million State Hospital............................................................$7 million • The “FY 2012 Executive Recommendation” and “FY 2013 Executive Recommendation” columns reflect the Executive’s revenue projections and recommendation. IMPACT ON LOCAL GOVERNMENTS THE EXECUTIVE RECOMMENDATION ELIMINATES the $38.6 million county transfer in FY 2013 and assumes it is not in place for FY 2014. OUTCOMES THE EXECUTIVE RECOMMENDATION PROVIDES total General Fund expenditure levels of $9 billion in FY 2013 and $8.9 billion in FY 2014. • FY 2013 Executive Budget STATEMENT OF STATE GENERAL FUND SOURCES AND USES Dollars in Thousands FY 2011 Actual FY 2012 Baseline FY 2012 Executive Recommendation FY 2013 Executive Recommendation FY 2014 Executive Baseline 3,243.0 392,017.5 587,960.2 SOURCES OF FUNDS Balance Forward Base Revenues Urban Revenue Sharing Adjusted Base Revenues Temporary One Cent Sales Tax Enacted Budget Fund Transfers SFB QSCB Federal Interest Subsidy Phoenix Convention Center MVD Funding Shift Savings DPS HURF Increase County Transfers Commerce Authority Tax Recovery Program Other Revenues TOTAL SOURCES OF FUNDS (5,723.0) 3,243.0 7,723,728.9 (474,006.5) 7,249,722.3 8,058,154.2 (424,423.4) 7,633,730.8 8,058,154.2 (424,423.4) 7,633,730.8 8,531,731.2 (513,584.0) 8,018,147.2 9,052,818.8 (549,075.0) 8,503,743.8 835,801.3 260,425.9 911,846.4 246,074.6 6,213.8 15,000.0 38,614.6 23,588.5 38,600.0 (6,700.0) 12,867.4 (6,009.1) 8,917,069.9 911,846.4 242,008.7 6,213.8 15,000.0 38,614.6 23,588.5 38,600.0 (6,700.0) 12,867.4 (6,009.1) 8,913,004.0 974,301.6 124,354.1 4,438.4 114,354.1 4,438.4 38,614.6 23,588.5 38,614.6 23,588.5 (24,200.0) (20,600.0) 8,170,471.0 79,000.0 8,285,113.1 79,000.0 40,759.7 49,050.7 40,759.7 49,050.7 69,090.2 (106,216.1) 106,000.0 69,090.2 (107,706.5) (320.7) 8,301,834.8 (320.7) 8,520,986.5 615,235.2 392,017.5 34,600.0 8,374,826.5 9,551,262.0 9,252,099.6 8,877,706.5 8,882,213.1 84,119.7 50,000.0 84,119.6 66,885.7 (115,410.2) 71,669.7 (115,468.8) USES OF FUNDS Agency Operating Budgets Additional Pay Period Total Operating Budget Prior‐Year Continuing Approps Expenditures 2010 Lease Purchase Debt Service Capital Debt Reduction Administrative Adjustments Revertments Net Midnight Reversion Other Expenditures TOTAL USES OF FUNDS ENDING BALANCE Budget Message 8,320,518.9 52,066.9 4,000.0 82,044.1 (94,294.2) 6,948.0 299.8 8,371,583.4 3,243.0 8,963,301.7 8,922,533.7 587,960.2 329,565.9 3 STATEMENT OF GENERAL FUND SOURCES AND USES Showing One‐Time Sources & Uses Items REVENUES Ongoing Revenues Urban Revenue Sharing MVD Funding Shift Savings DPS HURF Increase Jobs Impact Net Commerce Authority Exp. SFB QSCB Federal Interest Subsidy Fund Transfers ‐ FRATS Other Revenues Net Ongoing Revenues FY 2014 Executive Baseline 9,052,818.8 (549,075.0) 38,614.6 23,588.5 (20,600.0) 4,438.4 85,576.0 0.0 8,635,361.3 One‐Time Financing Sources Balance Forward Temporary One Cent Sales Tax County Transfers Phoenix Convention Center Tax Recovery Program Funds Transfers ‐ EBTs Subtotal One‐Time Revenues 3,243.0 911,846.4 38,600.0 15,000.0 12,867.4 142,376.8 1,123,933.6 392,017.5 974,301.6 0.0 0.0 0.0 38,778.1 1,405,097.2 587,960.2 0.0 0.0 0.0 0.0 28,778.1 616,738.3 TOTAL REVENUES 8,913,004.0 9,551,262.0 9,252,099.6 8,175,113.1 49,050.7 69,090.2 (107,706.5) 8,185,547.6 8,674,643.4 84,119.7 66,885.7 (115,410.2) 8,710,238.6 8,877,097.6 84,119.6 71,669.7 (115,468.8) 8,917,418.2 EXPENDITURES Agency Operating Budgets 2010 Lease Purchase Debt Service Administrative Adjustments Revertments Subtotal Ongoing Expenditures One‐Time Expenditures Additional Pay Period Prior‐Year Continuing Approps Expenditures Debt Reduction SFB Building Renewal AFIS Replacement/ IT Modernization BRITS Refresh K‐12 Soft Capital AHCCCS Tech Capital‐ DOC New Max Beds Other Expenditures Subtotal One‐Time Expenditures TOTAL EXPENDITURES ENDING BALANCE STRUCTURAL SHORTFALL 4 FY 2012 FY 2013 Executive Executive Recommendation Recommendation 8,058,154.2 8,531,731.2 (424,423.4) (513,584.0) 38,614.6 38,614.6 23,588.5 23,588.5 (6,700.0) (24,200.0) 6,213.8 4,438.4 99,631.9 85,576.0 (6,009.1) 0.0 7,789,070.4 8,146,164.7 79,000.0 40,759.7 106,000.0 100,000.0 10,000.0 95,000.0 7,139.2 100,000.0 923.9 50,000.0 2,000.0 3,115.5 253,063.1 5,115.5 8,520,986.5 8,963,301.7 8,922,533.7 392,017.5 587,960.2 329,565.9 (396,477.1) (564,073.9) (282,056.9) (320.7) 335,439.0 FY 2013 Executive Budget Post-Recession Renewal Initiatives The Executive Recommendation launches the overdue State modernization with a handful of one-time and long-term investments for FY 2013 T GENERAL FUND BUDGET during the initial years of the recent economic downturn, the State of Arizona implemented over $9 billion in temporary solutions, one‐time “fixes,” and deferrals of critical spending. A number of the budget‐balancing measures represent long‐term fiscal burdens on State Gov‐ ernment and/or impair the ability of State agencies to carry out their essential missions. While the State cannot, in one year, recover from a pro‐ longed period of sacrifices laid at the altar of the balanced budget, the Executive Recommendation does begin the renewal process through a series of fiscally responsible initiatives. O BALANCE THE HIGHLIGHTS PERSONNEL REFORM • Personnel reform will enhance the State’s efforts to attract and FISCAL RESPONSIBILITY AND THE DEMANDS of long‐term plan‐ ning require State Government to address critical challenges pertaining to how State employees are hired and managed. The State’s merit system, which covers approximately 25,000 employees, rewards longevity and, historically, has served a valuable function in ensuring that State workers are hired and promoted based on their ability to perform a job, rather than as a result of patronage or other considera‐ tions. However, hiring and managing employees pursuant to the merit system is a complex and, in many instances, counterproductive process that: • Employees who meet specific criteria will qualify for a 5% pay • distracts managers and supervisors from more productive functions that benefit the public, • limits the State’s ability to reward top performers, and • makes it very difficult to appropriately discipline or terminate employees. As a vital part of modernizing State government, the Executive recommends personnel reform in five major areas: 1. Consolidate the nine Executive personnel systems into one system, to achieve greater consistency and efficiency. Budget Message retain high-quality employees increase • Technology improvements include replacing AFIS, refreshing BRITS and improving computer security • K-12 soft capital funding includes $100 million for rollover repayment • Funding for the Office of Tourism that will help the State seize opportunities associated with increased tourism activity • The Midnight Reversion is retired • The Capitol Building, Executive Tower and both Legislative chambers are repurchased 2. Begin shifting the State’s workforce away from the current merit system, to give managers more flex‐ ibility to reward top performers. 3. Improve workforce management by updating rules and regulations to focus more on measuring, fostering and rewarding employee performance. 4. Restructure the grievance and appeal system to enable supervisors to more effectively manage their employees and address issues of inadequate per‐ formance. 5. Modify the State’s classification system, compensa‐ tion systems and hiring processes to enhance the 5 ance costs by $21.8 million in FY 2013, bringing the net pay increase cost to $5.1 million. State’s efforts to attract and retain high‐performing employees. While these reforms have been outlined above largely from the employer’s perspective, they also hold significant benefits for State employees, particularly with respect to expanding opportunities to be rewarded for high perfor‐ mance. Most important, these reforms will benefit all Arizonans by enabling the State to function more effectively and efficiently in serving the people of Arizona. The rate reduction would also help decrease the impact of the employee pay increase on other funds by reducing health insurance costs $13.3 million. To further reduce the impact on other funds, the Executive also recommends eliminating $23.1 million in fund transfers, including $8.9 million of Vehicle License Tax monies. The net impact of these recommendations is summarized in the table below. Cost of 5% Pay Increase EMPLOYEE PAY INCREASE RELATIVELY LOW WAGES are another challenge facing the State in its efforts to attract and retain highly qualified employees. The last statewide pay increase, in FY 2008, brought total State employee compensation to an average of 7.1% below market. Since that time, employee pay has been cut by 2.75%, retirement contributions have consumed another 1.8% of pay, and health insurance costs have increased considerably. While the State still provides its employees with competitive benefits, the State’s total compensation package is now estimated to be 13.6% below market. This large wage disparity poses a particular challenge due to the fact that 30% of the State’s workforce is expected to be eligible for retirement within the next five years. In order to attract and retain the highly qualified employees who will ultimately move State Government forward, employee compensation must be addressed. In conjunction with personnel reform, the Executive recommends a 5% pay increase for all eligible State employees, including: • uncovered non‐university employees, • employees uncovered by personnel reform, • employees who voluntarily elect to leave the merit system, and • employees required to remain covered (e.g., full authority peace officers and certain correctional officers). The Executive also recommends supervisors be empowered to give future raises based on employee merit. Funding. The total General Fund cost of the employee pay increase is $53.7 million. The Executive recommends that funding for the increase come primarily from the Health Insurance Trust Fund (HITF), which has developed a substantial fund balance due to lower‐than‐expected claims costs. This funding would come in two forms: • a $26.8 million fund transfer to offset the General Fund cost of the pay increase for the first half of the year, and • a 13.2% rate reduction in employer‐paid health insur‐ ance premiums for the plan year beginning January 1, 2013. This would reduce General Fund health insur‐ General Fund Pay Increase $53.7 HITF Transfer to General Fund (26.8) HITF Rate Reduction (21.8) Transfer Reductions 23.1 Net FY 2013 Cost $28.2 Total $108.4 (26.8) (35.0) 0.0 $46.6 DATA MANAGEMENT TECHNOLOGICAL ADVANCES, SECURITY THREATS and aging computer systems combine to pose new challenges and opportunities to which State Government must respond if State agencies are to continue to function at acceptable levels. AFIS Replacement and IT Modernization. The Arizona Financial Information System (AFIS), the computer system upon which virtually all of State Government depends, is at end‐of‐life. Replacing it is critical both to protecting the State against the serious risk of system failure and to modernizing government to serve the citizens of Arizona with greater accountability, transparency and efficiency. Because AFIS is obsolete, few programmers are familiar with the language in which it is programmed, and the State has only one experienced programmer to address system issues that are arising more and more frequently. Also because of its age, AFIS is unable to provide certain reports and interfaces that would prove valuable in properly managing State agencies. Even determining a simple cash balance in AFIS can be difficult, because system limitations truncate any numbers of $100 million or more, omitting the higher end of the number by default. Additional investments are needed to maintain the State Data Center and better manage the State’s critical IT (infor‐ mation technology) resources. To fund these projects, the Executive recommends increased appropriations for each of the Department of Administration’s IT funds as well as General Fund appropriations of $10 million in FY 2012 and $95 million in FY 2013 to be deposited into a new Informa‐ tion Technology Modernization Fund. Tax Processing. The State’s centralized tax system, com‐ monly known as BRITS (Business Re‐engineering/ Inte‐ 1 6 Other Funds $54.7 0.0 1 (13.3) (23.1) $18.5 Excludes other university funds FY 2013 Executive Budget grated Tax System), processes the tax revenues that sustain the operations of State Government. BRITS, which was initially deployed in 2002 and com‐ pleted in 2007 at a cost of $152 million, requires an update and some maintenance. The system operates on outdated hardware that is vulnerable to failure, and the operating system and essential software applications are no longer supported by conventional third‐party resources. Further, it is the Executive’s position that the vendor failed to build the system with the capacity to handle the transaction volumes currently demanded of it or to design the system with the ability to react in a timely manner to changes in tax law. The Executive recommends replacing the vulnerable hardware and updating outdated software that is critical to the processing of State tax revenues. At a cost of $7.1 million in FY 2013, refreshing the current system will extend its life through the next five to ten years, increase its capacity in preparation for tax season, reduce the risk of failure of critical system components, and limit delays in the capture of revenue. Computer Security. A recent series of hacking attacks, including one against the Department of Public Safety’s computer systems, has highlighted the Stateʹs IT vulnerabil‐ ity. Given the vast quantity of personal data contained in its databases, AHCCCS faces a particularly significant liability. The Executive recommends $1.86 million – $923,900 from the General Fund and $935,500 from other funds, to (a) provide a Security Monitoring, Analysis and Response System to centralize, detect, mitigate and report on priority threats and (b) purchase and deploy improved encryption technologies. Ongoing General Fund costs in FY 2014 and beyond are expected to be $106,800 for software licensing and maintenance. ROLLOVER REPAYMENT ANOTHER ONE‐TIME BUDGET‐BALANCING MEASURE that must be resolved is the “rollover” mechanism that deferred approx‐ imately $1.3 billion in payments from one fiscal year to the next. The lion’s share of the rolled‐over amount – $952 million – was for funding of K‐12 education. It is important to note that implementing the K‐12 roll‐ over did not curtail local school district spending authority. Districts were able to spend the same amount of money as though they were funded in the current fiscal year, pro‐ vided they could find alternative sources of funds. Some districts borrowed funds, and others were able to use cash balances. While the Executive is committed to retiring the rollover, in some cases repayment would simply restock school district cash balances. As an alternative, the Executive recommends distribut‐ ing $100 million per year to school districts for rollover repayment. However, the funds will be distributed outside of the K‐12 funding formula, and districts will be able to use the funds for either rollover backfill or soft capital pur‐ Budget Message chases. For FY 2013, this $100 million will be part of the $200 million soft capital recommendation outlined in the K‐12 section of the budget. TOURISM DOMESTIC AND INTERNATIONAL TOURISM is on the upswing, in contrast to recent years, when America’s recession severely dampened discretionary travel. To take advantage of this opportunity, many states that compete with Arizona for tourism dollars are increasing their tourism budgets. To help Arizona’s tourism and hospitality industries in both the urban and rural areas capitalize on this positive trend, the Executive recommends depositing $7 million from the General Fund into the Tourism Fund for marketing Arizona as a premier tourist destination. The Executive also recommends that the tourism funding formula be elimi‐ nated in lieu of appropriations to the Tourism Fund. This investment will fund new programs such as: • a privately matched national marketing campaign; • an initiative to capture emerging visitor markets such as China, South Korea and Brazil; and • a rural Arizona cooperative advertising program de‐ signed to encourage visitors to travel throughout rural Arizona. The FY 2011 budget (Laws 2010, 7th Special Session, Chapter 12) eliminated the tourism formula and, in its place, allowed the Office of Tourism (AOT) to use up to 50% of the revenues from Maricopa County hotel taxes and rental car surcharges for AOT operational costs. (Previously, 100% of the aforementioned revenues were distributed to tourism‐ related organizations in Maricopa County.) Legislative action on this issue is vital. In Laws 2010, Chapter 128, the Legislature restricted AOT’s operational use of the Maricopa County funds to FY 2011 and FY 2012. Consequently, without new funding or a statutory change, AOT will not be funded in FY 2013, violating the State’s gaming compact and severely limiting Arizona’s ability to capture its historic share of the rebounding tourism market. REPURCHASE OF CAPITOL BUILDINGS IN FY 2010, BUDGET PRESSURES led to the sale and lease‐back of several State buildings, generating nearly $1 billion that was used to cover operating expenses. The terms of those transactions require the State of Arizona, for the next 20 years, to pay rent on those buildings, which include the historic State Capitol. The State’s more favorable fiscal position allows the Executive Recommendation to include $106 million to repurchase the State Capitol buildings, which includes the original Capitol Building, the Executive Tower and the House of Representatives and Senate buildings. These funds should be provided as soon as possible – outside of the 7 budget if necessary – so that the Arizona Centennial can be properly celebrated in an unencumbered Capitol. RETIRING THE MIDNIGHT REVERSION IN FY 2009, THE STATE IMPLEMENTED an accounting measure that required all non‐reverting funds to revert to the General Fund at the end of the fiscal year. Those funds were used to close out the current fiscal year and then imme‐ diately re‐appropriated in the next fiscal year. The result was a one‐time benefit of $54.9 million. The Executive recommends retiring this mechanism in FY 2012. The estimated fiscal impact is approximately $41 million. STRATEGIC PLANNING IN LIGHT OF THE EXTENSIVE CHANGES that have occurred in State Government during the past three years, it is crucial for State agencies to focus on providing the programs and services most critical for Arizona citizens. Thorough and committed strategic planning is vital to ensuring that limited resources are used as efficiently and 8 effectively as possible, as State government continues to pursue even greater improvements. Each agency should develop a Five‐Year Strategic Plan, including the agency’s strategic issues, mission statement, description, goals, strategies, and resource assumptions. Current law requires Five‐Year Strategic Plans only of annual budget units. The Executive recommends changing the law to apply that requirement to all Executive agencies. CONCLUSION THE FISCALLY RESPONSIBLE INITIATIVES described above collec‐ tively represent an important first step toward achieving two vital objectives in moving the State of Arizona forward during still‐challenging economic times: • modernizing and protecting the State’s technological assets where necessary and prudent, and • correcting some of the prior years’ budget‐balancing decisions that, while necessary, are impediments to reaching the standards of effective government that the people of Arizona expect. • FY 2013 Executive Budget Preserving the Safety of Law-Abiding Arizonans The Executive Recommendation reflects carefully selected spending priorities in meeting the State’s needs in law enforcement, adult corrections and juvenile detention P and a fundamental responsibility of State Government. Consistent with the Executive’s guiding principles in developing the FY 2013 Executive Recommendation, prudent expenditures are proposed to respond to the changing nature of Arizona’s prison population, the aging Highway Patrol vehicle fleet, backlogs in forensic investigation, and opportunities for more effective and consistent rehabilitation of juvenile offenders, all in the interests of increasing the security of Arizona’s citizens. UBLIC SAFETY IS A CORE FUNCTION ADULT CORRECTIONS IN OCTOBER 2009, ARIZONA’S ADULT PRISON POPULATION peaked at 40,766 inmates. During the subsequent two years, that population has declined by an average of 25.5 inmates per month, to a total of 40,154 on October 31, 2011. As shown in the graph on the next page, for Fiscal Years 2012 and 2013 the Department of Corrections (DOC) projects zero growth in the adult prison population. Despite the unusual decline in the size of the inmate population, in October 2011 the total population still exceeded the prison system’s rated capacity (37,159 beds) by 2,995 inmates. To house the surplus inmate population, over the years DOC has created 5,284 temporary beds by using bunk beds and utilizing unorthodox areas of the prisons (e.g., barber shops, day rooms and libraries). The temporary beds also serve as emergency space for the safe operations of a prison. Since the end of FY 2001, the number of makeshift tem‐ porary beds has increased significantly, from 2,096 to the current 5,284. As the number of temporary beds has increased, the relative safety of the more recently created temporary beds has decreased. Growth of Subgroups. The decline in the overall prison population is deceiving, as some of the more challenging segments of the prison population are experiencing signifi‐ cant growth: • The maximum‐custody population has grown by an average of 12 inmates per month over the past two Budget Message HIGHLIGHTS • 2,500 new prison beds accommodate growth in the most challenging segments of the inmate population • The addition of 153 correctional officers in each of the next two fiscal years addresses dangerous security gaps • Funding is provided for 126 Highway Patrol vehicles in FY 2013, and a new replacement standard is recommended years. If that rate continues as expected, by March 2013 the prisons’ maximum‐custody bed capacity, using both permanent and temporary beds, will be exceeded. • The sex offender population makes up 14% of the total prison population, with the majority housed within the medium‐custody level. That population has grown by 4.1% over the last year. • The protective segregation population is made up of prisoners who must be segregated from the general population as well as from each other because of threats and conflicts due to such issues as religion, race, gang affiliation, type of crime, etc. The popula‐ tion of this subgroup was 791 in FY 2008 and is expected to triple to 2,441 by the end of FY 2012. Bed Management. A vacancy rate necessary within each custody level to management of a prison population that dingly subdivided into incompatible of at least 5% is allow for the safe is becoming excee‐ groups. Housing 9 restrictions, maintenance, disturbances Prison Population Growth: FY 1982 ‐ FY 2015 and emergencies all require movement 45,000 of inmates, which creates greater risk of escape and of harm to correctional staff 40,000 and inmates. The lower the vacancy rate, I 35,000 N the more frequently the inmates must be 30,000 M moved to manage a compatible housing A 25,000 plan of multiple‐custody levels and T 20,000 subgroups. Actual Projected E When combining permanent and 15,000 S temporary beds, the prison system as a 10,000 whole has a vacancy rate of about 6%. 5,000 Unfortunately, most of the vacant beds 0 are isolated to the female and minimum‐ 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 custody male populations. The male Fiscal Year inmate population across all custody levels has about a 4% vacancy rate, with insufficient staffing of these posts puts Correctional Officers the medium‐custody male population having less than 1% at risk. Assaults on correctional staff have increased by 14% of vacant bed space for management (this includes the use in the last two years, while inmate‐on‐inmate assaults and of 2,928 temporary medium‐custody beds, 40% more than fights have increased by 39%. At the time the Executive the entire system used in FY 2001). The current maximum‐ Recommendation was prepared, the Department had 193.0 custody male population has a bed vacancy rate of 6%. unfilled security posts inside the prisons. However, as was mentioned earlier, at the current growth inmate is transported outside the prison for When an rate of 12 inmates per month, DOC will have exhausted its medical care, the Correctional Officers who provide security vacant maximum‐level beds by March 2013. for the transport must leave their regular duty posts, often Recommendation. Laws 2009, 3rd Special Session, resulting in security gaps. The Department devotes an Chapter 6, required DOC to issue a request for proposals average of 235,040 man‐hours per year – the equivalent of and contract for 5,000 private prison beds. The Legislature 113.0 full‐time Correctional Officers – to cover hospital enacted the provision based on the expectation that the transportation security. prison population would grow by 114 inmates per month In responding to the security exposure described above, during FYs 2010 and 2011 and beyond. Considering the the Executive recommends 306.0 FTE Correctional Officer II dramatic change in population growth and the inflexible positions, with the increased staffing implemented over two language that requires the Department to contract for fiscal years (153.0 officers in FY 2013 and 153.0 in FY 2014). exactly 5,000 private prison beds, and not a lesser amount, Prisoner Shift. Laws 2011, Chapter 33, obligates each the Executive canceled the request for proposals on Decem‐ county sheriff to house at the county jail all prisoners ber 22, 2011. sentenced to one year or less in a DOC facility, unless an As alternatives to the canceled beds, the Executive agreement is entered into for reimbursement to the State for recommends the following additions: housing the inmates. This law is scheduled to go into effect • To deal with the rapid growth of specific medium‐ on July 1, 2012. However, the simple language of the bill custody, sex offender, and protected‐segregation leaves many questions and concerns unanswered. populations, the Executive recommends a private The potential shift of future prisoners from State correc‐ contract for 2,000 male, medium‐custody beds tional facilities to county jails would result in inconsistencies planned to open in January 2014. in programming, protection, time computation of sentences, • The maximum‐custody population growth will community supervision, and work release opportunities. require the immediate construction of new State beds. Therefore, the Executive recommends repealing this law The Executive recommends allocating $50 million to before it goes into effect. construct 500 maximum‐custody male beds on the site of the Rast Unit at the Lewis Prison in Buckeye. The LAW ENFORCEMENT beds will be planned to open beginning in July 2014. ENSURING THAT THE STATE’S LAW ENFORCEMENT AGENCY, the Correctional Officers. The number of Correctional Department of Public Safety (DPS), is equipped to carry out Officers needed to secure a prison is determined by the its vital mission is one of the Executive’s highest priorities. layout of the building and the risk level of the inmates. Each Correctional Officer post is assigned to a specific space, and 10 FY 2013 Executive Budget Highway Patrol Replacement Average Odometer Reading‐Recommendation Vehicles. For the last few years, DPS has not had a separate budget for replacing 100,000 Average Odometer Reading Highway Patrol vehicles. Historically, 95,000 the Department has replaced a vehicle Target 90,000 when it accumulates more than 100,000 miles. 85,000 It is projected that, at the end of FY 80,000 2012, 50% of the vehicles in the Highway 75,000 Patrol fleet will be at more than 100,000 miles. With the average mileage of the 70,000 entire Highway Patrol fleet projected to 65,000 reach 96,000 miles by the end of FY 2012, 60,000 providing for vehicle replacement is a FY FY FY FY FY FY high priority. 2011 2013 2015 2017 2019 2021 As the chart at right indicates, the Executive recommends establishing a The FY 2012 adjustment is equal to one‐fourth of the FY new standard for replacing vehicles based of the average 2012 ERE increase. The FY 2013 adjustment includes annu‐ mileage of the Highway Patrol fleet and has set a target alizing the FY 2012 increase, along with an additional $6.1 average mileage of 70,000 miles. Average mileage million. recognizes the varied use and wear of the fleet. Some GIITEM Subaccount Revenue. Revenues from the State vehicles may continue service well after 100,000 miles, while Aid to Indigent Defense Fund were allocated to the GIITEM others may need replacement well before that point. Fund Subaccount in FY 2012. The Executive recommends The Executive will fund vehicle replacement by: permanently continuing this allocation. • retaining in the Public Safety Equipment Fund $3.5 million in DUI/DWI fines and penalties that is cur‐ JUVENILE CORRECTIONS rently transferred to the General Fund; and THE DEPARTMENT OF JUVENILE CORRECTIONS (DJC) has • appropriating $2.8 million from the General Fund. initiated an ambitious – and, to date, successful – plan to The recommended funding will allow DPS to purchase reform the agency, improve operational efficiencies and approximately 126 cars in FY 2013 and gradually reduce the provide better programming for youth offenders. average mileage of the fleet over a period of several years. In FY 2011, DJC housed 405 youths at three facilities: DNA Backlog Reduction. Sweeps against the funds that Adobe Mountain (males), Black Canyon (females) and support DNA operations at the DPS Crime Laboratory have Catalina Mountain (males). In response to a decline in the resulted in a backlog of cases waiting to be processed. The juvenile offender population, the Department closed Cata‐ Executive recommends an appropriation increase of $1.5 lina Mountain, which housed approximately 74 male youths million in FY 2013 from the DNA Identification System and, at $7.75 million per year, was DJC’s most expensive Fund to be used to reduce DNA backlogs. facility to operate. Catalina Mountain provided only core ERE Adjustment. In FY 2012, DPS’s Employee Related treatment programs, and any youth with specific problems Expenditures (ERE) increased by approximately $3.1 mil‐ had to be housed at Adobe Mountain. lion, with no corresponding appropriation increase. The With the closure of Catalina Mountain, all youth were vast majority of this increase was due to a rise in the Public transferred to Adobe Mountain, and 68 of 129 FTE positions Safety Personnel Retirement System (PSPRS) contribution were also transferred. In the wake of the closure, DJC is able rate. An additional increase of $6.1 million in FY 2013 is to expand core and substance dependence programs, anticipated as well. The Executive recommends making the expand available career technical educational programs, following adjustments: and make mental health and sex offender programs availa‐ • $778,000 in supplemental funding from the General ble to all youth as needed. This closure saved DJC $3.8 Fund in FY 2012; million and improved the Department’s services to youth. • • $9.2 million from the General Fund in FY 2013. Budget Message 11 School Funding Focuses on Critical Needs The Executive Recommendation emphasizes helping students in the early grades and improving decision-making in capital funding T FY 2013 EXECUTIVE RECOMMENDATION for K‐12 education provides funding for the high‐priority needs of young children and undereducated adults. Equally important, the Executive Recommendation provides solutions concerning: HE • school safety and achieving more timely investiga‐ tions of alleged teacher, staff and administrator mis‐ conduct; • the relationship between school districts and the char‐ ter schools that they sponsor; and • new construction and building renewal funding for school districts and charter schools. LEARNING INITIATIVES LOOKING FIRST ON THE CLASSROOM, the Executive addresses important needs with respect to reading in the early grades, and educating adults who have not completed high school. Move on When Reading. Laws 2010, 2nd Regular Session, Chapter 296 requires retention of third grade students whose reading skill is far below grade level. With implementation of “Move on When Reading” to begin in the 2013‐2014 school year, districts and charters will be required to develop comprehensive reading assessments for grades K‐3 and offer intensive remediation and intervention to students reading below grade level. The Executive Recommendation provides $50 million for reading specialists and for development and implementa‐ tion of comprehensive curriculum, intervention and remediation programs in grades K‐3. These funds should be used to identify students that are not on track to pass the third grade standards and intervene well before third grade, when they are at risk of retention. Funding will be gener‐ ated by an increase in the K‐8 Group A weight. The K‐12 formula uses per‐pupil weights to account for the costs associated with educating different types of students. The elementary weight is currently lower than the high school weight, to reflect the presumed higher costs of educating high school students. The Executive recommends increasing the elementary weight from 1.158 to 1.179, to 12 HIGHLIGHTS • $50 million for reading intervention and remediation programs in the early grades • $4.6 million for adult education services to enhance employability among non-high school graduates • Increased capacity for investigating allegations of misconduct among teachers, administrators and staff • $200 million for school district soft capital • A ban on new district-sponsored charter schools • Closing a loophole that allows duplicate capital funding • New approaches to funding new school construction and building renewal, including a one-time $100 million appropriation for building renewal grants provide funding for “Move on When Reading.” The addi‐ tional funding generated by the increase in the K‐8 Group A weight will be used on programs and services that align with A.R.S. § 15‐701 in grades K‐3. Workforce Investment. According to the U.S. Depart‐ ment of Labor, the median annual income of a person with less than a high school diploma is $8,580 less per year than a high school graduate. Approximately 825,000, or 17%, of Arizonans age 16 or older do not have a high school diploma or GED and are not enrolled in school. The loss of FY 2013 Executive Budget individual income attributable to the lack of high school‐ level education represents a total yearly loss of nearly $7.1 billion in statewide taxable income. Adults with less than a high school diploma have a more difficult time finding employment than those with higher levels of education. In 2010, 14.9% of adults with less than a high school diploma were unemployed, compared to 10.3% among high school graduates. The Department of Educationʹs Adult Education Ser‐ vices program provides funding to 26 programs statewide through a rigorous and competitive grant program. Arizo‐ naʹs adult education system ranks fourth in the nation in educational gains, as reported by the U.S. Department of Education’s Office of Vocational and Adult Education. Without additional funding, the State will lose eligibility for federal Workforce Investment Act dollars targeting adult education and will lose capacity to serve Arizonaʹs under‐ educated adults and support economic recovery in the state. The Executive Recommendation of $4.6 million is the minimum required to draw down $11.8 million in federal Workforce Investment Act dollars and maintain adult education services statewide. SCHOOL SAFETY THE STATE BOARD OF EDUCATIONʹS INVESTIGATIVE UNIT is responsible for investigating allegations of immoral or unprofessional conduct made against certified personnel. Because certified individuals may continue to work in Arizona schools during the investigative period (provided their fingerprint clearance remains valid), timely investiga‐ tion of alleged misconduct is crucial. The Board currently has five investigators, each carrying a caseload of approximately 125 cases. The current staffing level cannot keep up with the volume of allegations, result‐ ing in inadequate and/or delayed investigations and possibly allowing violators to continue working in close contact with students and co‐workers. The Executive recommends $186,500 and 2.0 FTE investigator positions to assist with increased case produc‐ tivity. The proposed staffing levels will increase the number of investigations each year and shorten the average time required to resolve a complaint. School safety will be further enhanced by the Executive ‐ Recommendation for $500,000 to finalize the development of a database that will expedite the researching of educator certifications and disciplinary actions. SOFT CAPITAL THE K‐12 FUNDING FORMULA provides school districts with money for “soft capital,” which includes such short‐ term capital items as computers, software, library materials, etc. Soft capital has not been fully funded since FY 2008, which has created growing needs in the schools. Budget Message The soft capital allocation for districts is determined using the legislated per pupil amount and the districtʹs average daily membership (ADM). For FY 2013, the esti‐ mated formula amount for soft capital is estimated at $208 million. With current reductions in place, school districts would receive roughly 10% of the formula amount – just $20 million, or slightly less than $22 per student. To alleviate that underfunding, the Executive recom‐ mends $200 million for school district soft capital, which includes $100 million in the base soft capital allocation and $100 million in onetime funding. The base increase will be ongoing and will retire $100 million in deferred payments each fiscal year, beginning in FY 2013, until the rollover is paid in full. BASIC STATE AID THE K‐12 EQUALIZATION FORMULA determines budget capacity, tax rates and State Aid for school districts and charter schools. The formula is heavily dependent on student counts, calculated by ADM. School districts are funded on prior‐year ADM plus current year growth, while charter schools are funded on current‐year ADM. FY 2012 Baseline Changes. According to payment data from the Department of Education, total ADM for districts and charters is 2.3% lower than projected in FY 2012. Local property tax collections are also lower than estimated, increasing the State Aid share of formula costs. The Executive recommends a reduction in Basic State Aid of $67.9 million in FY 2012 for variances between pro‐ jected and actual amounts in enrollment and local levies. FY 2013 Funding. In FY 2013, total ADM is projected to increase by 0.5% from the recalculated FY 2012 baseline. This includes a 0.6% decline in school district ADM and 7.8% growth in charter school ADM. Though growth is expected, estimates for FY 2013 are still 1.9% lower than the FY 2012 appropriated amount. The Executive Recommenda‐ tion reduces Basic State Aid by $42.7 million for changes in enrollment. Total formula costs are funded by a combination of local property taxes and State Aid. The amount paid by State Aid decreases or increases with corresponding changes in prop‐ erty tax collections. Net Assessed Valuation is projected to decrease by 6.5% in FY 2013. This includes an 8% reduction in existing property and a 1.5% increase in new property. The Executive recommends a reduction of $27.9 million to Basic State Aid to adjust for changes in the Qualifying levy and the State Equalization Tax levy. OTHER FUNDING • Education Jobs Backfill. The Executive recommends an increase of $35 million in the Capital Outlay Reve‐ nue Limit to backfill the loss of federal Education Jobs Act funding. 13 • Additional State Aid. Laws 2011, 2nd Special Session, Chapter 1, limits the homeowner’s property tax rebate to properties of primary residence. The Executive Recommendation reduces Additional State Aid by $37 million to adjust for projected savings. CHARTER SCHOOLS TWO STATUTORY ISSUES that affect the funding of charter schools should be addressed and resolved. Duplicate Operational Funding. Statutory language that draws financial and budgetary distinctions between school districts and district‐sponsored charter schools (DSCSs) is unclear and should be revised to avoid duplica‐ tive State funding. School districts are funded on prior‐year enrollment, while charter schools are funded on current‐year enrollment. In the first year of operation, DSCSs are restricted from including in their student count pupils who were previously enrolled in the school district. DSCSs are not statutorily barred from including students previously enrolled in their district after the first year of operation. In addition, if a district were to charter a school through the State Board for Charter Schools, it would not be prohibited from counting the students as part of the school district and the charter school in the same year. Current law also allows districts to include DSCS pupils in their student count for the purpose of computing the districts’ revenue control limits, if the charter schools are located within the boundaries of the district. To address these issues, the Executive recommends a statutory change to prohibit the creation of new DSCSs (existing DSCSs would be grandfathered in). For grand‐ fathered DSCSs, the Executive recommends developing a clear legal distinction between DSCS and district budgets and excluding the DSCS ADM from the calculation of the sponsoring district’s revenue control limit (RCL). Duplicate Capital Funding. Another unclear part of current law is whether the space leased to a DSCS is counted towards the sponsoring district’s space for new school construction purposes. Attorney General Opinion No. I02‐008 provides as fol‐ lows: The [DSCS] becomes ineligible for building renewal monies when the charter contract is signed, and the school should be removed from SFB’s records as of that date. This opinion could give rise to a situation in which (a) a district creates a DSCS, (b) the space occupied by the DSCS is removed from the School Facilities Board (SFB) database, and (c) SFB awards a new school to the district, all while collecting Additional Assistance. The Executive recommends clarifying current law to provide that district‐owned space that is leased to another 14 entity is included in SFB’s square footage calculations for new school construction considerations, including space leased to a DSCS. The Executive further recommends that projects for district‐owned buildings or any part of a district‐owned building that is leased to a charter school be included in the list of projects not eligible for Building Renewal grant funds. K-12 CAPITAL THE EXECUTIVE RECOMMENDATION related to K‐12 Capital addresses complicated funding issues with respect to new school construction and building renewal. New School Construction. Prior to 1998, new schools were built primarily through local, voter‐approved bonds. That traditional connection between parents and school boards determined the level and extent of new school construction. However, passage of the Students FIRST legislation in 1998 dramatically altered how new school construction was financed. Students FIRST was passed in response to the Arizona Supreme Court’s ruling, in Roosevelt Elementary School v. Bishop, that the prior system did not provide adequate school facilities to property tax‐poor districts. The Students FIRST legislation created the School Facili‐ ties Board (SFB) and shifted to SFB the responsibility of building and maintaining school facilities. In addition, local bonding authority was reduced to one‐third the levels of the previous system – 10% of secondary assessed value for a unified school district, as compared to 30% of secondary assessed value. Subsequently, school districts have primar‐ ily supplemented, rather than supplanted, SFB new school construction funding. In contrast to traditional schools, which receive capital funding through SFB, charter schools receive capital fund‐ ing based on a per‐pupil formula. This is a significant distinction in light of the recent enrollment trend for the two types of schools. As the first chart on the next page illustrates, since FY 2008, traditional district school enrollment has declined, while charter school enrollment has increased. The Execu‐ tive expects that trend to continue. Through 2020, SFB forecasts it will need to build 3.3 mil‐ lion square feet of additional school space, costing the State approximately $500 million. This new space will be awarded despite overall decreasing school district enroll‐ ment, because growth is uneven among districts. Certain districts are projected to grow even though, in many areas, excess space outside of the growing districts will remain. This situation is a consequence of SFB’s current square footage calculations for new school construction. SFB fore‐ casts enrollment growth; if a district’s projected enrollment exceeds the district’s capacity, it is awarded a new school. FY 2013 Executive Budget funding decisions back to the local school board and its community. 12% The Executive also recommends that Districts Charters Overall this new approach, which reduces the 9% State’s share of new school construction costs, be coupled with a corresponding 6% increase in bonding capacities. The capacity rates would be only two‐thirds of their pre‐Students FIRST level, because 3% the State would maintain a new con‐ struction safety net for regional‐ and 0% hyper‐growth situations. The table at left shows projected new ‐3% school awards, how the new approach FY 2009 FY 2010 FY 2011 FY 2012* FY 2013** would impact projected awards, and the *Estimate using 40th day counts as reported in ADE payment tables **Forecasted ADM available bonding capacities of the districts whose projected awards would Projected Results through FY 2015 be eliminated (available capacity equals Awarded Available total bonding capacity minus out‐ Proposed Bonding Scheduled Awarded Funding Using Bonding Capacity standing bonds). Note that some of the Capacity (10% ESD School District to Open Funding 10‐Mile (5% ESD & available bonding capacities are negative & HS/20% USD) Radius HS/10% USD) – a result of declining property values. Thatcher USD FY 2012 $ 1,330,152 $ ‐ $ 4,309,444 $ 8,618,887 Further note that the table represents the Vail USD FY 2013 $ 6,530,981 $ ‐ $ (900,522) $ 46,203,956 Executive’s current estimates on the Benson USD FY 2014 $ 1,229,940 $ ‐ $ 1,099,041 $ 9,773,082 impact of this recommendation and is Liberty ESD FY 2014 $10,234,963 $ ‐ $ 537,335 $ 10,404,671 subject to SFB’s detailed review. The Laveen ESD FY 2015 $12,793,704 $ ‐ $ (4,860,439) $ 5,929,122 Litchfield ESD FY 2015 $ 9,441,360 $ ‐ $ (6,030,819) $ 26,188,362 table also shows the available bonding Pima USD FY 2015 $ 1,937,115 $ 1,937,115 n/a n/a capacities if rates were doubled to 10% Queen Creek USD FY 2015 $ 8,609,580 $ ‐ $ (11,652,683) $ 12,269,634 of secondary assessed value for Sahuarita USD FY 2015 $ 7,676,222 $ 7,676,222 n/a n/a elementary and high school districts and $59,784,017 $ 9,613,337 $ (17,498,643) $ 119,387,714 20% of secondary assessed value for (a) Class B debt only unified school districts. Building Renewal. In FY 2012 the The Executive recommends changing the minimum Building Renewal formula will generate, per statute, $249.7 square footage standard to include excess space at nearby million. However, the State has not fully funded this schools outside of the district, so that district boundaries do formula since FY 2002; further, since FY 2009, funding for not limit the efficient use of existing school space. the formula has been completely eliminated. Under the new plan, SFB would: The Building Renewal formula has a number of critical • project enrollment, flaws, including lack of provisions for (a) linking appropria‐ • determine which districts have insufficient space tions with outcomes, (b) accounting for different climates within their boundaries, and building materials, and (c) ensuring the most efficient • divide each of those districts into four quadrants, use of funds. The Executive recommends eliminating the Building • select the highest growth quadrant, and Renewal formula and transitioning to an inventory‐based • draw a 10‐mile radius from the center point of the building renewal system. Instead of simply distributing quadrant. Building Renewal funds, SFB will help create and maintain All schools that fall within this radius that are outside of a detailed database of all major school systems and replace the district are also included in the capacity calculations. If each system according to a replacement schedule. existing space is insufficient under this new methodology, a This approach better utilizes scarce resources. It ensures district would be awarded a school. In other words, SFB that funds are spent on the highest priority projects, and it would award a school only if the sum of (a) the district’s better communicates school capital needs to State appro‐ capacity plus (b) the excess capacities in the surrounding priators. A life‐cycle replacement‐schedule system has been schools is not sufficient to handle projected growth. used effectively in New Mexico and other states to accom‐ This approach should lead to a more efficient use of modate school capital needs. existing school space and, likely, force new construction Year‐Over‐Year % Changes in ADM Budget Message 15 The Executive anticipates that it will take three years for school districts and SFB to inventory all systems with an online preventive maintenance system. To bridge the gap, the Executive recommends a three‐year, $100 million Building Renewal grant program to pay for critical projects. Most districts have no remaining Building Renewal funds, and crucial projects are being deferred, sometimes for years. The status quo would result in greater deficiency cor‐ rections expenditures in the long‐run and more hazardous conditions in the short‐run. (Over the years, bonded indebtedness has been a source of funding for many districts, but depressed property values have made that a less viable option – a situation that is likely to continue until the real estate market improves.) On an annual basis, the $100 million represents only 55% of the average Building Renewal spending by districts from FY 2002 to FY 2009. The $100 million will be a supple‐ mental appropriation for FY 2012. No additional Building Renewal grant funds will be appropriated from FY 2013 through FY 2015. In order to create and maintain the database needed for a replacement‐based system, the Executive recommends 16 $933,500 ($0.96 per student) to purchase the subscription for an online preventive maintenance system for all school districts. The Executive estimates the online preventive maintenance system will cost $0.72 per student (approx‐ imately $693,000) in each subsequent year. To access Build‐ ing Renewal grant funds, districts must use the provided preventive maintenance system and develop a five‐year facilities plan. To pay for the district‐side costs to inventory all school systems, perform sufficient preventive maintenance, and help the State move to a life‐cycle replacement‐based Building Renewal system, the Executive recommends a $40 million increase to the Capital Outlay Revenue Limit and charter school Additional Assistance. Finally, in order to execute this comprehensive effort of (a) creating an inventory of all systems, (b) training districts on effective preventive maintenance, and (c) inspecting all Building Renewal grant requests, the Executive recom‐ mends $871,400 to pay for SFB administrative costs. With the cost of the online preventive maintenance system, the ongoing operational costs of this Building Renewal grant program will be $1.8 million. • FY 2013 Executive Budget Maximizing Accountability and Effectiveness in Higher Education The Executive proposes significant reforms affecting how universities and colleges are funded and how they meet the changing academic needs of their students A RIZONA’S SYSTEM OF HIGHER EDUCATION, which encom‐ passes the State’s three universities and more than 20 community colleges, represents the fulfillment of academic ambition for more than 350,000 Arizonans, a vital resource for Arizona’s private and public sectors, and a catalyst for economic development throughout the state. Arizona’s colleges and universities also represent opportunities for increased accountability and effectiveness in achieving their academic missions. Those opportunities provide the backdrop for the Executive’s funding recom‐ mendations for the State’s FY 2013 budget. UNIVERSITIES HIGHLIGHTS TO HELP THE UNIVERSITIES fulfill their crucial role in shaping Arizona’s future, the Executive advocates reforms with respect to how the Universities are funded and how they meet the growing academic needs of their students. Performance Funding. In June 2011 the Board of Regents adopted a series of performance metrics designed to measure University and system productivity. Included in these measures are total degrees produced, highlighting the degrees produced in high‐demand fields, community college transfers, research and development expenditures, and productivity measures. The FY 2012 budget (Laws 2011, Chapter 30) requires the Board of Regents to recommend a funding structure that includes performance‐ and outcome‐based funding. The Universities published a formula recommendation that includes increases in degrees, credit hours and outside research and public service funding. Whatever the agreed‐ upon formula, performance funding should drive changes that will move the State closer to a more educated work‐ force. The State must capitalize on the emphasis on perfor‐ mance funding so that the effort does not lose momentum. In support of that view, the Executive recommends moving to the Board of Regents $15 million of the Universities’ base funding (excluding the University of Arizona Health • Performance- and outcome-based funding for the Universities Budget Message • Funding for innovative course redesign technologies and capital improvements at ASU and NAU • Addressing per-student funding disparities among the three universities • A call for funding reforms for the Community Colleges • $10 million for SMART scholarships to enhance employability Sciences Center), allocated using each university’s share of total General Fund support. The State will match the $15 million, for a total of $30 million to be allocated by the Board of Regents to the Universities based on the agreed‐upon performance funding formula. The Executive will work with the Legislature and the Universities in an effort to achieve a mutually agreeable performance funding formula. In addition to incentivizing the increased production of quality graduates and research, this performance funding formula should incentivize greater production of in‐demand degrees, specifically STEM (science, technology, engineering and mathematics) degrees, expand community college and university partnership programs, and increase graduation rates. Course Redesign Technology and Capital. Arizona’s economic success is inseparable from the skills of its resi‐ dents. By 2018, two out of three Arizona jobs will require 17 technology to reduce labor costs associated with lecturing, grading and testing. Thus, 60% even though implementation of these technologies can reduce costs in the long run, 50% they often require an upfront infusion of technology and capital. 40% To help ASU and NAU increase retention rates and degree output without sacrificing 30% degree quality, the Executive recommends 20% appropriating $15.3 million to the Board of Regents for allocation to ASU ($12 million) 10% and NAU ($3.3 million). The funding will be used for innovative course redesign technolo‐ 0% gies and capital improvements that will ASU NAU UA maintain or improve learning outcomes and costs for large decrease per‐student enrollment and/or high‐failure‐rate classes. Per Student State Funding Comparisons These technologies must be focused on $7,000 increasing student retention by significantly ASU NAU UA $6,000 changing the teaching models for large‐ volume courses. $5,000 Plans developed by ASU and NAU must $4,000 be approved by the Board of Regents before the funds can be distributed. The Board must $3,000 review the plans before October 1, 2012. $2,000 State Funding Parity. The FY 2012 budget (Laws 2011, Chapter 30) instructed the Board $1,000 of Regents and the Universities to recommend $0 a method that addresses the issue of per‐ FY 2011 GF per FTE FY 2012 GF per FTE (Estimated FY 2013 GF and Course student funding disparities among the three FTE) Redesign Funding per FTE (Using estimated FY 2012 FTE) universities. The Universities published a study, using FY 2011 appropriations and FTE some postsecondary training beyond high school. However, counts, indicating that, after subtracting non‐applicable today only about 26% of Arizona adults have a bachelor’s appropriations to the UofA, there is a per‐student State degree or higher. Without increasing the education level of funding disparity of $896 for ASU and $758 for NAU. The Arizona’s citizens, Arizona will not remain competitive Universities report concluded that an additional $59.9 globally or nationally. million for ASU and $16.5 million for NAU would achieve In response to that need, the Executive has established a per‐student funding parity. series of aggressive goals for higher education. Prominent The Executive contends that funding parity numbers are among those goals are: exaggerated because they do not take into account the FY 2012 funding changes. The lower chart at left shows the per‐ • developing lower‐cost higher education models, and student funding numbers published by the Universities, • doubling of the number of Arizona students receiving estimated per‐student funding for FY 2012, and FY 2013 (per baccalaureate degrees by 2020. FY 2012 FTE estimates) with the proposed course redesign The Universities have experienced very different levels technology and capital funding. With these changes, the of growth during the last 10 years. The top chart above funding disparities are significantly less. shows that, since FY 2001, the University of Arizona’s Depending on how the performance funding formula is enrollment has grown by 21%, while enrollment at Arizona structured, the Universities will receive differing amounts. State University and Northern Arizona University grew by, However, it is likely the formula will focus on increased respectively, 56% and 33%. This uneven growth has placed degrees, which would tend to favor ASU and NAU. Thus, increased pressure on ASU and NAU to find innovative performance funding, over time, may decrease per‐student ways to decrease per‐student costs while maintaining or funding disparities even further. improving learning outcomes. Most of these methods utilize State GF per FTE Enrollment Growth from FY 2001 to FY 2011 University Enrollment Growth: FY 2001 vs. FY 2011 18 FY 2013 Executive Budget Community College Enrollment COMMUNITY COLLEGES 160,000 Santa Cruz Graham Yuma/La Paz Gila Mohave Cochise Navajo Yavapai Pima Coconino Pinal Maricopa Audited Full‐Time Student Enrollment (FTSE) A RAPIDLY EVOLVING ECONOMY places new 140,000 demands on working Arizonans to adapt their skills and knowledge to the needs 120,000 of prospective employers. Arizona’s Community Colleges play a growing 100,000 role in helping students maximize their employment potential, and the Executive 80,000 Recommendation focuses on (a) making it possible for more students to receive 60,000 the benefits of a community college education, and (b) equipping the colleges 40,000 to meet the growing demands of an increasingly diverse student population. 20,000 Enrollment Growth. Typically, there is an inverse relationship between ‐ community college enrollment and the FY 2002 health of the economy. However, as Arizona has recovered from the recent recession, community college enrollment continues to increase sharply, as adults go back to school to learn new skills. Between FY 2010 and FY 2011, community college full‐ time student enrollment (FTSE) increased by 7.1%, from 135,789 to 145,470 – the second‐highest year‐over‐year increase of the last decade. The chart above illustrates overall community college FTSE counts since FY 2002. Formula Growth. To accommodate enrollment growth, the Executive recommends applying the enrollment‐based Operating State Aid formula in FY 2013, which will add approximately $2.2 million in State support to the System. In addition, the Executive recommends applying the Equalization State Aid formula, which is designed to compensate certain districts for an insufficient property tax base. A $7.4 million decrease in Equalization State Aid results from the fact that property tax values for the districts that receive Equalization State Aid decreased less than the average for all rural Arizona districts. Running the two formulas results in a net decrease of $5.2 million to the Community College System. Funding Reform. As important as it is for the Universi‐ ties to move to performance funding, it is important to reform the formulas for Community College State Aid as well. The current formulas do not effectively allocate funds, do not inspire performance, do not help to align outputs with workforce needs, and do not incentivize greater collaboration with the Universities. The Executive calls on the Community Colleges to cooperate with State policy‐ makers during the coming year to decide on and implement mutually agreeable funding reforms for the Community College System. Budget Message FY 2003 FY 2004 FY 2005 FY 2006 FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 Arizona SMART Scholarships. While the Arizona economy is recovering and creating more jobs, the job skills of thousands of Arizonans are poorly matched with the needs of potential employers. As a result, many Arizona companies are hiring workers from out‐of‐state while thousands of Arizonans remain unemployed or underem‐ ployed. To help address this issue, the Executive recommends $10 million to the Commission for Postsecondary Education for SMART scholarships for Arizona community college students. SMART (Skills Maximization and Alignment through Retraining and Transitioning) scholarships are designed to allow Arizonans with work experience to retrain and transition into needed fields by completing a program or certification at a community college. To qualify, students must be enrolled in one of the top 20 community college programs that the Local Workforce Investment Board has determined best meet local workforce needs. In addition, students must show they have at least two years of full‐time work experience and qualify for need‐ based financial aid. (For veterans, the need‐based aid requirement is waived.) SMART scholarships pay the cost of tuition up to $2,000 per year for up to two years. CONCLUSION REFORMING HOW ARIZONA’S INSTITUTIONS of higher learning are funded and how they meet the needs of their students and the state at large is a complex undertaking that will not be achieved overnight. However, the magnitude of the challenge must not deter the State’s elected officials and education policymakers from pursuing it. • 19 Serving the Needy: What’s Next for State Government? The Executive Recommendation outlines the potential impacts of federal healthcare legislation and addresses needed reforms in behavioral health and child protection T area of State Government includes the Arizona Health Care Cost Containment System (AHCCCS), Department of Health Services (DHS) and Department of Economic Security (DES), along with a number of smaller agencies. Together, AHCCCS, DHS and DES account for almost a third of baseline General Fund expenditures for Fiscal Year 2012; therefore, reducing expenditures in those agencies has been an important part of the State’s effort to close the General Fund shortfalls in recent years. HE HEALTH AND WELFARE MEDICAID REFORM IN FY 1999, FUNDING FOR ARIZONA’S health and welfare agen‐ cies consumed 20% of the State’s operating budget; since then, health and welfare spending has increased to 29% of the State’s operating budget. This increase has been largely attributable to the 2000 passage of Proposition 204, through which Arizona voters expanded AHCCCS eligibility to include all Arizonans up to 100% of the Federal Poverty Level (FPL). The language of Proposition 204 included the following: A “yes” vote shall have the effect of ... increasing healthcare coverage eligibility for Arizona’s working poor at the federal poverty level ... using the tobacco litigation settlement money. This expansion has resulted in a number of populations being added to the AHCCCS rolls: • parents or families who have an income between 23% and 100% of the FPL; • aged, blind or disabled persons receiving Social Secu‐ rity Income (referred to as the “SSI population”) who have an income between 75% and 100% of the FPL; • people who are otherwise ineligible but who have enough medical expenses to spend‐down to 40% of the FPL; and • adults without children in the home (referred to as childless adults), up to 100% of the FPL. Since FY 2004, the Tobacco Settlement funds have been inadequate to fund the Proposition 204 expansion, resulting 20 HIGHLIGHTS • $3.7 million for Child Protective Services to enhance law enforcement expertise, reward exceptional employees and improve management • $39 million for new services for SMI adults, including case management and family and peer support • $27.3 million for a 3% provider rate increase for select groups • Despite federal government rejection of some Arizona savings initiatives, the Executive addresses FY 2012 with no General Fund supplemental across the Medicaid agencies • If the states’ suit against the federal government fails, significant costs from federal health reform result in FY 2014 and FY 2015 in a General Fund subsidy that grew to almost $600 million in FY 2011. The Plan. In order to address the unprecedented level of structural deficit in a sustainable manner, during the 2011 session a $524 million budget cut, along with a series of policy changes necessary to implement these cuts, was enacted. Collectively these actions are known as the Medi‐ caid Reform Plan. Among the policy changes necessary to implement the budget cuts were: • freezing new enrollment in health coverage for child‐ less adults; FY 2013 Executive Budget • eliminating health coverage for people with medical expenses sufficient to spend their income down to 40% of the FPL; • reducing AHCCCS member benefits, including limit‐ ing hospital stays to 25 days in one year and decreas‐ ing respite care hours reimbursed from 720 per year to 600; and • reducing health provider reimbursements by an addi‐ tional 5% on October 1, 2011. While the federal government approved Arizona’s request to freeze the childless adults, the State was required to continue covering as childless adults those children who “age out” of other programs. The bulk of these children are covered under the SOBRA (Sixth Omnibus Budget Recon‐ ciliation Act) children program, which mandates coverage for older children up to 100% of federal poverty level as a base (non‐Proposition 204) population. As a result, about 1,200 children per month are being added to the childless adult population, which the Execu‐ tive forecasts will result in about 23,000 fewer childless adults dropping off of the Medicaid program by December 2013. The Executive estimates that these members will cost the General Fund $7 million in FY 2012 and $34.7 million in FY 2013. Despite those federal government mandates and the rejection of some of the Medicaid Reform Plan policy changes, the Executive Recommendation ensures that the three Medicaid agencies will operate within their collective General Fund appropriation in FY 2012. In tracking the savings from the Medicaid Reform Plan, the Executive Recommendation uses a revised approach to forecasting caseload growth costs. The initial forecast, referenced as the Baseline Forecast, assumes a continuation of the previous policies as though there were no Medicaid Reform Plan. Member growth and capitation rate growth – at least the portion attributable to increased member utilization of services – are in the base‐ line. In order to separately account for the savings attribut‐ able to the Medicaid Reform Plan, the savings are then layered on top of the baseline growth. Prescription Drug Rebate. The Patient Protection and Affordable Care Act of 2010 (PPACA) requires drug manu‐ facturers to provide rebates for drugs dispensed to individ‐ uals enrolled in a Medicaid Managed Care Organization (MCO). Previously, only fee‐for‐service (FFS) drug pur‐ chases were eligible to participate, but Arizona’s 1115 waiver exempted it from the FFS drug rebate program because of the low volume of FFS drug expenditures. AHCCCS has contracted with a consulting firm to eval‐ uate health plan prescription drug expenditures retroactive to March 23, 2010, the signing date of PPACA. Based on these collections and the estimated FY 2012 new collections, the Executive forecasts that there will be $107.2 million Budget Message available to offset state match requirements in FY 2012 or later. Based on estimates for FY 2013, the Executive projects that there will be an additional $72.5 million available to offset the state match in FY 2013 or later. FY 2012 Savings Under the Medicaid Reform Plan. In the current year (FY 2012), despite federal rejection of several planned elements of the Medicaid Reform Plan, the Executive has achieved the goal of avoiding a General Fund Supplemental Appropriation. The Medicaid agencies anticipate, after savings from enrollment reductions and other changes enacted as part of the Medicaid Reform Plan, an FY 2012 shortfall of $41.6 million in DHS and $26.4 million in AHCCCS, compared with a $13.7 million surplus in DES. To address the remaining shortfalls, the Executive pro‐ poses the following: • shift the $13.7 million from the expected DES overage to help address the DHS shortfall; • increase the appropriation from the Prescription Rebate Fund by $54.3 million for AHCCCS and reduce the AHCCCS General Fund appropriation by the same amount; and • reduce the AHCCCS General Fund appropriation by $27.9 million and increase the DHS appropriation by the same amount. Under this proposal, a General Fund supplemental will not be necessary for the Medicaid agencies. FY 2012 Medicaid General Fund Summary DHS‐BHS AHCCCS Initial Surplus/(Shortfall) (41,551,300) (26,405,200) Reallocation of DES Overage 13,700,000 Prescription Drug Rebate 54,256,500 Remaining GF Reallocation 27,851,300 (27,851,300) Net Change ‐ ‐ DES DD 13,700,000 (13,700,000) ‐ Current Estimates for FY 2013. As mentioned above, for the FY 2013 budget, the Executive layers the Medicaid reform plan savings over a baseline budget forecast. As the following table indicates, even with the savings from the Medicaid Reform Plan, significant caseload growth needs remain for the Medicaid agencies. The Executive proposes using all remaining available FY 2013 funds from the prescription drug rebate program for the shortfall in AHCCCS. Still, the Executive forecasts that there will be a need for increased General Fund appropriations for the Medicaid agencies, i.e., $64.1 million for DHS, $1.8 million for AHCCCS and $2.8 million for DES. FY 2013 Medicaid General Fund Summary DHS‐BHS AHCCCS Baseline Surplus/(Shortfall) (138,496,100) (526,922,300) Medicaid Reform Plan Savings 74,393,800 444,883,700 Prescription Drug Rebate 80,201,500 Overage (Shortfall) (64,102,300) (1,837,100) DES DD (16,500,000) 13,700,000 (2,800,000) 21 Provider Rate Increases. Since the beginning of the recession in 2008, Arizona Medicaid providers have sustained a series of rate freezes and cuts. The Executive recommends a 3% provider rate increase for physicians, behavioral health service providers, nursing facilities, home service providers and ambulatory surgery centers for services provided after October 1, 2012. Before implement‐ ing any rate increases, AHCCCS must ensure that the increases are consistent with federal requirements, includ‐ ing any appropriate cost studies. FEDERAL HEALTH CARE REFORM DEVELOPING THE FY 2013 BUDGET and projecting for FY 2014 and beyond requires a sound understanding of the potential costs and impacts of federal health care reform (PPACA) should that law be fully implemented. Impacts to Date. State employees have already felt the impact of two PPACA‐required benefit increases in the State employee health plan: first, the mandate that health plans cover, on their parents’ policies, dependent older children up to the age of 26, as long as they are not eligible to be covered under another employer‐sponsored plan; and, second, the PPACA requirement that plans eliminate life‐ time limits and annual limits on certain benefits. These requirements went into effect on January 1, 2011, and have been estimated by the actuary for the Department of Administration to cost the users of the State insurance plan $13.2 million in annual increased costs to insure employees and retirees. FY 2013 Mandates and Costs. The more significant costs of PPACA impact the state through changes in the Medicaid program. In FY 2013, PPACA mandates that primary care physicians’ reimbursement rates be increased to 100% of Medicare rates by January 1, 2013. While the federal govern‐ ment will pay 100% of the cost of increasing Arizona’s rates from those that were in effect in July 2009, the State will receive only the regular Federal Medicaid Assistance Percentage (FMAP) of 65.68% in FY 2013 to restore the State’s provider rate cuts that have been imposed on primary care physicians since July 2009. Further, AHCCCS and DES computer systems will require modifications to manage the expected PPACA‐ mandated expansion and for both systems to communicate with the insurance exchange. Impacts of ACA Primary Care Physician Issue Total Increased Cost Portion eligible for 100% FMAP Portion eligible for Regular FMAP State General Fund FY 2013 State General Fund FY 2014 est. 22 67,657,600 48,915,100 18,742,500 6,316,500 13,896,300 If PPACA survives the states’ collective legal challenges (see “Executive Recommendation” below), those two agen‐ cies will need approximately $15 million in FY 2013 for hardware and software purchases and to assemble a project team. The state match for this funding would be $2.5 mil‐ lion, assuming an 85/15 split in the grant. FY 2014 and Beyond. Two PPACA provisions that go into effect January 1, 2014, will significantly impact caseload costs of Arizona’s Medicaid program: • Eligibility Expansion. PPACA contains a mandatory expansion in Medicaid eligibility to 133% of the fed‐ eral poverty level (FPL). Including the bill’s 5% income disregard, eligibility is effectively increased to 138% of FPL. • Increased Federal Match. States will receive enhanced federal match for adults under the PPACA. Coverage for all adults from 100% to 133% of FPL will be fully supported by the federal government. Additionally, childless adult populations in Arizona under 100% of FPL are scheduled to receive enhanced federal matches of 82.84% in FFY 2014 and 86.27% in FFY 2015, both well above the standard FMAPs of 67.3% in FFY 2012 and 65.68% in FFY 2013. The Executive estimates that, in its first full year of implementation (FY 2015), PPACA will cost the State $421 million General Fund and almost $3 billion in federal funds to cover an additional 340,000 Arizonans. General Fund Impacts of PPACA FY 2013 Caseload AHCCCS DHS ‐ ‐ Total Caseload Costs FY 2014 FY 2015 77,516,600 41,490,200 119,006,800 297,792,700 108,235,900 406,028,600 14,610,500 Primary Care Physicians 6,316,500 13,896,300 AHCCCS/DES IT Modifications 2,500,000 1,500,000 Total: 8,816,500 134,403,100 ‐ 420,639,100 PPACA Federal Match Caseload AHCCCS DHS ‐ ‐ Total Caseload Match 587,980,700 335,923,000 923,903,700 1,856,909,400 830,137,600 2,687,047,000 148,164,900 Primary Care Physicians 61,225,200 134,695,400 AHCCCS/DES IT Modifications 12,500,000 8,500,000 Total: 73,841,100 1,067,099,100 ‐ 2,835,211,900 Executive Recommendation. The State of Arizona is a party to the lawsuit asking the U.S. Supreme Court to strike down PPACA as an unconstitutional infringement on states’ rights. In light of that legal action, the Executive is not recommending any additional FY 2013 State funds to pay for PPACA impacts on the State. However, if the states’ lawsuit fails in the Supreme Court, to the extent that the elements of PPACA impacting Arizona are not stricken FY 2013 Executive Budget down, additional appropriations of State funds will likely be needed in FY 2013. COMPLIANCE WITH ARNOLD V. SARN IN 1981, MARICOPA COUNTY PUBLIC FIDUCIARY Charles Arnold and others representing a class of indigent persons2 in Maricopa County diagnosed as “seriously mentally ill” (SMI) filed a class action suit against the Department of Health Services (DHS) and Maricopa County seeking to enforce A.R.S. §§ 36‐550 through 36‐550.08, relating to community mental health residential treatment. DHS and the County were ordered to “provide a unified and cohesive system of community mental health care” for the plaintiff class. In response, the State developed a plan to implement changes to the behavioral health system for individuals with SMI per State law (in accordance with the court’s findings). The parties negotiated criteria by which the State of Arizona and Maricopa County would even‐ tually exit the lawsuit. In 2010, due to the historic budget crisis, the State and plaintiffs negotiated a stay of the litigation and enforcement of existing court orders until June 30, 2012. Subsequently, for individuals with SMI who were not Medicaid‐eligible, the Legislature provided funding for prescription medica‐ tion and crisis services. The stay order requires the parties to attempt to create a new court order that redefines which services the State would provide going forward in order to exit the case. That process is ongoing. With the stay order’s expiration at the end of FY 2012, the Executive proposes providing the following services for individuals with SMI: • medication and medication services • crisis services includes the following information for the previous fiscal year: • Basic demographic information: o Number of members served per year o Total spending (total dollars and per member/per month cost, penetration rate) broken out by age group, gender, ethnicity, income level • Utilization and expenditures: o Spending and utilization (units) by service cate‐ gory‐ trended over time (3 years) o Total spending, per person and per person utilization (# of units) by service category o Counseling treatment services per 1,000 o Crisis service utilization o Prescriptions per 1,000 o Case management per 1,000 • Medical necessity oversight practices • Tracking high cost beneficiaries: o Trends o Service utilization o Diagnoses • Mortality trends • Placement trends • Program integrity: o Processes used to ensure program integrity o Number of suspected fraud cases reported by plans to DHS/DBHS o Pharmacy lockdown program utilization (num‐ ber of members enrolled) • Access to services o Monitoring plan for members’ access to services • supported employment • case management CHILD PROTECTIVE SERVICES • family and peer support A THOROUGH ANALYSIS of Child Protective Services (CPS), commissioned by the Governor’s Office and conducted by DES and the Arizona Child Safety Task Force, indicates that several key functions require improvement. Some of the immediate recommendations of DES and the Task Force include increased law enforcement expertise in handling sensitive cases, process improvements to the CPS hotline, an additional promotional opportunity to retain exceptional case workers, and improved accountability measures. The Executive Recommendation includes $3.7 million from the General Fund to support enhancement of CPS in certain critical areas that require immediate financial resources. Apart from these enhancements, however, the Department will continue to identify ways to make improvements within the CPS system using its existing • supported housing • living skills training • health promotion • personal assistance • respite care The Executive estimates the cost of these services to be $39 million, in addition to money already budgeted for medication and crisis. Along with the funding for additional Non‐Title XIX SMI services, the Executive proposes requir‐ ing DHS to provide an annual report on October 1 that 2 A “class member” is now defined as someone who (i) is a resident of Maricopa County, (ii) is indigent, (iii) is seriously mentally ill, and (iv) would reasonably benefit from appropriate behavioral health treatment due to his or her mental illness. Budget Message 23 budget, based on findings by the task force and ongoing DES internal analysis of the CPS system. Accountability. DES has made a concerted effort to improve Department‐wide accountability, particularly within areas of concern such as CPS, including the creation of a separate Office of Accountability in 2011. To reinforce accountability within CPS, the Executive recommends funding in FY 2013 for four new management positions to oversee operations in critical areas. These positions will consist of: • a Special Advisor for Investigations to oversee all investigations involving cases of criminal conduct; • a Manager of Intake and Hotline Operations to improve efficiency within the CPS hotline; • a Manager of Quality Case Management to work on Division‐wide process improvements and policy initiatives and managing analysis of cross‐regional data; and • a Manager for Community Partnerships to coordinate activities between CPS and partnering organizations, such as law enforcement, hospitals, faith‐based organizations, and community agencies. Investigator Retention. Employee turnover among CPS investigators has historically been high, a situation generally attributed to low compensation and little opportunity for advancement in a demanding job. To help retain productive CPS investigators, the Execu‐ tive recommends funding for the promotion of approx‐ imately 175 CPS Specialist III positions – approximately 18% of the current investigations workforce – to a newly created CPS Specialist IV position. The promoted employees will remain field investigators but will be assigned to the most complex cases, allowing supervisors to dedicate more time to training and mentoring entry‐level investigators. Each CPS Specialist IV employee will also receive a correspond‐ ing salary increase. Criminal Investigations. One of the key findings of the Arizona Child Safety Task Force was the inadequacy of CPS investigative practices in cases involving allegations of child abuse, neglect or other criminal conduct. DES reported that, of the 2,233 cases of criminal conduct in FY 2011 (including 1,300 in Maricopa County), only about one‐third received intervention from one of the 19 statewide child advocacy centers. To add a law enforcement presence to cases that exceed the advocacy centers’ resources, the Executive recommends funding for 28 new investigative specialist positions. The new positions will be filled by former law enforcement 24 professionals who will be deployed either in the child advocacy centers or in CPS offices that demonstrate partic‐ ular need for law enforcement acumen. The investigative specialists will conduct training for CPS staff related to interviewing, evidence collection, forensics and document preparation. Moreover, these new positions will (a) provide critical expertise in handling cases involving criminal conduct, (b) conduct training to other law enforcement personnel on CPS policies and procedures, and (c) travel with CPS investigators in the field when the situation may call for a law enforcement presence. FEDERAL FUNDS BACKFILL DUE TO THE EXPIRATION OF SEVERAL SOURCES of additional TANF funding in FY 2011 and FY 2012, the Executive recommends $25.8 million from the General Fund to backfill these federal dollars. Without the recommended funding, DES will be forced to make significant cuts to its operating budget in the Divi‐ sion of Children, Youth, and Families or, alternatively, further reduce the lifetime time limit for Cash Assistance, which was reduced to 24 months by Laws 2011, Chapter 32. Any further reductions to the lifetime time limit would mean that Arizona would have the shortest time limit of any state. DES secured $10 million in TANF contingency funds from the federal government for FY 2012, which mitigated some of the need to backfill federal dollars in FY 2013. However, it is unlikely that those funds will be available in FY 2013, leaving a $10 million TANF shortfall in FY 2014. CASELOAD GROWTH THE EXECUTIVE RECOMMENDATION INCLUDES funding caseload growth for (a) the Title XIX population in the Developmental Disabilities Division and (b) Adoption Services. Title XIX growth has steadily risen by 4% annually since FY 2007, and growth in Adoption Services has aver‐ aged 11% during the same period. Caseload growth for Adoption Services has been funded with enhanced Title IV‐E federal grant dollars since FY 2009, but that source will be exhausted by the end of FY 2012. Funding caseload growth in Adoption Services is criti‐ cal, as adoption is generally a more beneficial situation for a child than a congregate care setting, and it is far less costly than keeping the child in such a situation. The average adoption subsidy in FY 2011 was $689 per month, while the per‐child congregate care case exceeded $3,000 per month. • FY 2013 Executive Budget Funding for Essential Maintenance, Preservation The capital outlay plan emphasizes savings, increased efficiency and fewer costly emergency repairs A S OF JUNE 30, 2011, THE STATE OF ARIZONA was respon‐ sible for 6,854 buildings and structures having a replacement value of more than $13 billion. During the budget crisis of the past few years, the State has been unable to properly care for many of these buildings. Even in times of relative prosperity, the State’s building renewal needs have often been passed over for other program spending. The State’s building inventory is comprised of three main building systems: • Arizona Department of Administration (ADOA), • Arizona Department of Transportation (ADOT), and • Arizona Board of Regents (ABOR). Each of these systems has extensive building renewal and capital project needs. The Executive capital outlay plan is designed to address both administrative and physical needs in the State building systems. These recommenda‐ tions are also designed to improve the safety of State facilities, increase the efficiency of State operations, and help avoid costly emergency repairs. While the State cannot resolve years (and, in some cases, decades) of deferred maintenance in one fiscal year, FY 2013 is a time for the State to reaffirm its commitment to sound stewardship. ADOA BUILDING SYSTEM THE ADOA BUILDING SYSTEM includes 2,337 buildings and structures that have a total area of more than 14.2 million square feet and an estimated replacement value of $2.2 billion. In addition to standard building renewal and capital recommendations for the ADOA system, the Executive recommendation includes extensive reforms to the Capital Outlay Stabilization Fund (COSF), related in part to the payoff of two Certificates of Participation (COPs) in FY 2012. Certificates of Participation. The last payments on COP 2001 A&B and COP 2004 will be made during FY 2012. These COPs were used to finance the Capital Center, the Land and Revenue buildings, the Braille and Talking Book Library, the Records Retention Center, the buildings at Budget Message Tonto Natural Bridge, the purchase of the ENSCO site, several homes for the developmentally disabled, and several buildings at the Arizona State Schools for the Deaf and the Blind in Tucson. Based on current practice, 17 of these buildings would begin paying COSF rent in FY 2013. The Polly Rosenbaum Archives Building is also scheduled to begin paying COSF next year. At current rates this large shift to COSF rent would cost the State $3.8 million General Fund and COSF revenues would increase by $10.1 million. With this potential expenditure increase looming ahead, this is an opportune time to enact much‐needed reforms to the COSF system to bring the State into compliance with statute, create a uniform method of charging COSF rent, and reduce the General Fund cost of the new COSF‐paying buildings. COSF Reform. State statute requires that all State‐ owned buildings pay COSF rent. However, only 39 build‐ ings currently do. Of those 39 buildings, some are charged based on the market standard of rentable square feet, while many are charged on various definitions of usable square feet and other historical measurements. These inconsisten‐ cies and inequities are unfair to the agencies that are forced to pay into this system, and they create a risk that the fed‐ eral government would disallow COSF charges all together, meaning that federal programs housed in State agencies would cease to pay rent. To address these issues, the Executive recommends clarifying in statute that only buildings receiving ADOA maintenance or operation services as delineated in statute are subject to COSF rent. The Executive also recommends adjusting all rent measurements to the industry standard of rentable square feet. The cost of increasing square footage to meet this standard would be offset by the savings of not paying COSF rent on the Museum at Papago Park and on ASDB buildings that are not maintained by ADOA. To further reduce ongoing costs to the General Fund, the Executive recommends decreasing COSF rates from $15.08 per square foot of office space to $14.85 per square foot, and reducing storage rates from $5.47 per square foot to $4.75 per square foot. The Executive is also in the process of consolidating agency space in the Executive Tower, the 25 Land Building, and the Juvenile Corrections Building in order to make better use of State resources and reduce costs to the General Fund. The following table describes how rent changes in FY 2013 would impact the General Fund if current practices, measurements, and rates are left in place and how this would change under the Executive recommendation. New COSF Rent and COSF Reform With 18 buildings poised to begin paying COSF rent in FY 2013, COSF reform would reduce the net General Fund cost by $3.1 million. New General Fund COSF Rent ......................................... $ 8,280,300 Eliminated COP payments .................................................... (4,460,700) ANTICIPATED GENERAL FUND RENT INCREASE ............... $ 3,819,600 COSF Reform ....................................................................... (3,130,400) NET GENERAL FUND COST ................................................ $ 689,200 ADOA Building Renewal. As part of reforming COSF and better managing the ADOA building system, the Executive recommends $12 million from the Capital Outlay Stabilization Fund for general building renewal in FY 2013. Although building renewal needs are estimated based on statutory formula, the State has fully funded the formula only twice in the past 25 years, and deferred maintenance costs have risen to nearly $376 million for the ADOA Building System. While the Executive Recommendation covers only 45% of the formula for FY 2013, it would be the most significant investment in ADOA building renewal since FY 1999. Given that so many of the State’s building components and structural systems have exceeded their useful lives and are rusted, energy inefficient, unreliable and in danger of imminent failure, this is an investment that is long overdue. The Executive Recommendation also includes building renewal funding for two State agencies considered to have dedicated fund sources. The Game and Fish recommenda‐ tion is based on statutory formula and includes $523,300 from the Capital Improvement Fund. Lottery requested slightly less than its formula amount. The Executive recommends funding this request of $72,000 from the State Lottery Fund. ADOA Capital Projects. Other than for the dedicated fund agencies, the Executive Recommendation does not include any specific capital project funding for the ADOA Building System. However, the Executive does recommend that the Department of Economic Security move forward in issuing a COP to fund a new multi‐service center in Flagstaff. The lease payments on this new building would cost less than current rent payments, saving an estimated $10 million over 30 years and providing better service to residents in the Flagstaff area. The Executive also recommends session law to allow ADOA to use building renewal monies for the purchase of a 26 generator for the Arizona State Hospital if that is deter‐ mined to be the highest priority for those monies. In case of power failure, the generator is critical to continuing hospital operations. For the Game and Fish Department, the Executive recommends $1 million from the Capital Improvement Fund for property restoration and maintenance and for dam inspection and maintenance. The Executive also recom‐ mends $30,000 from the Game and Fish Fund for the Agency’s statewide emergency maintenance program. For Lottery, the Executive recommends $156,300 from the Lottery Fund to replace the Agency’s obsolete fire alarm system and complete the conversion of its fire suppression system. DEPARTMENT OF CORRECTIONS THE DEPARTMENT OF CORRECTIONS (DOC) has ten prison complexes located throughout Arizona. These complexes are made up of more than 1,500 structures totaling nearly eight million square feet. Maximum‐Custody Beds. The maximum‐custody inmate population has grown by about 12 inmates per month over the last two years, and this trend is expected to continue. This will leave the Department of Corrections without capacity for maximum‐custody inmates by March 2013. The Executive recommends a General Fund appropri‐ ation of $50 million to ADOA for the construction of 500 maximum‐custody male beds. Construction is proposed at the Lewis Prison in Buckeye and should be completed by July 2014. DOC Building Renewal. Laws 2011 created the Depart‐ ment of Corrections Building Renewal Fund to be adminis‐ tered by Department of Administration and appropriated $4.6 million from the Fund to be used for the Department of Corrections building renewal and preventive maintenance projects in FY 2012. Revenues to support this appropriation were originally intended to come from fees assessed for deposits made to prisoner spendable accounts, fees for background checks for inmate visitors, and fund transfers from various other Corrections funds. However, FY 2012 revenues are now expected to total only $2.2 million. To ensure a sufficient and consistent source of revenue to the Building Renewal Fund for the immediate future, the Executive recommends a $4.5 million transfer from the Corrections Fund to the Building Renewal Fund in FY 2013 and again in FY 2014. The Executive also recommends moving administration of the Department of Corrections Building Renewal Fund from the Department of Administration to the Department of Corrections and appropriating $5 million for building renewal in FY 2013. FY 2013 Executive Budget ADOT BUILDING SYSTEM THE DEPARTMENT OF TRANSPORTATION (ADOT) includes an inventory of 1,251 buildings and structures that have a total area of approximately 3.3 million square feet and a replace‐ ment value estimated at $668.7 million. As requested by the Agency, the Executive recommends $5.3 million from the State Highway Fund for new capital construction projects. The Executive Recommendation also includes $1.2 million for Building Renewal and $1.3 billion for the Highway Construction Program. ADOT Building Construction. Provided that State Highway Fund revenue is sufficient to support both ADOT operations and capital projects, the Executive recommends proceeding with the construction of six vehicle wash sys‐ tems ($3 million) and six de‐icer storage buildings ($2.3 million). The wash systems would be built in remote loca‐ tions where commercial options are unavailable and would help protect ADOT’s highway maintenance vehicles and equipment from premature deterioration. Both projects would improve compliance with environmental standards, increase efficiency and decrease operating costs. ADOT Building Renewal. The Executive Recommenda‐ tion for building renewal includes $1 million from the State Highway Fund and $175,800 from the State Aviation Fund. Highway Construction. As is detailed in the table above, the Executive Recommendation supports a $1.3 billion transportation infrastructure program for FY 2013. This funding level would provide $183.8 million for high‐ way construction and $219.7 million for pavement preservation maintenance. Debt service on existing ADOT Budget Message construction bonds is reported at $354.2 million. In accor‐ dance with State statute, actual expenditure levels are determined within the scope of the Five‐Year Highway Construction Program as approved by the State Transporta‐ tion Board. FY 2013 Highway Construction Program Costs Construction ..................................................................$ 183,780,000 1 Urban Controlled Access .................................................502,674,000 Pavement Preservation Maintenance...............................219,695,000 2 Other .................................................................................83,368,000 3 Debt Service ....................................................................354,219,000 Total $ 1,343,736,000 1 Includes expenditures from the HURF for controlled access and from the Maricopa Regional Area Road Fund. 2 Includes construction preparation, contingency set‐asides, and related high‐ way construction and maintenance items. 3 Information provided by the department. Includes $121,803,000 for SHF statewide construction bonds; $34,015,000 for HURF, MAG, and PAG con‐ trolled access bonds; $135,879,000 for Maricopa Regional Area Road Fund Bonds; and $62,522,000 for Grant Anticipation Notes as of November 1, 2011. BOARD OF REGENTS BUILDING SYSTEM THE THREE STATE UNIVERSITIES supervised by the Board of Regents include an inventory of 1,740 buildings and struc‐ tures that have a total area of 38 million square feet and an estimated replacement value $9.3 billion. The Executive recommends that the Universities continue to use local funding sources to address their building renewal and capital construction needs. • 27 A Gradual Return to Economic Vitality After four years of decline and stagnation, Arizona’s economy is positioned to benefit from the nationwide recovery and the reemergence of the state’s traditional strengths A S 2011 DREW TO A CLOSE, the U.S. economy featured some welcome bright spots and opportunities, tem‐ pered by identifiable threats and risks. Overall, the nation’s economy continues its modest recovery; as it rebounds, some of the dynamics that have proven to be important to Arizona’s prosperity will re‐emerge. Building on the 2011 momentum that featured mild increases in job creation, business income and General Fund revenues, Arizona will likely see continuing progress through 2012, with some acceleration expected in 2013 and beyond. NATIONAL OUTLOOK THE MOST RECENT OUTLOOK from Global Insight suggests a slow growth recovery period through 2012, with real GDP growth at sub‐par levels – below 2% – until 2013. Sources of concern include Europe’s economic health, federal fiscal gridlock and other potential negative shocks. In contrast, a minority of forecasters contend that significant growth could occur as early as mid‐2012. Employment. Job growth continued its sluggish beha‐ vior through most of 2011 before improving somewhat toward the end of the year. Payroll statistics reported by employers continue to lag behind the number of jobs reported in household surveys, which might suggest that businesses are finally beginning to add workers. If that is the case, the unemployment rate for 2012 could drop to about 8.5%. Resistance to hiring will continue as long as (a) businesses can reap high productiv‐ ity gains from existing workers and (b) growth in overall demand for products remains weak. According to consen‐ sus projections, unemployment rates are not expected to remain below 8% until 2015 at the earliest. Consumer Spending. It is very difficult to predict con‐ sumer psychology at this point in the cycle, but consumer behavior is showing modest improvement. While consum‐ ers remain generally cautious with respect to major pur‐ chases, there are some clear signs that a significant number of consumers are taking advantage of low prices and attractive interest rates in buying automobiles and other 28 HIGHLIGHTS • 2.5% net job growth predicted for Arizona in FY 2012 • Personal income expected to increase by 6% • Keys to continued recovery include net in-migration from other states; absorption of excess housing inventory; growth in aerospace, technology and healthcare industries durable products. Overall, actual buying patterns have been somewhat more positive than the attitudes that consumers express in surveys; thus, it is prudent to pay more attention to what consumers do than to listen to how they feel. Looking ahead, the most likely scenario holds that con‐ sumer confidence will maintain a slow, steady return over the next three years, but a return to pre‐recession levels is not expected before 2016. Interest Rates. Following three years of aggressive eas‐ ing of interest rates, the Federal Reserve gives no indication that rates will increase in the near future. (The third phase of aggressive Treasury purchases began in the fall of 2011.) At some point, aggressive easing will be replaced by a more normal credit policy to stay ahead of inflationary tendencies. However, it is noteworthy that most economists foresee little significant inflation risk, regardless of the forecast scenarios, as inflation is expected to remain below 2% in the near term. Commodity prices may spike in certain areas, but no overall core inflation will occur as long as there is so much slack in the economy. This will be good for the financial FY 2013 Executive Budget markets and for those that qualify for very low mortgage rates; conversely, retailers will be limited in pricing power for the foreseeable future, which will continue to dampen the pace of overall nominal retail sales activity. Business Spending. Corporate profits and business investment will likely slow in comparison to 2011, but modest growth is likely to continue. Actual performance could exceed expectations if con‐ sumer demand is more robust than anticipated, or if there is moderation in some of the economy’s widely discussed risk factors. Value of the Dollar. The value of the dollar eroded sig‐ nificantly in 2009 and 2010 and continued to decline against most major currencies in the spring of 2011. But turmoil in Europe and signs of slowing in some of the emerging mar‐ ket economies resulted in renewed interest in the dollar as a safe haven currency. Some economists have argued that aggressive monetary policy and looming fiscal imbalances will put downward pressure on the dollar, ultimately kindling an inflationary spiral driven by higher import and commodity prices. However, that is not a consensus view. Further deterioration in the value of the dollar is not anticipated; at the same time, in the absence of a worldwide recession, significant appreciation of the dollar seems unlikely as well. Current Events and Risks. The overall consensus is that, nationally, growth will be slow but steady, barring any unforeseen shocks. While many indicators of the U.S. econ‐ omy support that scenario, in the fall of 2011 Global Insight continued to place the chance of a “double dip” recession at an uncomfortably high 40% – twice as high as in the fall of 2010. The recession scenario could be triggered by any num‐ ber of factors, e.g., a geopolitical or financial shock, with the latter coming from the collapse of a major bank, municipal‐ ity or developed country succumbing to pressures from real estate or some other external factor. Throughout much of 2011, the biggest risks emanated from Europe. Generally speaking, anything that threatens the re‐emerging confi‐ dence of cautious consumers could push the U.S. toward another downturn. On the flip side, it would not be unrealistic to foresee consumer confidence reverting, by itself, to more normal levels and providing a lasting boost. Such an occurrence would place growth on the high side of the range of consen‐ sus forecasts. Budget Message ARIZONA OUTLOOK FOLLOWING THE LEAD OF THE U.S. ECONOMY, after three years of stagnation the Arizona economy has begun to display signs of growth. By historical standards, the state’s recent growth is relatively mild, and only slight acceleration is seen for 2012, but, for 2013 and beyond, more robust growth is on the horizon. This scenario assumes that (a) stability or modest growth is realized in aerospace and semiconductor manu‐ facturing, (b) healthcare services continue to expand, (c) retail and services industries coincide with Arizona’s overall growth, (d) net in‐migration begins movement toward its historic growth, and (e) the excess inventory in the housing sector begins to be absorbed. Following are discussions of key factors in assessing and predicting the health of Arizona’s economy. Employment. The good news on the employment front is that the Arizona economy, while underperforming, added net jobs in 2011 and, in recent months, was among the nation’s leaders in this area. Job growth may approach 2.5% by the end of 2012, using year‐over‐year comparisons. However, a return to normal 3% to 4% year‐over‐year employment growth will probably be delayed until 2013 or later. Construction‐ and real estate‐ related areas of employment will impede job creation, as will State and local government employment. Personal Income. Aggregate personal income growth in Arizona, as reported by the Bureau of Economic Analysis, displayed some signs of growth in 2011. Again, the growth rate was low by historical standards but was certainly welcome after a few years of decline or stagnation. Slightly faster growth (6% or higher) is expected to return in 2012. As growth in overall income returns, consumer confidence and purchasing are likely to continue to rebound from historical low levels. Population Growth. The pace of domestic in‐migration has held the key to growth in Arizona for decades. By most accounts, 2009 and 2010 were the slowest years for new arrivals from other states in Arizona’s recorded history. Impediments have included weakness in the overall econ‐ omy, coupled with the inability to sell homes in key sourcing states and the massive loss of wealth that many would‐be residents suffered in the last three years. As the national economy improves, those negative impacts will ease, and some of the traditional dynamics of Arizona’s magnetism – job growth, affordable housing and an attractive climate – will regain prominence. There are signs that net in‐migration is returning to historical form after a few years of decline, boosted by attractive housing prices and the rapid rate of Baby Boomer retirements. Official figures for 2011 are not yet available, but modest in‐migration improvement is expected for that year and beyond. It is the pace of that resurgence that will be impor‐ tant for Arizona’s growth trajectory. 29 Risks. The risks to the Arizona economy remain signifi‐ cant, particularly under the scenario in which the U.S. falls back into recession. A national recession will significantly delay recovery in Arizona, since it will damage our cycli‐ cally sensitive sectors while impeding the in‐migration flow that has been historically responsible for considerable growth. As was mentioned earlier, catalysts for a national downturn include another financial episode triggered by a debt crisis and/or a geopolitical shock. What remains to be seen is whether the housing sector will undergo another significant round of foreclosures and defaults – perhaps fueled by increasingly popular strategic default strategies – that will send more real estate‐related shock waves through the financial system. Geopolitical shocks could threaten the hospitality and travel industry that is positioned to grow from very low recent levels. Closer to home, substantial cuts in federal spending are a distinct possibility. Fiscal restraint in Washington would significantly enhance the nation’s long‐term economic health and lighten the tax burden on future generations of Americans. At the same time, the public and private sectors of most states – including Arizona – would be forced to adjust to that new reality. Upside Potential. A considerable share of Arizona’s economic woes has been attributable to the fragile condition of consumer confidence, especially in the purchase of durables such as automobiles and homes. This erosion is linked in part to the sharp declines in housing wealth that have occurred over the last three to four years. If the pace of improvement in the economy accelerates, the resulting improvement in the mood of the consumer can begin to make its positive impact. As we have seen throughout much of 2011, even modest improvement in consumer spending is a catalyst for dramatic growth in the pace of retail transactions, which in turn stimulate more transactions, unfreezing of credit lines and more normal consumer behavior. This chain of events could play out at a faster or slower pace, depending on a host of factors: an acceleration or deceleration in inflation, fewer or more foreclosures, the pace of real GDP growth, slower or faster resurgence of in‐migration, etc. 30 REVENUE FORECASTS THE FY 2012 FORECAST IS CONSERVATIVE, showing modest growth over reported FY 2011 figures. Achieving that forecast will require relatively little economic growth in the second half of FY 2012. Revenue flows have turned positive after a few years of significant declines, and consumer confidence will need to continue on only a slightly upward trajectory, provided there are no major geopolitical or financial shocks. The revenue forecasts are conservative in comparison to the baseline economic projections in the most recent monthly reports the Executive uses to benchmark economic forecasting. The personal income and employment growth projections provided in the baseline scenario are consistent with the consensus views of most private and public economic forecasters for the State. There remains a relatively large range between pessi‐ mistic and optimistic revenue scenarios. Factors contributing to the range include uncertainties about the potential realization of capital gains, the pace of potential improvement in consumer confidence, and the continuing uncertainties about how corporations reassess prior liabili‐ ties and request refunds. However, it is clear that these uncertainties have mitigated somewhat over the past year, removing some of the obstacles observed in revenue flows in Fiscal Years 2010 and 2011. THE FY 2013 FORECAST is again characterized by moderate growth rates. The baseline economic projections contained in the benchmarking reports, display growth from FY 2012 to FY 2013, and revenues respond accordingly. However, revenue growth will likely outpace economic growth because, as the economy stabilizes and improves, it will bring with it a marked improvement in consumer psychol‐ ogy that has dampened revenue growth in recent years. Some of the growth will likely be fueled by a resurgence in capital gains income. As a result, modest employment, income and wealth growth in FY 2013 will be accompanied by even stronger revenue growth. However, a return to the lofty revenue levels of FYs 2006 and 2007 is still several years away. • FY 2013 Executive Budget STATE OF ARIZONA GENERAL FUND BASE REVENUE SUMMARY FY 2011 THROUGH FY 2014 (in thousands) TAXES Actual Estimate Estimate Estimate FY 2011 FY 2012 FY 2013 FY 2014 Corporate Income 560,235.7 610,000.0 630,000.0 661,500.0 Individual Income 2,863,525.0 3,050,500.0 3,280,000.0 3,503,040.0 20,333.5 20,000.0 20,000.0 20,000.0 Sales and Use 3,466,717.4 3,650,000.0 3,900,000.0 4,134,000.0 Luxury Taxes 53,599.4 53,534.0 55,100.0 56,753.0 413,742.5 375,913.6 374,700.0 397,182.0 Estate Taxes 437.4 0.0 0.0 0.0 Other Taxes 2,667.8 3,000.0 3,000.0 3,000.0 7,381,258.7 7,762,947.6 8,262,800.0 8,775,475.0 143,264.3 118,090.6 122,814.3 127,726.8 4,557.5 2,100.0 2,500.0 6,000.0 Lottery 81,440.0 75,430.0 58,640.0 58,640.0 Transfers & Reimbursements 25,629.6 21,000.0 21,000.0 21,000.0 Disproportionate Share 87,578.6 78,586.0 63,977.0 63,977.0 TOTAL OTHER REVENUES 342,470.1 295,206.6 268,931.3 277,343.8 7,723,728.8 8,058,154.2 8,531,731.3 9,052,818.8 Property Taxes Insurance Premium Taxes TOTAL TAXES OTHER REVENUES Licenses, Fees & Permits/Misc. Interest Earnings TOTAL REVENUES ADJUSTMENTS Urban Revenue Sharing GRAND TOTAL REVENUES Budget Message (474,006.5) 7,249,722.3 (424,423.4) 7,633,730.8 (513,584.0) 8,018,147.2 (549,075.0) 8,503,743.8 31 BUDGET IN A FLASH EXECUTIVE RECOMMENDATION SUMMARY Major Highlights of FY 2013 $526.9 million for AHCCCS Baseline Caseload and Inflation $200.0 million for Education Soft Capital $95.0 Million for DOA AFIS Replacement and IT modernization $64.1 million for DHS Title XIX State Match $53.7 million for Employee Pay Increase $50.0 million for Education Move on When Reading $40.0 million for Education Preventative Maintenance $38.7 million for DHS Non-Title XIX SMI Services $35.0 million for Education Jobs Backfill $31.5 million for Commerce Authority Economic Development $30.0 million for University Performance Funding $27.8 million for AHCCCS Provider Rate Increase $25.8 million for DES TANF Backfill $20.5 million for Retirement Adjustments $17.0 million for DES Adoption Services $11.4 million for Land Risk Revolving to General Fund $10.0 million for SMART Scholarships for Community Colleges $9.3 million for DOC Correctional Officers ($3.8) million for DJC Catalina Mountain School Closure ($7.4) million for Community Colleges Equalization State Aid ($9.1) million for Education Career Ladder Phase Down ($37.0) million for Education Homeowner's Rebate Reforms ($70.6) million for Education Basic State Aid ($525.1) million for Medicaid Reform Plan Operating Budgets (in millions) ($ in millions) Agency: Dept. of Economic Security AHCCCS Dept. of Education School Facilities Board Dept. of Health Services Dept. of Corrections Dept. of Revenue Forester Arizona Pioneers' Home Community Colleges University System Dept. of Agriculture Dept. of Racing Veterans Services Historical Society Department of Public Safety Secretary of State Dept. of Environmental Quality Dept. of Water Resources Department of Administration Dept. of Land Attorney General Department of Juvenile Corrections All Others Total FY 12 Approp 602.6 1,363.7 3,436.5 164.1 494.3 948.2 44.1 6.1 1.6 71.1 682.5 7.9 2.8 7.1 4.2 46.5 13.3 7.0 5.7 14.9 1.2 16.9 46.7 250.6 8,239.6 Change from FY 12 61.3 32.6 214.0 8.5 111.5 32.7 9.5 1.0 (0.7) (5.3) 24.3 0.3 (1.1) (1.8) (1.0) 17.1 2.2 0.0 2.2 91.8 12.7 8.6 (2.3) 20.0 638.1 Sources and Uses FY 12 - FY 13 FY 13 Recomm. 663.9 1,396.3 3,650.5 172.6 605.8 980.9 53.6 7.1 0.9 65.8 706.8 8.2 1.7 5.3 3.2 63.6 15.5 7.0 7.9 106.7 13.9 25.5 44.4 270.6 8,877.7 ($ in millions) FY 12 Approp FY 12 Recomm. FY 13 Recomm. Balance Forward Revenue Estimate DPS and MVD HURF Shift Savings Agency Fund Transfers County Transfers Tax Recovery Change Temporary One Cent Sales Tax Other Adjustments TOTAL SOURCES OF FUNDS (332.3) 7,375.2 62.2 256.1 38.6 22.0 901.0 8.6 8,331.4 3.2 7,633.7 62.2 242.0 38.6 12.9 911.8 8.6 8,913.0 392.0 8,018.1 62.2 124.4 0.0 0.0 974.3 (19.7) 9,551.3 Operating Budgets 27th Payroll Health Insurance Enhancements Lease Purchase Debt Service Continuing Approps Expenditures Reversions of Continuing Approps Other Adjustments Capital Administrative Adjustments Revertments State Debt Reduction USES OF FUNDS ENDING BALANCE 8,239.6 79.0 (12.0) 49.1 0.0 0.0 (0.2) 0.0 73.4 (111.3) 0.0 8,317.6 13.8 8,285.1 79.0 (0.2) 49.1 40.8 0.0 (0.2) 0.0 69.1 (107.7) 106.0 8,521.0 392.0 8,877.7 0.0 0.0 84.1 0.0 0.0 0.0 50.0 66.9 (115.4) 0.0 8,963.3 588.0 FY 2012 Supplemental Recommendations ($ in thousands) AHCCCS-Baseline Caseload and Inflation SFB-Three-Year Building Renewal Grant Program DHS-Reallocation from AHCCCS DHS-Reallocation from DES DOA-AFIS Replacement DHS-Arizona State Hospital Fund AHCCCS-AG Tobacco Litigation DPS-Adjustment for ERE 485,394.6 100,000.0 27,851.3 13,700.0 10,000.0 2,500.0 1,364.3 777.8 Historical Society-Papago Park Rent Payment Fire, Building and Life Safety-Health Insurance Adj Corporation Commission-Health Insurance Allocati DJC-Catalina Mountain School Closure DES-Reallocation to DHS AHCCCS-Reallocation to DHS Education-Baseline Adjustment AHCCCS-Medicaid Reform Plan Total General Fund Supplementals 193.7 140.9 75.2 (1,600.0) (13,700.0) (27,851.3) (67,852.8) (485,394.6) 45,599.1 Arizona General Fund Ongoing Revenue and Expenditures FY 2002 to FY 2014 Arizona General Fund Ongoing Expenditures and Revenues FY 2002-FY 2013 11,000 10,000 9,000 8,000 $ in millions 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 FY 2002 FY 2003 FY 2004 FY 2005 FY 2006 FY 2007 Spending w/ ARRA and rollove Budget Message FY 2008 FY 2009 Exp w/ Solutions FY 2010 FY 2011 FY 2012 Est. FY 2013 Est. FY 2014 Est. Rev w/Solutions 33 MAJOR CHANGES IN FY 2013 GENERAL FUND BUDGETS (Increases to FY 2012) Major Highlights of FY 2013 Department of Education Soft Capital Move on When Reading Preventative Maintenance Education Jobs Backfill Adult Education Services Career Ladders Phase Down Homeowner's Rebates Reform Basic State Aid Other Adjustments TOTAL FY 2013 25.8 17.0 7.2 4.5 3.7 2.8 2.4 (2.6) 0.5 61.3 Adjustment for ERE State Employee Pay Adjustment Replacement Highway Patrol Vehicles Other Adjustments TOTAL FY 2013 9.2 6.0 2.8 (0.9) 17.1 FY 2013 526.9 27.8 1.2 0.9 (525.1) 0.9 32.6 Department of Public Safety AHCCCS State Employee Pay Adjustment Catalina Mountain School Closure Other Adjustments TOTAL Baseline Caseload and Inflation Provider Rate Increase AG Tobacco Litigation IT Network Security Solution Medicaid Reform Plan Other Adjustments FY 2013 TOTAL Department of Health Services 9.3 1.8 (2.7) BHS State Match TXIX 0.1 Non-TXIX SMI Services 8.5 Arizona State Hospital Fund State Employee Pay Adjustment FY 2013 Other Adjustments 26.3 TOTAL Department of Administration 9.3 (0.8) (2.1) AFIS Replacement & IT Modernization 32.7 State Employee Pay Adjustment Statewide Transparency Website FY 2013 ENSCO 1.6 Rent Standard Adjustment (3.8) Other Adjustments (0.1) TOTAL Postsecondary Education (2.3) Self Funding TOTAL FY 2013 SMART Scholarships for Community College Students (1.1) TOTAL Board of Regents (1.1) School Facilities Board New Construction Lease-to-Own Debt Service Three-Year Building Renewal Grant Program Eliminate One-Time Building Renewal Grant Funding Other Adjustments TOTAL Department of Corrections State Employee Pay Adjustment Correctional Officers Leap Year Other Adjustments TOTAL Department of Juvenile Corrections Department of Racing Community Colleges Operating State Aid Formula Funding Equalization State Aid Formula Funding TOTAL Department of Revenue Refurbish Integrated Tax System State Employee Pay Adjustment Other Adjustments TOTAL Attorney General AG Pro-Rata Elimination Rent Standard Adjustment Expiring Cross-Border Grant Backfill Other Adjustments TOTAL Secretary of State Rent Standard Adjustment Persistent Digital Archives and Library Systems Chavez Litigation Costs Other Adjustments TOTAL 34 Department of Economic Security FY 2013 200.0 TANF Backfill 50.0 Adoption Services 40.0 State Employee Pay Adjustment 35.0 Child Support - Loss of SSRE 4.6 Child Protective Services Improvements (9.1) TXIX Developmental Disabilities (37.0) Permanent Guardianship (70.6) Health Insurance Rate Reduction 1.1 Other Adjustments 214.0 TOTAL FY 2013 64.1 38.7 7.0 2.3 (0.6) 111.5 FY 2013 95.0 0.3 0.1 (1.4) (2.1) (0.1) 91.8 FY 2013 10.0 10.0 FY 2013 30.0 15.3 45.3 FY 2013 University Performance Funding 2.1 Course Redesign Technology and Capital (7.4) TOTAL Water Resources (5.3) FY 2013 White Mountain Apache Water Rights Settlement 7.1 Other Adjustments 1.6 TOTAL Real Estate 0.8 9.5 Auditing and Investigations Staff FY 2013 Other Adjustments 6.0 TOTAL Land Department 1.0 0.7 0.9 Funding: Risk Revolving to General Fund 8.6 Rent Standard Adjustment Other Adjustments FY 2013 TOTAL Weights and Measures 1.9 0.2 (0.1) Large Scale Test Truck with Crane 0.2 Other Adjustments 2.2 TOTAL FY 2013 2.0 0.2 2.2 FY 2013 0.2 0.2 0.4 FY 2013 11.4 0.9 0.4 12.7 FY 2013 0.3 0.0 0.3 FY 2013 Executive Budget FY 2013 Executive Recommendations General Fund Other Appropriated Non‐Appropriated Funds Funds All Funds Total State Board of Accountancy 0.0 1,924.4 0.0 Acupuncture Board of Examiners 0.0 131.3 0.0 131.3 106,675.7 179,410.3 959,245.7 1,245,331.7 Arizona Department of Administration Office of Administrative Hearings Arizona Department of Agriculture Arizona Health Care Cost Containment System 1,924.4 850.2 13.9 936.3 1,800.5 8,153.5 2,927.2 14,216.4 25,297.2 9,018,970.9 1,396,325.7 193,952.5 7,428,692.7 State Board of Appraisal 0.0 777.3 0.0 777.3 Arizona Commission on the Arts 0.0 0.0 2,556.4 2,556.4 State Board of Athletic Trainers 0.0 104.3 0.0 104.3 25,460.6 34,735.4 43,163.6 103,359.6 Automobile Theft Authority 0.0 4,296.9 0.0 4,296.9 Board of Barber Examiners 0.0 333.5 0.0 333.5 Board of Behavioral Health Examiners 0.0 1,635.7 0.0 1,635.7 State Capital Post‐Conviction Public Defender Office 713.8 161.0 0.0 874.8 State Board for Charter Schools 865.9 0.0 27.0 892.9 0.0 463.5 0.0 463.5 Attorney General ‐ Department of Law State Board of Chiropractic Examiners Citizensʹ Clean Elections Commission Commerce Authority Department of Commerce Arizona Community Colleges Constable Ethics Standards & Training Board Registrar of Contractors Corporation Commission Department of Corrections 0.0 0.0 6,348.9 6,348.9 31,500.0 0.0 41,949.7 73,449.7 0.0 0.0 0.0 0.0 65,846.0 0.0 0.0 65,846.0 0.0 0.0 245.3 245.3 0.0 12,095.2 10,957.1 23,052.3 597.5 25,209.0 914.4 26,720.9 1,094,826.6 980,922.9 55,249.0 58,654.6 Board of Cosmetology 0.0 1,775.9 157.1 1,933.0 Arizona Criminal Justice Commission 0.0 5,644.4 16,309.8 21,954.2 20,963.4 12,967.6 21,384.4 55,315.4 Arizona State Schools for the Deaf and the Blind Commission for the Deaf and the Hard of Hearing 0.0 4,022.9 0.0 4,022.9 State Board of Dental Examiners 0.0 1,210.3 0.0 1,210.3 Arizona Early Childhood Development and Health Board Department of Economic Security Department of Education 0.0 0.0 152,699.4 152,699.4 663,859.8 456,287.9 3,303,789.0 4,423,936.7 3,650,480.0 62,198.6 1,689,960.5 5,402,639.1 Department of Emergency and Military Affairs 8,974.5 0.0 40,121.1 49,095.6 Department of Environmental Quality 7,000.0 65,769.8 279,998.7 352,768.4 Governorʹs Office for Equal Opportunity 190.0 0.0 68.8 258.8 State Board of Equalization 645.4 0.0 0.0 645.4 Board of Executive Clemency 868.2 0.0 0.0 868.2 0.0 11,281.8 0.0 11,281.8 3,025.9 1,048.8 578.2 4,652.9 0.0 0.0 491.3 491.3 Department of Fire, Building and Life Safety 1,738.1 0.0 744.2 2,482.2 Arizona State Forester Arizona Exposition & State Fair State Department of Financial Institutions Board of Fingerprinting 7,148.6 0.0 23,472.2 30,620.8 State Board of Funeral Directors & Embalmers 0.0 354.3 0.0 354.3 Arizona Game & Fish Department 0.0 39,720.5 61,125.9 100,846.4 Department of Gaming 0.0 12,346.3 0.0 12,346.3 985.4 0.0 6,599.6 7,585.1 0.0 0.0 0.0 0.0 6,876.7 0.0 28,189.4 35,066.1 Arizona Geological Survey Government Information Technology Agency Office of the Governor Budget Message 35 FY 2013 Executive Recommendations General Fund Governorʹs Office of Strategic Planning and Budgeting Department of Health Services Governorʹs Office of Highway Safety Arizona Historical Society Prescott Historical Society of Arizona Other Appropriated Non‐Appropriated Funds Funds All Funds Total 1,993.5 0.0 0.0 1,993.5 605,821.9 89,703.5 1,570,715.3 2,266,240.7 6,899.2 0.0 0.0 6,899.2 3,166.2 0.0 1,073.5 4,239.7 667.5 0.0 1,775.2 2,442.7 50,889.3 Department of Homeland Security 0.0 0.0 50,889.3 Board of Homeopathic Medical Examiners 0.0 110.8 0.0 110.8 Arizona Department of Housing 0.0 337.8 48,942.6 49,280.4 Independent Redistricting Commission Arizona Commission of Indian Affairs Department of Insurance Industrial Commission of Arizona Judiciary 1,707.1 0.0 0.0 1,707.1 60.1 0.0 29.1 89.2 5,364.2 0.0 8,224.3 13,588.5 0.0 20,332.6 5,694.7 26,027.3 109,402.1 39,709.3 33,970.4 183,081.8 Department of Juvenile Corrections 44,356.5 3,291.1 2,043.8 49,691.3 State Land Department 13,903.2 760.0 1,832.2 16,495.4 71.7 0.0 0.0 71.7 Law Enforcement Merit System Council Auditor General 16,350.4 0.0 2,042.8 18,393.2 House of Representatives 13,345.1 0.0 0.0 13,345.1 Joint Legislative Budget Committee 2,494.3 0.0 0.0 2,494.3 Legislative Council 4,803.7 0.0 0.0 4,803.7 Senate 8,240.1 0.0 0.0 8,240.1 Department of Liquor Licenses and Control 0.0 2,906.4 1,056.0 3,962.4 Arizona State Lottery Commission 0.0 87,501.2 895,011.2 982,512.4 Arizona Medical Board 0.0 5,947.3 0.0 5,947.3 Board of Medical Student Loans 0.0 0.0 0.0 0.0 1,232.4 112.5 288.7 1,633.5 0.0 0.0 0.0 0.0 Naturopathic Physicians Board of Medical Examiners 0.0 611.7 0.0 611.7 Arizona Navigable Stream Adjudication Commission 208.8 0.0 0.0 208.8 State Board of Nursing 0.0 4,129.3 549.3 4,678.6 Nursing Care Ins. Admin. Examiners 0.0 448.6 0.0 448.6 Board of Occupational Therapy Examiners 0.0 166.1 0.0 166.1 State Mine Inspector Mines and Mineral Resources State Board of Dispensing Opticians 0.0 135.7 0.0 135.7 State Board of Optometry 0.0 205.1 0.0 205.1 OSHA Review Board 0.0 0.0 0.0 0.0 Arizona Board of Osteopathic Examiners 0.0 718.2 0.0 718.2 Parents Commission on Drug Education & Prevention 0.0 0.0 4,780.4 4,780.4 State Parks Board 0.0 12,199.4 54,749.3 66,948.7 Personnel Board 0.0 374.5 0.0 374.5 Office of Pest Management 0.0 2,063.5 110.8 2,174.2 Arizona State Board of Pharmacy 0.0 2,007.9 377.6 2,385.5 Board of Physical Therapy Examiners 0.0 371.7 0.0 371.7 949.1 5,386.1 7.1 6,342.3 Arizona Pioneersʹ Home State Board of Podiatry Examiners Commission for Postsecondary Education 0.0 147.3 0.0 147.3 11,396.8 1,596.9 1,876.2 14,869.9 39,154.8 Power Authority 0.0 0.0 39,154.8 State Board for Private Postsecondary Education 0.0 338.8 100.8 439.6 State Board of Psychologist Examiners 0.0 357.2 0.0 357.2 36 FY 2013 Executive Budget FY 2013 Executive Recommendations General Fund Department of Public Safety Other Appropriated Non‐Appropriated Funds Funds All Funds Total 63,575.2 171,862.4 72,167.9 307,605.5 Arizona Department of Racing 1,717.5 2,672.2 16.9 4,406.7 Radiation Regulatory Agency 1,481.7 821.3 920.4 3,223.4 Arizona Rangersʹ Pension 0.0 0.0 0.0 0.0 Department of Real Estate 3,022.6 0.0 156.0 3,178.6 Residential Utility Consumer Office 0.0 1,331.7 0.0 1,331.7 Board of Respiratory Care Examiners 0.0 271.3 0.0 271.3 Arizona State Retirement System 0.0 24,275.3 77,058.0 101,333.3 Department of Revenue 53,634.2 25,328.4 77,309.0 156,271.6 School Facilities Board 172,592.5 0.0 288,312.2 460,904.7 15,490.5 3,626.7 6,282.1 25,399.4 0.0 231.0 0.0 231.0 263.0 0.0 0.0 263.0 Department of State ‐ Secretary of State State Boards Office State Board of Tax Appeals State Board of Technical Registration Arizona Office of Tourism Department of Transportation State Treasurer Arizona Board of Regents ASU ‐ Tempe 0.0 1,882.4 0.0 1,882.4 7,000.0 0.0 14,959.5 21,959.5 51.3 364,887.1 2,520,672.3 2,885,610.7 1,115.1 4,611.1 0.0 5,726.2 62,188.8 0.0 78,446.5 140,635.3 1,752,747.4 238,718.9 453,894.3 1,060,134.2 ASU ‐ Polytechnic 18,426.7 39,572.7 31,532.8 89,532.2 ASU ‐ West 32,109.1 33,878.7 48,599.7 114,587.5 Northern Arizona University 99,677.9 97,738.9 309,798.7 507,215.4 201,040.0 247,503.0 1,187,495.7 1,636,038.6 54,683.5 41,154.0 256,657.1 352,494.6 5,339.0 28,274.6 2,877.6 36,491.1 0.0 474.0 0.0 474.0 Department of Water Resources 7,880.4 6,933.6 7,930.3 22,744.3 Department of Weights and Measures 1,496.1 1,757.0 0.0 3,253.2 8,877,706.5 3,023,001.8 22,967,119.3 34,867,827.6 University of Arizona ‐ Main Campus University of Arizona ‐ Health Sciences Center Department of Veteransʹ Services State Veterinary Medical Examining Board Budget Message 37 General Fund Operating Budgets Summary (Dollars in Thousands) Arizona Department of Administration Office of Administrative Hearings Arizona Department of Agriculture Arizona Health Care Cost Containment System Arizona Commission on the Arts Attorney General - Department of Law State Capital Post-Conviction Public Defender Office State Board for Charter Schools Commerce Authority Department of Commerce Arizona Community Colleges Department of Corrections Corporation Commission Arizona Criminal Justice Commission Arizona State Schools for the Deaf and the Blind Department of Economic Security Department of Education Department of Emergency and Military Affairs Department of Environmental Quality Governor's Office for Equal Opportunity State Board of Equalization Board of Executive Clemency State Department of Financial Institutions Department of Fire, Building and Life Safety Arizona State Forester Arizona Geological Survey Government Information Technology Agency Office of the Governor Governor's Office of Strategic Planning and Budgeting Department of Health Services Arizona Historical Society Prescott Historical Society of Arizona Department of Homeland Security Arizona Commission of Indian Affairs Independent Redistricting Commission Department of Insurance Judiciary Department of Juvenile Corrections State Land Department Law Enforcement Merit System Council Auditor General House of Representatives Joint Legislative Budget Committee Legislative Council Senate Board of Medical Student Loans State Mine Inspector Mines and Mineral Resources Arizona Navigable Stream Adjudication Commission OSHA Review Board State Parks Board Arizona Pioneers' Home Commission for Postsecondary Education 38 FY 2011 Expenditures 17,449.8 905.1 8,391.7 1,301,689.2 652.5 17,237.4 633.8 715.3 0.0 3,473.1 135,344.3 899,401.6 619.9 0.0 21,511.2 538,226.9 3,488,598.3 9,079.7 7,000.0 193.6 565.3 854.1 2,794.9 1,989.5 5,822.0 789.0 586.7 5,657.6 1,816.9 428,305.8 5,264.5 618.3 0.0 62.3 106.2 5,426.0 113,033.3 51,191.0 3,275.1 68.1 16,405.1 11,470.7 450.9 3,914.0 6,932.5 360.7 1,104.6 1,625.1 122.6 0.0 20,000.0 1,567.3 1,220.8 FY 2012 Executive Budget 24,858.6 811.1 7,909.4 1,337,248.0 0.0 16,931.5 688.9 750.6 31,500.0 0.0 71,089.0 948,188.6 586.4 0.0 20,686.3 588,903.3 3,368,675.9 8,815.3 7,000.0 187.9 625.8 790.5 2,726.6 1,834.2 6,052.0 865.1 0.0 6,601.9 1,874.2 538,346.1 4,344.8 652.6 0.0 54.3 3,000.0 5,184.2 108,785.2 45,129.8 1,231.8 70.2 16,156.0 12,993.7 2,399.9 4,654.1 7,985.2 67.0 1,185.8 0.0 126.9 15.0 0.0 1,603.6 1,396.8 FY 2013 Changes and Adjustments 91,817.1 39.1 244.1 32,590.7 0.0 8,529.1 24.9 115.3 0.0 0.0 (5,243.0) 32,734.3 86.1 0.0 277.1 61,256.5 213,951.3 159.2 0.0 2.1 19.6 77.7 299.3 44.8 1,096.6 120.3 0.0 274.8 119.3 111,527.1 (984.9) 14.9 0.0 5.8 (1,292.9) 180.0 616.9 (2,373.3) 12,671.4 1.5 194.4 351.4 94.4 149.6 254.9 (67.0) 46.6 0.0 81.9 (15.0) 0.0 (654.5) 10,000.0 FY 2013 Executive Budget 106,675.7 850.2 8,153.5 1,396,325.7 0.0 25,460.6 713.8 865.9 31,500.0 0.0 65,846.0 980,922.9 597.5 0.0 20,963.4 663,859.8 3,650,480.0 8,974.5 7,000.0 190.0 645.4 868.2 3,025.9 1,738.1 7,148.6 985.4 0.0 6,876.7 1,993.5 605,821.9 3,166.2 667.5 0.0 60.1 1,707.1 5,364.2 109,402.1 44,356.5 13,903.2 71.7 16,350.4 13,345.1 2,494.3 4,803.7 8,240.1 0.0 1,232.4 0.0 208.8 0.0 0.0 949.1 11,396.8 FY 2014 Baseline Budget 13,615.3 843.5 8,079.8 1,480,993.4 0.0 25,365.8 708.9 860.5 31,500.0 0.0 67,505.8 1,001,781.5 593.6 0.0 20,730.3 688,001.6 3,591,137.7 8,958.5 7,000.0 188.3 643.9 854.6 3,005.6 1,725.3 7,125.0 980.2 0.0 6,839.6 1,981.5 644,464.2 3,142.9 660.5 0.0 59.9 1,830.0 5,320.8 109,150.0 43,964.8 13,832.8 71.0 16,224.3 13,217.4 2,480.1 4,776.9 8,166.5 0.0 1,225.1 0.0 207.9 0.0 0.0 929.8 11,396.8 FY 2013 Executive Budget General Fund Operating Budgets Summary (Dollars in Thousands) Department of Public Safety Arizona Department of Racing Radiation Regulatory Agency Arizona Rangers' Pension Department of Real Estate Department of Revenue School Facilities Board Department of State - Secretary of State State Board of Tax Appeals Arizona Office of Tourism Department of Transportation State Treasurer Arizona Board of Regents ASU - Tempe ASU - Polytechnic ASU - West Northern Arizona University University of Arizona - Main Campus University of Arizona - Health Sciences Center Department of Veterans' Services Department of Water Resources Department of Weights and Measures General Fund Operating Total Budget Message FY 2011 Expenditures 40,365.2 3,754.3 1,392.6 8.3 2,812.0 43,317.1 67,497.9 12,308.0 249.4 0.0 44.5 1,083.1 17,124.1 326,352.3 25,101.5 43,934.4 135,089.2 270,215.3 74,334.2 5,309.9 6,719.1 1,194.1 FY 2012 Executive Budget 47,304.0 2,781.6 1,459.0 0.0 2,656.7 44,129.6 264,087.2 13,309.4 253.4 0.0 50.2 1,115.1 16,926.2 247,742.9 19,076.8 33,159.6 101,861.8 208,367.0 55,334.3 7,050.7 5,698.3 1,165.0 FY 2013 Changes and Adjustments 17,049.0 (1,064.1) 22.7 0.0 365.9 9,504.6 8,505.3 2,181.1 9.6 7,000.0 1.1 0.0 45,262.6 (9,024.0) (650.1) (1,050.5) (2,183.9) (7,327.0) (650.8) (1,711.8) 2,182.1 331.1 FY 2013 Executive Budget 63,575.2 1,717.5 1,481.7 0.0 3,022.6 53,634.2 172,592.5 15,490.5 263.0 7,000.0 51.3 1,115.1 62,188.8 238,718.9 18,426.7 32,109.1 99,677.9 201,040.0 54,683.5 5,339.0 7,880.4 1,496.1 FY 2014 Baseline Budget 65,588.6 1,705.0 1,475.0 0.0 3,001.8 49,245.0 177,080.9 12,018.2 262.1 7,000.0 51.3 1,115.1 62,175.0 234,950.2 18,190.2 31,796.1 99,659.0 198,220.4 53,916.5 5,304.8 5,828.5 1,487.5 8,222,730.8 8,285,112.9 638,192.5 8,877,706.5 8,882,213.1 39 Other Appropriated Funds Operating Budgets Summary (Dollars in Thousands) FY 2011 Expenditures FY 2012 Appropriation FY 2012 Executive Budget FY 2013 Executive Budget FY 2013 Changes and Adjustments State Board of Accountancy Accountancy Board Fund 1,434.8 1,887.8 1,887.8 1,924.4 36.6 116.4 125.3 125.3 131.3 6.0 Personnel Division Fund 13,865.0 14,564.8 14,564.8 14,207.3 (357.5) Capital Outlay Stabilization Fund 15,843.7 17,903.8 17,903.8 17,872.1 (31.7) 442.2 552.5 552.5 569.4 16.9 0.0 3,120.5 3,120.5 4,714.6 1,594.1 598.2 714.1 714.1 714.1 0.0 Acupuncture Board of Examiners Acupuncture Board of Examiners Fund Arizona Department of Administration Corrections Fund Information Technology Fund Air Quality Fund State Web Portal Fund 0.0 250.0 250.0 5,850.0 5,600.0 Special Employee Health Fund 3,897.4 5,108.3 5,108.3 5,206.8 98.5 Motor Pool Revolving Fund 8,639.8 10,038.9 10,038.9 10,077.9 39.0 Special Services Fund 0.0 State Surplus Property Fund 2,070.2 2,378.8 2,378.8 2,423.8 45.0 96.4 451.4 451.4 452.6 1.2 Risk Management Fund 71,682.8 90,321.8 100,721.8 92,054.0 1,732.2 Automation Operations Fund 17,414.7 18,672.4 18,672.4 23,351.4 4,679.0 1,624.4 1,817.2 1,817.2 1,916.2 99.0 136,174.8 165,894.5 176,294.5 179,410.3 13,515.8 14.5 14.5 14.5 13.9 (0.6) 298.2 293.4 293.4 301.3 7.9 Admin ‐ Surplus Property/Federal Fund Telecommunications Fund Agency Total Office of Administrative Hearings Healthcare Group Fund Arizona Department of Agriculture Agriculture Commercial Feed Fund Egg and Egg Product Control Fund 795.6 896.6 896.6 925.3 28.7 Pesticide Fund 347.0 489.1 489.1 502.3 13.2 Agriculture Dangerous Plants Fund 100.0 125.5 125.5 126.9 1.4 53.8 52.2 52.2 53.1 0.9 Agriculture Seed Law Fund Livestock Custody Fund 69.1 120.0 120.0 120.0 0.0 Fertilizer Materials Fund 302.7 294.9 294.9 304.4 9.5 Citrus, Fruit, and Vegetable Revolving Fund 354.8 480.4 480.4 493.7 13.3 9.2 9.2 9.2 9.2 0.0 120.2 90.0 90.0 91.1 1.1 2,450.6 2,851.3 2,851.3 2,927.2 75.9 38,295.8 38,295.8 41,700.9 47,632.7 9,336.9 Aquaculture Fund AZ Protected Native Plant Fund Agency Total Arizona Health Care Cost Containment System Tobacco Tax and Health Care Fund Tobacco Products Tax Fund 19,222.9 19,222.9 21,225.6 24,158.2 4,935.3 Childrenʹs Health Insurance Program Fund 46,276.2 30,176.4 30,176.4 15,076.5 (15,099.9) Budget Neutrality Compliance Fund 2,338.0 3,161.1 3,161.1 3,161.1 0.0 Healthcare Group Fund 1,773.7 3,496.3 3,496.3 3,603.0 106.7 10,000.0 20,114.5 79,346.6 100,321.0 80,206.5 117,906.4 114,467.0 179,106.9 193,952.5 79,485.5 Prescription Drug Rebate Fund Agency Total 40 FY 2013 Executive Budget Other Appropriated Funds Operating Budgets Summary (Dollars in Thousands) FY 2011 Expenditures FY 2012 Appropriation FY 2012 Executive Budget FY 2013 Executive Budget FY 2013 Changes and Adjustments State Board of Appraisal Board of Appraisal Fund 605.7 755.5 755.5 777.3 21.8 95.9 101.2 101.2 104.3 3.1 2,020.5 3,439.8 3,439.8 3,494.2 54.4 State Board of Athletic Trainers Athletic Training Fund Attorney General ‐ Department of Law Consumer Protection/Fraud Revolving Fund Attorney General Antitrust Revolving Fund Attorney General Collection Enforcement Fund Attorney General Agency Services Fund Victims Rights Fund 146.6 241.2 241.2 135.5 3,297.5 5,291.9 5,291.9 5,404.2 (105.7) 11,953.4 13,004.0 13,004.0 13,004.0 0.0 3,151.8 3,238.7 3,238.7 3,253.4 14.7 112.3 Risk Management Fund 7,622.2 8,765.9 8,765.9 9,444.1 Attorney General Legal Services Cost Allocation Fund 5,447.8 5,397.1 5,397.1 0.0 (5,397.1) 33,639.8 39,378.6 39,378.6 34,735.4 (4,643.2) 4,270.4 4,273.6 4,273.6 4,296.9 23.3 250.5 320.7 320.7 333.5 12.8 1,203.1 1,458.7 1,458.7 1,635.7 177.0 93.0 161.0 161.0 161.0 0.0 390.0 449.3 449.3 463.5 14.2 Agency Total 678.2 Automobile Theft Authority Automobile Theft Authority Fund Board of Barber Examiners Barber Examiners Board Fund Board of Behavioral Health Examiners Behavioral Health Examiners Fund State Capital Post‐Conviction Public Defender Office Capital Postconviction Public Defender Office Fund State Board of Chiropractic Examiners Chiropractic Examiners Board Fund Department of Commerce Lottery Fund 180.9 0.0 0.0 0.0 0.0 Commerce and Economic Development Fund 3,223.0 0.0 0.0 0.0 0.0 Agency Total 3,403.9 0.0 0.0 0.0 0.0 7,904.2 12,002.7 12,002.7 12,095.2 92.5 Registrar of Contractors Registrar of Contractors Fund Corporation Commission Utility Regulation Revolving Fund 12,682.1 12,597.6 12,597.6 14,089.2 1,491.6 Security Regulatory and Enforcement Fund 4,235.9 4,217.4 4,192.4 4,376.1 158.7 Public Access Fund 5,479.0 5,817.1 5,767.1 5,989.6 172.5 694.0 678.7 678.7 703.2 24.5 51.0 49.9 49.9 50.9 1.0 23,142.0 23,360.7 23,285.7 25,209.0 1,848.3 Securities Investment Management Fund Arizona Arts Trust Fund Agency Total Budget Message 41 Other Appropriated Funds Operating Budgets Summary (Dollars in Thousands) FY 2011 Expenditures FY 2012 Appropriation FY 2012 Executive Budget FY 2013 Executive Budget FY 2013 Changes and Adjustments Department of Corrections Corrections Fund State Education Fund for Correctional Education Fund DOC ‐ Alcohol Abuse Treatment Fund 23,010.7 27,517.6 27,517.6 32,017.6 4,500.0 413.9 503.5 503.5 524.5 21.0 0.0 554.4 554.4 554.4 0.0 Transition Program Fund 180.0 930.0 930.0 3,485.0 Transition Services Fund 555.0 2,555.0 2,555.0 828.9 (1,726.1) 7,499.4 13,249.4 13,249.4 11,499.4 (1,750.0) 0.0 0.0 0.0 5,000.0 5,000.0 Prison Construction and Operations Fund DOC Building Renewal & Preventive Maintenance 2,555.0 Penitentiary Land Earnings Fund 0.0 1,979.2 1,979.2 979.2 (1,000.0) State Charitable, Penal & Reformatory Land Earnings Fund 0.0 3,360.0 3,360.0 360.0 (3,000.0) 31,659.1 50,649.1 50,649.1 55,249.0 4,599.9 1,678.2 1,742.1 1,742.1 1,775.9 33.8 Agency Total Board of Cosmetology Cosmetology Board Fund Arizona Criminal Justice Commission Criminal Justice Enhancement Fund 590.9 624.7 624.7 640.7 16.0 3,093.5 3,792.5 3,792.5 3,792.5 0.0 Drug and Gang Prevention Resource Center Fund 128.5 234.7 234.7 237.6 2.9 State Aid to County Attorneys Fund 973.6 973.6 973.6 973.6 0.0 State Aid to Indigent Defense Fund 700.3 0.0 0.0 0.0 0.0 5,486.8 5,625.5 5,625.5 5,644.4 18.9 12,349.9 12,725.5 12,725.5 12,967.6 242.1 3,243.2 3,745.7 3,745.7 4,022.9 277.2 1,004.1 1,183.8 1,183.8 1,210.3 26.5 47,190.5 56,029.8 56,029.8 56,062.2 32.4 Temporary Assistance for Needy Families (TANF) Fund 235,736.7 239,304.4 239,304.4 213,655.5 Child Care and Development Fund 112,440.9 130,567.5 130,567.5 130,884.2 Victim Compensation and Assistance Fund Agency Total Arizona State Schools for the Deaf and the Blind Schools for the Deaf and Blind Fund Commission for the Deaf and the Hard of Hearing Telecom for the Deaf Fund State Board of Dental Examiners Dental Board Fund Department of Economic Security Workforce Investment Grant Fund Special Administration Fund Child Support Enforcement Administration Fund Domestic Violence Shelter Fund (25,648.9) 316.7 9.2 1,129.9 1,129.9 1,129.9 0.0 10,327.0 16,534.9 16,534.9 16,832.8 297.9 2,220.0 2,220.0 2,220.0 2,220.0 0.0 0.0 1,459.1 1,459.1 1,459.1 0.0 Children and Family Services Training Program Fund 32.1 205.3 205.3 212.7 7.4 Public Assistance Collections Fund 90.2 423.9 423.9 436.5 12.6 22,416.9 30,518.4 30,518.4 30,520.5 2.1 1,615.9 1,864.7 1,864.7 1,874.5 9.8 0.0 1,000.0 1,000.0 1,000.0 0.0 432,079.4 481,257.9 481,257.9 456,287.9 Child Abuse Prevention Fund Department Long‐Term Care System Fund Spinal and Head Injuries Trust Fund Indirect Cost Recovery Fund Agency Total 42 (24,970.0) FY 2013 Executive Budget Other Appropriated Funds Operating Budgets Summary (Dollars in Thousands) FY 2011 Expenditures FY 2012 Appropriation FY 2012 Executive Budget FY 2013 Executive Budget FY 2013 Changes and Adjustments Department of Education School Accountability Fund Prop 301 Fund Teacher Certification Fund Arizona Structured English Immersion Fund Education Learning and Accountability 4,132.2 7,000.0 7,000.0 7,062.7 62.7 2,300.6 2,283.8 2,283.8 2,348.2 64.4 0.0 0.0 0.0 0.0 (2,859.3) 0.0 1,200.0 1,200.0 6,312.3 5,112.3 32,497.1 46,475.5 46,475.5 46,475.5 0.0 36,070.6 56,959.3 56,959.3 62,198.6 5,239.3 7.4 132.7 0.0 0.0 24,039.7 25,518.3 25,518.3 25,560.9 942.6 1,706.9 1,706.9 986.2 Air Quality Fund 2,735.4 5,366.0 5,366.0 5,429.8 63.8 Clean Water Revolving Fund 4,162.5 0.0 0.0 0.0 0.0 Underground Storage Tank Revolving Fund 0.0 22.0 22.0 22.0 0.0 Recycling Fund 0.0 0.0 0.0 1,527.2 1,527.2 Permit Administration Fund 4,962.8 6,989.2 6,989.2 7,101.8 112.6 Solid Waste Fee Fund 1,147.0 1,907.4 1,907.4 1,175.8 (731.6) Public Institution Permanent School Earnings Fund Agency Total Department of Emergency and Military Affairs Emergency Response Fund (132.7) Department of Environmental Quality DEQ Emissions Inspection Fund Hazardous Waste Management Fund Used Oil Fund Water Quality Fee Fund Indirect Cost Fund Agency Total 42.6 (720.7) 13.1 138.9 138.9 138.9 0.0 4,388.9 10,316.7 10,316.7 10,546.7 230.0 11,705.5 12,961.3 12,961.3 13,280.4 319.1 54,097.4 64,926.7 64,926.7 65,769.8 843.1 9,445.5 11,096.2 11,096.2 11,281.8 185.6 412.2 733.3 733.3 1,048.8 315.5 284.7 339.6 339.6 354.3 14.7 29,700.7 32,980.4 32,980.4 33,997.3 1,016.9 3,152.4 4,646.4 4,646.4 4,314.9 227.6 334.7 334.7 348.9 1,885.6 1,000.0 1,000.0 1,000.0 0.0 19.1 43.4 43.4 43.4 0.0 0.0 16.0 16.0 16.0 0.0 34,985.5 39,020.9 39,020.9 39,720.5 699.6 300.0 300.0 300.0 300.0 0.0 Arizona Exposition & State Fair Coliseum and Expo Center Fund State Department of Financial Institutions Financial Services Fund State Board of Funeral Directors & Embalmers Funeral Directors and Embalmers Fund Arizona Game & Fish Department Game and Fish Fund Watercraft Licensing Fund Game/Non‐game Fund Capital Improvement Fund Waterfowl Conservation Fund Wildlife Endowment Fund Agency Total (331.5) 14.2 Department of Gaming Lottery Fund Permanent Tribal‐State Compact Fund 1,592.7 1,998.3 1,998.3 2,063.4 65.1 Arizona Benefits Fund 9,664.7 9,575.9 9,575.9 9,983.0 407.1 11,557.4 11,874.2 11,874.2 12,346.3 472.1 Agency Total Budget Message 43 Other Appropriated Funds Operating Budgets Summary (Dollars in Thousands) FY 2011 Expenditures FY 2012 Appropriation FY 2012 Executive Budget FY 2013 Executive Budget FY 2013 Changes and Adjustments Government Information Technology Agency Information Technology Fund State Web Portal Fund Agency Total 2,487.6 0.0 0.0 0.0 0.0 250.5 0.0 0.0 0.0 0.0 2,738.1 0.0 0.0 0.0 0.0 0.0 186.7 186.7 0.0 52.3 0.0 0.0 0.0 0.0 Office of the Governor Oil Overcharge Fund (186.7) Department of Health Services Service Fees Increase Fund Tobacco Tax and Health Care Fund 34,575.8 35,167.0 42,268.8 43,342.3 8,175.3 Capital Outlay Stabilization Fund 1,587.1 1,245.5 1,245.5 1,363.5 118.0 Health Services Licenses Fund 7,623.6 8,260.3 8,260.3 8,000.0 (260.3) 820.7 827.8 827.8 845.6 0.0 1,500.0 1,500.0 1,500.0 0.0 3,991.7 5,024.3 5,024.3 5,090.2 65.9 Child Care and Development Fund Health Research Fund Emergency Medical Services Operating Fund 17.8 Newborn Screening Program Fund 4,950.5 6,680.1 6,680.1 6,723.4 43.3 Substance Abuse Services Fund 2,250.0 2,250.0 2,250.0 2,250.0 0.0 Nursing Care Institution Protection Fund Environmental Lab License Revolving Fund Child Fatality Review Fund Vital Records Electronic Systems Fund Hearing and Speech Professionals Fund The Arizona State Hospital Fund DHS State Hospital Land Earnings Fund DHS ‐ Indirect Cost Fund Agency Total 0.0 438.0 438.0 439.1 1.1 650.0 907.2 907.2 920.2 13.0 95.1 92.7 92.7 95.3 2.6 166.8 3,586.0 3,586.0 3,637.5 51.5 309.7 308.1 308.1 313.9 8,088.3 13,807.3 13,807.3 6,884.3 (6,923.0) 5.8 (500.0) 169.1 1,150.0 1,150.0 650.0 7,830.2 7,509.0 7,509.0 7,648.1 139.1 73,160.9 88,753.3 95,855.1 89,703.5 950.2 430.8 0.0 0.0 0.0 0.0 100.7 105.3 105.3 110.8 5.5 895.3 916.9 916.9 337.8 15,461.6 19,550.4 19,550.4 20,332.6 Arizona Historical Society Capital Outlay Stabilization Fund Prescott Historical Society of Arizona Board of Homeopathic Medical Examiners Homeopathic Medical Examiners Fund Arizona Department of Housing Housing Trust Fund (579.1) Industrial Commission of Arizona Industrial Commission Admin Fund 44 782.2 FY 2013 Executive Budget Other Appropriated Funds Operating Budgets Summary (Dollars in Thousands) FY 2011 Expenditures FY 2012 Appropriation FY 2012 Executive Budget FY 2013 Executive Budget FY 2013 Changes and Adjustments Judiciary Supreme Court CJEF Disbursements Fund Judicial Collection ‐ Enhancement Fund 6,350.9 9,891.6 9,891.6 9,894.6 3.0 16,223.0 18,816.8 18,816.8 18,796.1 (20.7) Defensive Driving Fund 1,954.1 4,120.2 4,120.2 4,138.5 18.3 Court Appointed Special Advocate Fund 1,860.7 2,923.8 2,923.8 2,939.3 15.5 309.6 478.8 478.8 494.9 16.1 Confidential Intermediary Fund Drug Treatment and Education Fund 500.0 500.0 500.0 500.0 0.0 Photo Enforcement Fund 2,688.5 0.0 0.0 0.0 0.0 State Aid to Courts Fund 2,649.6 2,944.5 2,944.5 2,945.8 1.3 32,536.4 39,675.7 39,675.7 39,709.3 33.6 527.7 528.4 528.4 528.4 0.0 State Education Fund for Committed Youth Fund 2,128.2 2,233.2 2,233.2 1,664.1 Endowments/Land Earnings Fund 1,098.6 1,098.6 1,098.6 1,098.6 3,754.5 3,860.2 3,860.2 3,291.1 172.5 260.0 260.0 260.0 0.0 0.0 0.0 0.0 0.0 Agency Total Department of Juvenile Corrections Juvenile Corrections CJEF Dist Fund Agency Total (569.1) 0.0 (569.1) State Land Department Environmental Special Plate Fund AZ Parks Board Heritage Fund Due Diligence Fund Trust Land Management Fund Risk Management Revolving Fund Agency Total Department of Liquor Licenses and Control Liquor Licenses Fund (3.1) 0.0 500.0 500.0 500.0 8,247.1 13,357.6 13,357.6 0.0 (13,357.6) 0.0 0.0 9,888.4 9,888.4 0.0 (9,888.4) 8,416.5 24,006.0 24,006.0 760.0 (23,246.0) 2,381.9 2,815.6 2,815.6 2,906.4 90.8 77,656.6 86,848.8 86,579.1 87,501.2 652.4 4,786.6 5,799.2 5,799.2 5,947.3 148.1 0.0 20.2 20.2 0.0 24.4 112.5 112.5 112.5 0.0 589.2 586.0 586.0 611.7 25.7 0.0 80.0 80.0 0.0 4,187.2 4,034.3 4,034.3 4,129.3 95.0 328.8 361.7 361.7 448.6 86.9 362.3 161.6 161.6 166.1 4.5 Arizona State Lottery Commission Lottery Fund Arizona Medical Board Medical Examiners Board Fund Board of Medical Student Loans Med Student Loan Fund (20.2) State Mine Inspector Aggregate Mining Reclamation Fund Naturopathic Physicians Board of Medical Examiners Naturopathic Board Fund Arizona Navigable Stream Adjudication Commission Risk Management Fund (80.0) State Board of Nursing Nursing Board Fund Nursing Care Ins. Admin. Examiners Nursing Care Institution Admin/ACHMC Fund Board of Occupational Therapy Examiners Occupational Therapy Fund Budget Message 45 Other Appropriated Funds Operating Budgets Summary (Dollars in Thousands) FY 2011 Expenditures FY 2012 Appropriation FY 2012 Executive Budget FY 2013 Executive Budget FY 2013 Changes and Adjustments State Board of Dispensing Opticians Dispensing Opticians Board Fund 127.1 131.1 131.1 135.7 4.6 192.0 197.3 197.3 205.1 7.8 640.7 698.3 698.3 718.2 19.9 381.3 203.8 203.8 208.5 4.7 State Board of Optometry Board of Optometry Fund Arizona Board of Osteopathic Examiners Osteopathic Examiners Board Fund State Parks Board Reservation Surcharge Revolving Fund Boating Safety Fund 3,611.2 2,183.8 2,183.8 30.9 State Parks Enhancement Fund 8,949.2 8,886.6 8,886.6 11,960.0 3,073.4 17.5 0.0 0.0 0.0 0.0 12,959.2 11,274.2 11,274.2 12,199.4 925.2 337.6 365.2 365.2 374.5 9.3 1,656.8 2,700.4 2,000.4 2,063.5 (636.9) 1,649.9 1,918.1 1,918.1 2,007.9 89.8 331.6 364.1 364.1 371.7 7.6 Pioneersʹ Home State Charitable Earnings Fund 1,890.6 2,825.9 2,825.9 3,863.0 1,037.1 Pioneersʹ Home Minersʹ Hospital Fund 2,526.1 1,743.2 1,743.2 1,523.1 (220.1) 4,416.7 4,569.1 4,569.1 5,386.1 817.0 118.2 142.6 142.6 147.3 4.7 2,876.4 3,841.1 1,640.8 1,596.9 318.4 326.6 326.6 338.8 12.2 315.8 344.0 344.0 357.2 13.2 Land Conservation Fund Agency Total (2,152.9) Personnel Board Personnel Division Fund Office of Pest Management Structural Pest Control Fund Arizona State Board of Pharmacy Pharmacy Board Fund Board of Physical Therapy Examiners Physical Therapy Fund Arizona Pioneersʹ Home Agency Total State Board of Podiatry Examiners Podiatry Examiners Board Fund Commission for Postsecondary Education Postsecondary Education Fund (2,244.2) State Board for Private Postsecondary Education Private Postsecondary Education Fund State Board of Psychologist Examiners Psychologist Examiners Board Fund 46 FY 2013 Executive Budget Other Appropriated Funds Operating Budgets Summary (Dollars in Thousands) FY 2011 Expenditures FY 2012 Appropriation FY 2012 Executive Budget FY 2013 Executive Budget FY 2013 Changes and Adjustments Department of Public Safety State Highway Fund 41,521.2 0.0 0.0 0.0 0.0 Arizona Highway Patrol Fund 17,785.9 18,522.3 18,522.3 19,024.4 502.1 1,518.8 1,509.1 1,509.1 1,559.1 50.0 Safety Enforcement and Transportation Infrastructure Fund Crime Laboratory Assessment Fund 664.1 868.0 868.0 880.0 12.0 2,699.3 3,008.6 3,008.6 3,011.0 2.4 DNA Identification System Fund 3,981.7 3,944.6 3,944.6 5,550.9 1,606.3 Photo Enforcement Fund 3,761.0 0.0 0.0 0.0 0.0 Auto Fingerprint Identification Fund Public Safety Equipment Fund Crime Laboratory Operations Gang and Immigraton Intelligence Team Enforcement Mission Fund Motorcycle Safety Fund Parity Compensation Fund Highway User Revenue Fund DPS Criminal Justice Enhancement Fund Risk Management Fund Agency Total 0.0 2,390.0 2,390.0 2,390.0 0.0 10,098.6 11,030.5 11,030.5 11,302.6 272.1 0.0 2,090.3 2,090.3 2,090.3 0.0 20.4 205.0 205.0 205.0 0.0 1,485.3 1,817.9 1,817.9 1,879.8 79,215.7 119,961.0 119,961.0 119,541.7 61.9 (419.3) 2,886.5 2,859.3 2,859.3 2,926.4 67.1 291.4 1,446.3 1,446.3 1,501.3 55.0 165,929.9 169,652.9 169,652.9 171,862.4 2,209.5 0.0 1,434.3 1,434.3 2,672.2 1,237.9 240.7 264.6 264.6 260.6 (4.0) 0.0 496.7 496.7 560.7 64.0 240.7 761.3 761.3 821.3 60.0 1,049.3 1,289.0 1,289.0 1,331.7 42.7 281.3 306.2 306.2 271.3 (34.9) 19,925.6 21,773.5 21,773.5 21,475.3 (298.2) 2,672.2 2,800.0 2,800.0 2,800.0 22,597.8 24,573.5 24,573.5 24,275.3 Arizona Department of Racing Racing Regulation Fund (Appropriated) Radiation Regulatory Agency State Radiologic Technologist Certification Fund Radiation Regulatory Fee Fund Agency Total Residential Utility Consumer Office Residential Utility Consumer Office Revolving Fund Board of Respiratory Care Examiners Board of Respiratory Care Examiners Fund Arizona State Retirement System Retirement System Appropriated Fund LTD Trust Fund Agency Total 0.0 (298.2) Department of Revenue Tobacco Tax and Health Care Fund Department of Revenue Administrative Fund DOR Liability Setoff Fund Agency Total Department of State ‐ Secretary of State Election Systems Improvement Fund Records Services Fund Agency Total Budget Message 673.1 665.4 665.4 680.5 15.1 22,488.5 22,532.6 22,532.6 23,563.5 1,030.9 284.0 383.8 383.8 1,084.5 700.7 23,445.6 23,581.8 23,581.8 25,328.4 1,746.6 1,610.0 2,934.2 2,934.2 2,935.6 1.4 446.9 568.8 568.8 691.1 122.3 2,056.9 3,503.0 3,503.0 3,626.7 123.7 47 Other Appropriated Funds Operating Budgets Summary (Dollars in Thousands) FY 2011 Expenditures FY 2012 Appropriation FY 2012 Executive Budget FY 2013 Executive Budget FY 2013 Changes and Adjustments State Boards Office Special Services Fund 205.8 211.6 211.6 231.0 19.4 1,537.2 1,834.9 1,834.9 1,882.4 47.5 State Aviation Fund 1,585.4 1,577.8 1,577.8 1,608.7 30.9 State Highway Fund 325,527.1 239,494.2 239,494.2 242,858.3 3,364.1 18,933.1 27,416.9 27,416.9 27,119.9 (297.0) 1,647.8 1,866.0 1,866.0 1,898.4 32.4 28.3 72.2 72.2 74.9 2.7 Vehicle Inspection and Title Enforcement Fund 867.4 1,434.4 1,434.4 1,476.0 41.6 Motor Vehicle Liability Insurance Enforcement Fund 835.4 1,052.6 1,052.6 1,088.1 35.5 State Board of Technical Registration Technical Registration Board Fund Department of Transportation Transportation Department Equipment Fund Safety Enforcement and Transportation Infrastructure Fund Air Quality Fund Driving Under Influence Abatement Fund 148.1 146.9 146.9 153.4 6.5 Highway User Revenue Fund 512.3 86,880.4 86,880.4 88,609.4 1,729.0 350,084.9 359,941.4 359,941.4 364,887.1 4,945.7 Arizona State Retirement System‐Non Appropriated Fund 0.0 50.0 50.0 0.0 Boating Safety Fund 0.0 0.0 0.0 1,800.0 2,436.7 2,493.5 2,493.5 2,609.0 115.5 44.7 87.3 87.3 202.1 114.8 0.0 50.0 50.0 0.0 2,481.4 2,680.8 2,680.8 4,611.1 1,930.3 351,541.8 453,894.3 453,894.3 453,894.3 0.0 33,513.4 37,572.7 37,572.7 37,572.7 0.0 2,000.0 2,000.0 2,000.0 2,000.0 0.0 35,513.4 39,572.7 39,572.7 39,572.7 0.0 29,421.1 32,278.7 32,278.7 32,278.7 0.0 1,600.0 1,600.0 1,600.0 1,600.0 0.0 31,021.1 33,878.7 33,878.7 33,878.7 0.0 81,510.1 97,738.9 97,738.9 97,738.9 0.0 251,280.3 247,503.0 247,503.0 247,503.0 0.0 24,846.5 41,154.0 41,154.0 41,154.0 0.0 Agency Total State Treasurer State Treasurerʹs Operating Fund State Treasurerʹs Management Fund Public Safety Personnel Retirement System Agency Total (50.0) 1,800.0 (50.0) ASU ‐ Tempe ASU Collections ‐ Appropriated Fund ASU ‐ Polytechnic ASU Collections ‐ Appropriated Fund Technology and Research Initiative Fund Agency Total ASU ‐ West ASU Collections ‐ Appropriated Fund Technology and Research Initiative Fund Agency Total Northern Arizona University NAU Collections ‐ Appropriated Fund University of Arizona ‐ Main Campus U of A Main Campus ‐ Collections ‐ Appropriated Fund University of Arizona ‐ Health Sciences Center U of A Main Campus ‐ Collections ‐ Appropriated Fund 48 FY 2013 Executive Budget Other Appropriated Funds Operating Budgets Summary (Dollars in Thousands) FY 2011 Expenditures FY 2012 Appropriation FY 2012 Executive Budget FY 2013 Executive Budget FY 2013 Changes and Adjustments Department of Veteransʹ Services Veteransʹ Conservatorship Fund State Home for Veterans Trust Fund Agency Total State Veterinary Medical Examining Board Veterinary Medical Examiners Board Fund 607.6 882.3 882.3 907.4 25.1 15,298.9 19,742.8 19,742.8 27,367.2 7,624.4 15,906.5 20,625.1 20,625.1 28,274.6 7,649.5 448.6 455.3 455.3 474.0 18.7 0.0 6,400.2 6,400.2 6,658.9 258.7 274.4 265.3 265.3 274.7 9.4 274.4 6,665.5 6,665.5 6,933.6 268.1 1,286.3 1,413.9 1,413.9 1,433.8 19.9 322.3 317.5 317.5 323.2 5.7 Department of Water Resources Water Resources Fund Assured and Adequate Water Supply Administration Fund Agency Total Department of Weights and Measures Air Quality Fund Motor Vehicle Liability Insurance Enforcement Fund Agency Total 1,608.6 1,731.4 1,731.4 1,757.0 25.6 Other Appropriated Funds Operating Total 2,585,071.6 2,947,251.0 3,026,015.0 3,023,001.8 75,750.8 Budget Message 49 The following resources are available at www.azospb.gov BUDGET • FY 2013 Executive Budget ‐ Summary • FY 2013 Executive Budget – State Agency Budgets • FY 2013 Executive Budget ‐ Appendix • Statement of Federal Funds for Fiscal Years 2008 through 2010 • Calculation of the Appropriation Limit for Fiscal Years 2009 through 2011 • State Budget Reduction Impacts FY 2008 through FY 2011. STRATEGIC PLANNING • Master List of State Government Programs for Fiscal Years 2009 through 2011 • Five‐Year Strategic Plans for Annual Budget Units • Managing for Results, 1998 Strategic Planning and Performance Measurement Handbook (recognized by the Council of State Governments as an Exemplary State Management Program) HISTORICAL PERSPECTIVE • Revenue Data since 1971 • Expenditure Data since 1979 • Historical Enrollment Data for Major Populations such as Students, Medicaid Clients, Prisoners, and Unemployment MONTHLY UPDATES • New Caseload Enrollment Data, updated on the 15th of each month • Year‐to‐Date Revenue Collections • Agency Cash Flow Statements and Projections for Every Fund 50 FY 2013 Executive Budget Acknowledgement Governor Brewer gratefully acknowledges the skilled and dedicated efforts of the staff of the Governor’s Office of Strategic Planning and Budgeting ************* Director John Arnold Assistant Directors Bret Cloninger Bill Greeney Budget and Project Managers Brandon Nee Kris Okazaki Senior Budget Analysts Dale Frost Scott Selin Jennifer Uharriet Budget Analysts Whitney Chapa Timothy Grubbs Leah Koestner Michael Moan Jill Ross Operations Analyst Richard Greene Economist Duong Nguyen Systems Analyst Joy Su Office Manager Pamela Ray