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Friday, July 29, 2016

NOTES FROM THE SENATE, JULY 29, 2016

BUDGET INSTRUCTIONS START THE BUDGET PROCESS

Even though the fiscal year just started July 1, the budget preparation process for the 2017 session has already begun. On July 26, the Governor's Office of Planning and Budget released budget instructions for agencies for the Amended FY2017 Budget and the FY2018 Budget. Each summer, the Office of Planning and Budget (OPB) publishes budget preparation procedures for the upcoming fiscal year. This includes instructing agencies on whether they are working with an increased budget, a decreased budget, or a flat budget.

FLAT BUDGET REQUIRED

Although Georgia's economy has been improving over the past few years and is expected to continue to improve, the economic growth is just enough to meet increased demand for education and healthcare services, in addition to providing current funding levels for core State services. OPB's instructions require AFY2017 and FY2018 budget submissions to reflect the same funding level that they were approved in the 2016 session Appropriations bill HB 751. Although this year's budget will remain flat, we will look at other budget factors considered for submission and then look at past budget instructions, which were especially lean during the recession. Frankly, I believe there should be a defensible good reason for any budget increase.

AFY2017 AND FY2018 BUDGET INSTRUCTIONS

The budget process is comprised of several distinct phases, beginning with the submission of agency budget requests for the next year's general budget and the amended current year's budget, which adjusts the current fiscal year's budget for unexpected costs. Keep in mind, however, that OPB budget instructions and approval are only applied to executive branch agencies --the judicial and legislative branches are excluded from budgetary review and control by the executive branch. This year, agencies must submit their requests to OPB by September 1, 2016. OPB takes these request s, as well as projected revenues, into account to put together a balanced budget. By early January, the Governor's Budget Report is released to coincide with the start of legislative session. This Budget Report will serve as the basis for the AFY2017 and FY2018 Appropriations Bills that will be considered in the upcoming 2017 legislative session.

TIGHT CONTROL ON ANY INCREASES

The general guidelines of this year's budget instructions for AFY2017 and FY2018 are similar to last year's instructions for AFY2016 and FY2017. Budget request amounts should be the same as the amounts approved for FY2017, although OPB does permit agencies with workload increases or enrollment-driven programs to request additional funds. Supporting evidence for workload and enrollment increases must be presented to OPB before the final budget submission in September. The budget base amount, referred to as the annual operating budget (AOB), is the final approved budget amount including any amendments. One-time funds for special projects or equipment purchases are not included in the base. Agencies are also allowed to submit requests for fund redistribution, which shifts funds between programs to cover projected expenditures within each program, and has a $0 net impact on the budget.

OPB works with agencies to develop and track program performance measures that indicate the workload, efficiency, and effectiveness of a program. Agencies tend to prioritize programs and subprograms so that they meet agency goals while also working towards the Governor's strategic plan. There is also a special budget system for new and ongoing capital outlay projects over $100,000 that ensures that Georgia continues to receive AAA bond rating-the highest possible-that allows the state to receive low interest rates when borrowing for large projects.

RECESSION BROUGHT BUDGET REDUCTIONS

During the worst of the Great Recession, budget instructions included reductions that agencies had to absorb in various ways. Between FY2009 and FY2014, agencies were instructed to submit budget plans that reduced their budgets anywhere from 2% to 10%, depending on the year. As the economy declined sharply, OPB told agencies to take immediate action to control spending as total funds projected for FY2009 may not be available. FY2010 and FY2012 budget instructions required agencies to submit reduction plans of 6%, 8%, and 10% that could be implemented according to actual available funds.

Certain programs could maintain their funding levels as long as the overall agency budget was reduced by the necessary percentages. Hiring freezes and furlough days helped many agencies control costs and continue operations to serve Georgians when they needed key state services the most. OPB worked with agencies to make base adjustments according to agency needs, including additional funds for employee retirement, health insurance, telecommunications, or risk management payments if necessary, and reductions were calculated using the total base after considering all of these additional factors.

Even as the economy was beginning to recover, agencies were instructed to submit 2% budget reduction plans for FY2013 and 3% budget reduction plans in FY2014. Funding for Quality Basic Education (QBE), Equalization, and State Schools programs, however, was exempt from submitting reductions during those years, and student growth continued to be accounted for. FY2015 was the first year without instructions for budget reductions in six years. That year started the flat budget trend that has continued through this year's instructions for FY2018. Although a flat budget at reduced funding levels is not ideal for many agencies, it is much better compared to six consecutive years of reductions. Under Governor Deal's leadership and support from the General Assembly, Georgia made fiscally responsible and strategic investments in the state.

FOR NOW, A BRIGHT FUTURE

Since the economic recession started, Georgia has really come a long way. Although agencies aren't forced to cut their budgets each year, budgets remain at stable levels while funding for new important initiatives continue to be considered.

You can find the Current Year budget instructions from Governor Deal at: http://opb.georgia.gov/budget-instructions-current-year. As always, I welcome any questions you may have.

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