Opening Statement 2005 H1A Eric Kriss Secretary, Administration

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Opening Statement 2005 H1AEric
KrissSecretary, Administration Finance

• January 29, 2004

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Budget Math
Economic Recovery
Balanced Budget



Essential Reforms
New Initiatives


No New Taxes
Budget Constraints
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Agenda

• Budget Overview
• Essential Reforms
• New Initiatives

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Underlying No Principles

• No tax increases
• No major fee increases
• No deficit financing
• No tobacco securitization
• No raiding of reserves
• Stabilization, Health Care Security Trust
  untouched
  
• No problems shifted to third parties
• No Local Aid cuts
• No pension gimmicks

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Revenue Summary
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Flow of Federal Aid

• FY04 FY05
• Special FY04 aid, FMAP 444
• General expenses (216)
• Free care pool ( 55)
• Economic stimulus ( 34)
• FY04 actual drawdown 305
• Carryover to FY05 139m

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Other Revenues Up 24 Why?

• Turnpike merger
• Toll revenue now on-budget 290m
• Excess reserves 190
• Transfer adjustments
• Free care pool reduction from FY04 65
• Non-recurring FY04 transfers 66
• Sweep unused trust reserves 28
• Operational changes
• Lottery 73
• Fees, other 33

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One-timers 98 Structural Balance
2 of total resources (25b)
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Spending Summary
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Turnpike Budget Accounting
Placing the Turnpike on-budget raises both
revenues and expenses but the net impact is
positive

• Revenue
• Toll revenue 290
• Reserves, one-time 190
• TOTAL 480 million
• Spending
• Roadway operations 161
• Turnpike net debt service costs 113
• TOTAL 274 million
• 206 million positive impact

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Balance Sheet Summary

• (in billions) FY04 FY05
• Total resources 22.09 23.09
• Total spending 21.89 22.98
• Surplus 0.20 0.11
• As of resources 0.9 0.5

Excludes 113.5m in stabilization drawdown in
FY04 for the Economic Stimulus bill and
supplemental appropriations
Includes 80m mandatory transfer to
stabilization fund, and minor fund balances not
available for general expenditures
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Agenda

• Budget Overview
• Essential Reforms
• School Building Assistance
• Mass Turnpike Merger
• Pensions
• Public Construction
• Workforce
• New Initiatives

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School Building Assistance

• Clears 100 of the current waitlist by FY09
• Requires construction reform savings
• Switches to cash now eliminates multi-year
  reimbursement
  
• Commonwealth will issue debt, moves from
  operating to capital budget
  
• No change in reimbursement rates for projects on
  current list
  
• Commission to design sustainable program for
  future

debt 20 to 40 yrs
more projects, clear backlist
savings
construction reform
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Mass Turnpike Merger

• Financially unstable authority solve issue now,
  not later
  
• Negative cash flow offset by interest rate
  speculation (swaptions) and real estate sales of
  critical infrastructure
  
• Credit downgrades, near junk bond status
• Wasteful highway overheads for single road
  system
  
• Save 20m each year from duplicate bureaucracy
• Recoup at least 190m in reserves and other
  savings (as much as 272m in various reserves,
  escrows)
  
• Accountable to the voters
• Central artery restoration the 100 year vision
  should involve wide community of interests, not
  narrow Turnpike view
  
• Poor coordination on transportation growth
  agenda
  

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Less Bureaucracy Same Road
Toll Booth Over Staffing
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What About Debt Load?
Current SBA
Waitlist SBA
Turnpike debt
Debt 4.1b 4.0b 2.5b
Cost now 401m 230m 0m Cost FY05 250m
230m 0m Why? No new liability, Accelerate
d Tolls savings from debt, but no support
longer term NPV change debt now
No difference in financial condition
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Pensions

• Pension impact statement
• Any new liability increases, like early
  retirements, must be fully funded over three
  years
  
• Benefit ceiling
• Linked to lifetime earnings to prevent unfair
  pension gaming
  
• Applies to future, not current, retirees
• Change unfair provisions
• Exclude job-related perks, double-dipping
• Eliminate special treatment of certain employees
  and officials
  
• Change calculations pro-rate Group 1, 2, and 4
  time, buy-back with market interest rate
  
• Ch. 32 defines pension as the difference
  between the retirement allowance to which a
  retirement system member is entitled and the
  annuity value of accumulated contributions with
  regular (passbook) interest. For simplicity,
  we will refer to the entire retirement allowance
  as a pension in this presentation.

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Unfair Pension Gaming
Part-time work shouldnt earn a full-time pension
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Public Construction

• Flexible project methods
• Allows design-build, CM-at-risk for projects over
  5m
  
• Mirrors effective private sector practices
• Eliminate filed sub-bid requirement
• Complex rules, passed with best intentions, are
  counter-productive
  
• Professional oversight at local level
• Allow municipalities to pre-qualify contractors

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Workforce

• Redefine the governments managerial imperative
• Many senior managers currently are union members
• Union special interests conflict with broad
  public interest
  
• Unions essentially run major operations
• Encourage non-profit and private partnerships
• End the statutory monopoly of public sector
  unions
  
• Repeal the 20 hidden monopoly tax
• Change highly restrictive rules on third-party
  outsourcing
  
• Cut Civil Service red tape
• Eliminate 19th century bureaucracy
• Retain public safety process

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Agenda

• Budget Overview
• Essential Reforms
• New Initiatives
• Legacy of Learning
• Focus on Transitional Assistance
• Public Safety Enhancements

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Legacy of Learning

• Target low-scoring K-12 districts
• Full-day kindergarten
• Management support
• Address K-12 learning gaps
• Orientation for parents to improve
  school-readiness
  
• Move disruptive children out of regular
  classroom
  
• Math and science teacher recruitment, and
  self-directed assessments
  
• Higher education affordability
• Formula-driven distribution of new funding for
  state and community colleges
  
• Merit-based scholarships

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Focus on Transitional Assistance

• Homelessness
• Special housing for mentally ill
• Shelter-to-Home pilot
• Welfare-to-Work
• Increase work hours requirement
• Children at Risk
• New incentives for foster parents
• Mental health intervention for at-risk girls
• Psychiatric assessments

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Public Safety Enhancements

• Counter-terrorism and Forensics
• Expand local capacity of state police
  counter-terrorism unit
  
• Expand DNA processing capacity at the State Crime
  Lab
  
• De-bottleneck Chief Medical Examiner capacity
• Staffing
• New State Police classes (2)
• New correctional officers class
• Distribute local policing grants based on
  population and crime rate, not political
  connections