Explanations for New Balanced Budget - Assignment Example

State of Disequilibrium Office of Budget Support MEMORANDUM To: Governor From: Subject: Explanations for New Balanced Budget Dear Excellency, Having put all things together, I have finally completed a five year balanced budget plan for your review and approval. Strategies. There are certain strategies for balancing this budget plan which mainly focus on the following criteria: 1. balancing the budget 2. declining deficit trends 3. maintaining tax cut program 4. aiming to improve educational system 5. aiming to assist the less fortunate 6. aiming to fight against drugs and its related crimes 7. aiming to combat AIDS and its victims 8. aiming to increase efforts to clean up environment 9. aiming to rehabilitate aging infrastructure 10. maintaining service levels in other essential programs, and 11. maintaining a productive and reasonable satisfied workforce. Issues of concern. While focusing the strategies mentioned above, the following points are taken into consideration while making budget decisions on revenues and expenditures. 1. Equity of taxation 2. Impacts on the state’s low credit rating 3. robustness of the budget in regard to economic cycles 4. impact of budgets 5. trade off between revenues and expenditures 6. federalism issues 7. cooperating with legislature and assembly budgets Assumptions. Like all other kinds of projection, this five year projected budget plan is not free from making assumptions before forecasting. In my assumptions, a moderate fiscal outlook, salary increase of 5%, and five year estimated inflation of 4% are included. Table 2. Simulation assumptions and major spending options Major spending options include an allocation of $50 million for state legislature member items, a 5% increase to general purpose local government’s aid and 0% increase for re-negotiate salary contracts. Such allocations and increase are aimed at better cooperation with legislative body. Executive Summary. The five year projected budgets yield a following summary of surplus/deficit (see table 1). Table 1. Five year projected surplus/deficit ($Millions) This year budgets balance a surplus of $ 87.9 Million which is followed by a deficit of $ 497 Million, $ 488 Million, $ 204 Million for year 2, 3 and 4 respectively. The year five yields a surplus of $ 189 Millions. This balanced five year projected budget plan provides a reversal of deficits trends toward steadily increasing deficits. This declining deficit trend will provide us a competitive advantage for credit ratings by two firms, Moody and Standard & Poor. Otherwise, our borrowing will become expensive when we receive lower credit ratings due to the increasing deficit for five year budget plan. Expenditures. When making decisions on expenditures, maintaining certain level of services as well as productive and satisfied workforce, avoiding deduction on personal services and non-personal services which may have negative impact on programs are carefully considered. Only minimal amount of reduction from personal services and non-personal services were done with care. In addition, there are certain reduction options to aids and they are not reduced in order to avoid oppositions from different groups such as local community, medical professionals, etc. Executive Operations. In this agency, no reduction is made from personal services while a minimal reduction is applied to non-personal services which have no significant negative impact on programs and employees. In addition, to maintain service levels, allocations of budget for office infrastructure improvement, such as computer networking, 3 year systems modernization are made. These investments are expected to payoff in the following years. General state services. Office infrastructure such as enhancing telephone network and replacing 100 aged auto with new ones are allowed while no reduction for personal services are made. However, personal service reductions from Purchasing and Centralized departments were made because of no negative impacts on programs and staff members. Only reduction is made from non-personal services at minimal amount with no impacts on staff and programs. Deferred building maintenance is not worthy to defer next year while replacement of 100 autos deemed wise to reduce associated costs for next year deferment. Health. Budget allocations for improving indoor air quality program, expanding prenatal care, supporting AIDS programs, radon testing, and improving school health programs are made aiming at maintaining health care service and combating AIDS programs. In addition, target hospital aids are also allocated in the budget plan. Mental Hygiene. Aiming at assisting less fortunate, budget allocations are made on community residential program, rehabilitation state institutions, prevention of teen suicides, and encouraging new treatment models are made. No reduction is made from local aid programs in order to avoid oppositions from various groups. Only reduction at minimal rate from non-personal services is applied to budgeting process. Human Services. Assistance to homeless housing, welfare/SSI increase, day care programs and improving MMI system are allowed in the budget plan. Reductions on medical cost containment, optional services, tightening HR eligibility, local aids, etc. are not made. Personal service reduction is not applied to budget plan. Housing. Budgets for housing renovation, grants for low/mod. housing, and rural housing initiatives are made based on the strategy of rehabilitating aging infrastructure. No reductions for local aids are made in order to avoid oppositions from various groups. Public Safety. Budget allocations for drug fighting initiatives, purchasing lab equipment, DWI roadblocks are made while no reduction is applied to patrol services and personal service. Encouragement of these programs will result in reducing drugs and its related crimes. Correctional Services. While budgets for building mandatory cells were made, additional cases for parole services and probation services were increased. In addition, 200 beds for AIDS patients were allocated with an aim of combating AIDS disease. No reductions from personal services are made. Education. Supports for elementary and secondary schools programs including additional basic supports, pre-K disadvantaged kids supports, AIDS educational program, targeted improvement program, asbestos removal program, dropout improvement program were budgeted. In addition, budgets for scholarship award, adult literacy program, and library outreach aid were allocated. An increase of 7% operating budgets for state universities was allocated. This budget will enable state universities to develop new curriculum programs and recruit new faculty members. Transportation. In this state agency, budgets for hazard waste removal, bridge repair, and rehabilitation highway maintenance facilities, stop DWI oversights, fed emission standard inspection, aid for handicapped vehicles were provided. Reducing aids for public transportation and maintenance were avoided. Conservation. Budget allocations for cleaning up waste sites, solid wastes, and hazard waste SWAT team were provided. A parkland acquisition was made to conserve parkland. Budgets for eliminating nature interpretation were allocated. Business and cultural affairs. Important programs such as agricultural export program, state fair funding, integrated pest management, regional office programs, international trade, hi-tech research and development, foster grandparent program, drug treatment programs, and targeted local aid programs were provided with sufficient budgets. Other local aid reduction program is avoided not to face opposition and protests from various groups. Revenues. Unlike past years, this five year budget plan generates revenue which exhibits an increasing trend. First personal income tax delay option was adopted. This will delay the implementation of the final phase of the current personal income tax law. Second, the sales tax option will add previously exempted items to the tax base. Third, under the user tax/fee categories, there was an increase of 25% for alcohol, beer, and wine consumption. The same rate of increase was applied for cigarette and tobacco products. Motor vehicles registration fees increased to 25%. Motor fuel tax of $0.1 per gallon of consumption is charged while truck mileage tax increases to 10%. Fourth, under the category of business taxes, corporate franchise tax option will spur the current business investments and gradually change the tax rate. Corporation utilities tax increases additional 5%. Income tax and bank tax will generate additional 5% revenue each. Finally, other taxes include personal property gain tax, real estate transfer tax, estate and gift tax, and pari-mutuel tax. Table 3. Revenue enhancements and decreases This budget plan provides revenues and expenditures of which two trend lines are on a convergent, rather than divergent (Figure 1). Figure 1. Revenue and Recommended Expenditures I do hope that this five year projected budget will satisfy your requirements while minimizing conflicts of interest among various parties and special interest groups. Thank you very much. ***** Read More