The Legislature accepted the Governor’s General Fund revenue estimates for both FY 2005 and FY 2006. The normalized growth rates, which exclude 2003 and 2004 legislative changes like the temporary sales tax increase, are 7.8% in FY 2005 and 5.1% in FY 2006. When legislative changes are included the base General Fund revenue growth rates are 2.8% in FY 2005 and a negative 3.1% in FY 2006. Revenue drops in FY 2006 because the 6.0% temporary sales tax reverts to 5.0% on July 1, 2005.

One significant difference between the Governor’s FY 2005 General Fund budget and the Legislature’s is its decision to transfer $21.3 million to the Revolving Development Fund. These funds will be used by the Water Resource Board to purchase water rights. The entire amount is a short-term loan that will be repaid to the General Fund by July 1, 2006. It is reflected as a transfer out on the FY 2005 table and a transfer in on the FY 2006 table.

The only other significant difference for FY 2005 is that the Legislature provided $6.5 million less in General Fund supplementals. Most of the difference can be attributed to two departments. In the Public Schools, rather than provide $2.8 million in General Funds that the Governor recommended for enrollment growth, the Legislature transferred $5.0 million from the Budget Stabilization Fund to the Public Education Stabilization Fund. In the Department of Health and Welfare, where the Governor recommended a total of $18.9 million most of which was for Medicaid, the Legislature only provided $16.6 million.

The Legislature’s FY 2005 General Fund budget results in an ending balance that is $15.6 million less than the Governor’s: $100.7 million verses $116.3 million. These balances are used in both FY 2006 budgets to help offset the loss of about $170 million in revenue caused to the expiration of the temporary sales tax.

In FY 2006 the Legislature’s General Fund budget reflects the repayment of the $21.3 million loaned to the Revolving Development Fund in FY 2005. It is partly offset by an additional $3.0 million transfer to the Revolving Development Fund. This money will not be returned. It will be used by the Water Resource Board to provide loans to ground water districts to set land aside in the Conservation Reserve Enhancement Program.

Another significant difference in the FY 2006 budget is how the twenty-seventh payroll is funded.* The Governor recommended that the $21.2 million that is being deposited into the Economic Recovery Reserve Fund during FY 2005 from the temporary cigarette tax increase be transferred to the General Fund in FY 2006 to pay for the twenty-seventh payroll and other one-time expenses. The Legislature decided to fund the twenty-seventh payroll and some other one-time budget items directly out of the Economic Recovery Reserve Fund. This was done for the sole purpose of making its General Fund budget look smaller than the Governor’s. They reallocated a total of $18.5 million from the General Fund to the Economic Recovery Reserve Fund.

Change in employee compensation (CEC) is another point of departure. The Governor recommended a total of $13.1 million in General Funds to provide an ongoing 1.0% salary increase for state departments and the Public Schools. The Legislature provided a $14.2 million General Fund CEC contingency appropriation that will only be made available if the FY 2005 General Fund unspent and unencumbered balance exceeds $124.0 million. This is $23.3 million higher than the Legislature’s projected ending balance. The intent is to provide about $10 million for potential supplementals plus the $14.2 million needed to fund the salary increase. The Legislature’s CEC, should the appropriation be triggered, is to be provided on a one-time basis.

The difference between the Governor’s and the Legislature’s FY 2006 General Fund total expenditures is $36.1 million. However, if you add the $18.5 million the Legislature funded from the Economic Recovery Reserve Fund to its General Fund total to get a more accurate comparison, the difference drops to $17.6 million. And if the Legislature’s contingency CEC appropriation is triggered, then the difference becomes $3.4 million. This amount represents less than 0.2% of the total General Fund budget.

*Most years contain 365 days. Every fourth year has 366 days. Since the state’s pay-period is 14 days long, it means that 26 pay-periods cover a 364-day period, not quite a full year. This results in an every 11-year phenomenon of having a 27th pay-period. The state will experience 27 paydays in FY 2006. The first payday is July 1, 2005 and the last will be June 30, 2006.