Budget Briefing: Even if Housing Fund Diversion is OK’ed by Courts, Other Hurdles Face Administration’s Use of This Revenue

This is the third in a series of in-depth examinations of major issues in the recently enacted FY 2014 budget. Click on the links for the first and the second.

The final budget for the fiscal year that ended June 30 included $164 million in revenues that the administration is seeking to divert from a housing trust fund held by municipalities to assist working families, seniors and people with special needs. While the state and advocates continue the battle over this diversion’s legality, the timing of any potential funds remaining – and the amount of such funds – remains unknown. The head of the Department of Community Affairs has testified he has no idea how much revenue may actually be diverted if the state’s legal efforts are successful, adding that it could be as low as $50 million.

Since the $164 million is in the FY 2013 budget, the administration has likely taken accounting actions to reflect it as FY 2013 revenue even though the cash has not actually been received. Such “accruals” are not unusual at this time of the year as the administration closes the books on the past fiscal year. The administration has also likely used language in the FY 2013 Appropriations Act to justify using these funds to offset housing-related costs that were previously paid out of the general fund, thus providing the $164 million in anticipated budget relief.

Two issues about this $164 million remain.

First, it is the state auditor who decides if the “accrual” holds up, as he does on all similar transactions. If the state doesn’t receive the money from the municipalities before late August or early September, the auditor may not allow the accrual. Even if the state does receive the money, will it be less than $164 million and by how much? Under either of these scenarios, the closing surplus for FY 2013 – and thus, the opening surplus for this year’s budget – will be reduced. Even if the surplus is reduced by the full $164 million, it shouldn’t produce any “balanced budget” issues for FY 2013, since there is a projected $466 million surplus., However, it would have a noticeable impact on the FY 2014 budget.

Second, if the auditor rules that the revenue is not valid for FY 2013, the state will likely continue to try to use the revenue in FY 2014. Aside from the issue of how much money will actually be left to use, the state will be limited in how it uses the funds, since the broad language that was included in the FY 2013 Appropriations Act was eliminated by the legislature in the FY 2014 budget bill. Thus, even if the administration collects the full $164 million – a highly unlikely scenario – it may not be able to generate a similar amount of budget savings since the use of the money will be dictated by the underlying statute, which allowed for the revenue to be returned to the state if it was not used. Of course, the administration could request that the legislature restore the broader language so that maximum budget savings to be achieved.

Although the $164 million represents only 0.5 percent of the nearly $33 billion in revenue for FY 2014, the issue is significant since the assumed surplus is only $300 million and any loss of this revenue – coupled with the potential $130 million risk on the internet gaming revenue, which we’ll examine in a subsequent post – could potentially wipe out the entire surplus.

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