STATEOFMISSISSIPPI OFFICE OF THE GOVERNOR

November16,2009 TotheMembersoftheMississippiLegislature: FortheseventhtimesincebecomingGovernor,Itransmittoyoumybalanced ExecutiveBudgetRecommendationinaccordancewithMississippiCode27103139. MybudgetrecommendationforFiscalYear2011containstoughdecisionsthatmustbe madetoensureMississippiprovidesessentialservicesforitscitizenswhilenotbreaking thebanknoworcripplingthestatesfinancialfuture. Lastyearwas thefirsttimesince becomingGovernorI submittedabudget recommendationduring aperiodofdeclining staterevenuethisyear willbemysecond,and FY2012will,basedon currenttrends,bemy third.Mississippis longtermbudgetary outlook isaustere,as decliningrevenues alreadyhaveforcedme toorder$172millionin spendingreductionsfor thecurrentfiscalyear afterhavingmade$200 millioninbudget reductionsinFY2009. Therevisedrevenue estimateforFY2010 adoptedbytheJoint LegislativeBudget Committee,including EducationEnhancement Funds,projectsatotalshortfall of morethan $370millionforFY2010. Further reductionsofapproximately$200milliontodepartmentsandagenciesareinevitablefor FY2010.

Statelawrequiresabalancedbudget,andundercurrentlawsavingsinexcessof $715millionwillbenecessary tobalancetheshortfallforFY2011.Unfortunately,FY 2012isevenbleaker:CurrentprojectionsindicatethatMississippiwillbefacedwitha budgetgap of morethan $1.2billionduringthatfiscalyear. Revenueisunlikelytosignificantlyrebound,andwewilllose$370millionof federalstimulusmoneyusedtopropup the$5.5billionFY2011budget.Wewillhave significantlylessrevenuethaninyearspast,aswellasasignificantreductioninthe amountoffederalstimulusmoneywehavetospendcreatingastructuraldeficitthat leavesusnochoicebuttofurtherreducegovernmentspending. WeestimatethattheFY 2012budgetwillbearound$430millionbelowFY2011,makingthetotalstatesupport budgetonly$5.07billion,comparedto$5.7billion,peakstatefundingthatoccurredin FY2008. Towardthisend,Iamproposingareductionof 12percentformoststateagencies belowFY2010appropriations,withsomeexceptionsforthoselineitemswearenot legallyallowedtocutaswellasspecificpriority services.Althoughsomeagenciesare listedasreceivinga12percentcutbelowFY2010appropriations,keepinmindmany of themalsowere trimmedinFY2009,suchastheOfficesoftheTreasurerandAuditor. Iamrecommendingonly a5percentreductionfortheMississippiDevelopment Authoritybecauseitplaysacrucial rolein creatingnewjobsbyattractingnewemployers toMississippiandencouragingexistingbusinessestocontinueinvestingwithinour borders.TheDepartmentofCorrectionsandthelawenforcementbudgetsofthe DepartmentofPublicSafety willseecutsof 6and8percent,respectively. Ontheother hand,someagencies,liketheAttorneyGeneralsOffice,whichhadmuchsmaller reductionsinFY2009and2010,willseebudgetreductionshigherthan12percentin ordertobringthemintoparitywiththerestofstategovernmentascomparedtoFY2009 appropriations. OthersliketheDepartmentofMarineResourceswillseecutsabove12 percent. Mybudgetdoesnotincludethe$27million statesubsidytocountiestooffset thecostoflicensetags. Thefundiscurrentlysolvent,andtheremaybenoshortfallinFY 2011. Inanyevent,countieshavehadtwoyearstoadjusttothischangein circumstances,somybudgetdoesnotcontinuetosubsidizelocalgovernmentsinthis matter. Obviously,areduction thislargeformoststateagencieswillrequireustoenact meaningfulreformofwhatgovernmentdoes,andhowitdoesit. ThatiswhyIhave askedallstateagenciestofindinnovativesolutionstotrimmingthebudget,including reviewingandrenegotiatingallcontracts tosave5to10percent onthem. Forthese purposes,IasktheLegislaturetogivedepartmentandagencyheadsmaximumflexibility tomanageandrightsizetheiragenciesincludinglumpsumbudgetingforall. State agencyheadsneedtheabilitytostreamlinetheirdepartmentsfreefromtheencumbrances oftheStatePersonnelBoardfortwoyears.Wemustprioritizestatespendingonessential governmentservicesandcullouttheunnecessary ones.Wemustimproveefficiencies whilemaintainingqualityservicestoourcitizens.Wemustmakethedifficultbut necessarydecisionsthattaxpayersexpectfromus.

Itwontbeeasy,butaboveallelse,wemustunderstandthattheFY2011 budgetingprocesscannotbebusinessasusual. Ourmostrecentrevenuereportshowed generalfundcollectionsslipping7.5percent,or$111.7million,belowourexpectations forthefirstfourmonthsofthisfiscalyear. Extrapolatedoutforanentirefiscalyear,this fourmonthshortfall isconsistentwiththerevenueestimatingcommitteesprojectionfor a$347millionshortfallinthegeneralfundand$371millionincludingtheEEFshortfall. TheseOctoberfiguresmark14consecutivemonthswherewehavemissedour revenueestimateandthe11th consecutivemonthinwhichthestateactuallycollected lessmoneycomparedto thepreviousyear. Inmy firstfouryearsrevenueexceededthe estimateeveryyear,butnowrevenueiscominginfarbelowtheestimatemadejustafew monthsago.Sowemustbeprudentandconservative. MybudgetrecommendationforFiscalYear2011reliesheavilyon sixmain principlesandfundsstategovernmentaccordingly: ThemosturgentneedinMississippiistocreatemoreandbetterjobs. Whereanagencyplaysasignificantroleinenhancingourjobcreation efforts,itisreflectedinmyrecommendedfundingforthatagency. Thesameistrueofrevenuecollection.Raisingtaxesduringaneconomic downturnslowsrecoveryandputsanunfairburdenonourtaxpayers,but wecannotlettaxcheatsdeprivethestateofrevenueitisowedalready.I proposeincreasingthebudgetoftheTaxCommission,soitcanhire additionalauditorstocollectmoneythestateisalready owed. Governmentsfirstfunctionisensuringthepublicssafety.Whilenearly allagenciesmustexperiencespendingreductions,Iamrecommending thatlawenforcementprogramsorbudgets takelessofaspending reductionsothey can continuetheirvitalserviceofprotectingMississippi families. Educationisour No.1economicdevelopmentissueandNo.1qualityof lifeissue,andwemustidentifysignificantcostsavingsthatdont diminish educationalopportunitiesforourchildren. Nowisthetimeto reduceadministrativecostsandforlocaldistrictstousetheirrainyday fundsjustasthestateisdrawingdownonitsRainyDayFund. Restructuringthatwillsavemoneyin2012andbeyondmustbeginnow. TheStateofMississippimustestablishbudgetpriorities,investinstate governmententitiesthatgeneraterevenue,andstreamlinegovernmentby seekingefficienciesandsavings,whileallowingmaximumflexibilityfor agencyheads.Iamrecommendingseveralspecificactionsthatcanbe takenbyareasofstategovernmenttoimproveefficiencies,andIbelieve therearemany otherswheresavingscanbeachievedifmanagementis

allowedtoaccomplishthis. Itisnecessarytoadopt theseproposalsforFY 2011tofullyrealizethesavingsbyFY2012whenavailablefunds continuetoplummet. AlthoughMedicaidisanentitlementprogram,itisimperativethatthis agency achieverealcostsavings,alongwiththerestofstategovernment. However,withoutcertainchangesinstatelaw,Medicaidshandswillbe tiedastosubstantially reducingcostsin thecurrentprogram.Itstimeto allowMedicaidtoachievespendingreductionswithoutharmingthe qualityofservicesprovidedtoourcitizens. Whilemuchhasbeensaidaboutthecurrentbudgetcrunchinstategovernment,I hopetoprovideyouwithinformationthatclearlydemonstratestwothings:Thisbudget crisisisreal,andwecannotdelaymakingdifficult,longterm budgetdecisions.TheFY 2011budgetingprocesswillrequireconsiderablebudgetdisciplinebutalso thoughtfulnessanddisciplineforthefuture. ThisExecutiveBudgetRecommendationisbasedontheFY2011revenue estimateapprovedbytheJointLegislativeBudgetCommitteeon November5,2009. Becauseofthebleakbudgetcircumstancesfacingour state forFY2011andbeyond,I gaveallagencies,regardlessofwhetherornottheyreporttome,anopportunityto submittheirideasandprioritizationofservicestomy officepriortodevelopingmyExecutiveBudget Recommendation.I appreciate thoseagencieswhich respondedingreatdetail,prioritizingtheirservices andbreakingdownadministrativecosts. InmylastExecutiveBudget Recommendation,Iwrotetoyouthatvirtually everyindicatorpointstodecreasingstaterevenue. Weknewthisrecessionwouldnotbeasbriefor shallowaswerethoseof199091or2001,butitis importanttounderstand,fromahistorical perspective,thatMississippiisnotlikelyto experienceafullreboundtorevenuelevelsofFY 2008formanyyears.Wemustbudgetaccordingly. Earlierthisyear,leadersfromtheNational GovernorsAssociationtoldCongressthatevenwith thefederalstimulusimpact,statesfiscalpicture willcontinuetodeteriorateoverthenexttwoyears basedonhistoricaltrendsthathaveproventheworst budgetyearsforastatearethetwoyearsafterthe nationalrecessionisdeclaredover. Forexample, accordingtotheNGA,therecessionthatendedin 1991resultedin 35statescuttingbudgetsthefollowingyear,andtherecessionthatended

in2001resultedin37statescuttingbudgetsineachofthefollowingtwoyears. Using pastrecessionsasaguide,wecanexpectthatmoststates,includingMississippi,willface budgetshortfallsin2011and2012. Infact,aNovember2009reportreleasedjointlybyNGAandtheNational AssociationofStateBudgetOfficers,representativesfrombothorganizationsconcluded thatstateswillcontinuetofaceeconomichardshipsformanyyears,observingthat numerousstudiesprojectthatstaterevenueswilllikelynotrecover toFY2008levels until2014or2015.NASBOsexecutivedirector,ScottPattison,callsthecurrentbudget situationsomeoftheworstnumbersweveeverseeninthedecadesofputtingtogether thisreport,whileNGAsexecutivedirector,RaymondScheppach,saysthatthebottom lineisthatstateswillnotfullyrecoverfromthisrecessionuntillateinthenextdecade. Whendiscussingstatebudgetissues,wealsomusttakeintoaccountthat Mississippisfinancialhealthishighlydependentonthefinancialhealthofourcitizens, whopaythesalesandincometaxesthataccountforthebulkofstaterevenues.Even afterarecessionhastechnicallyended,unemploymentakeyeconomicindicator historicallycontinuestorise,sometimessignificantly,foranextendedperiod.Asan example,wecanlookbacktotherecessionsoftheearly1980s,1990s,and2000s. Forthe198082recessions,whichmostresembletodaysdeepeconomic downturn,Mississippisunemploymentrateremainedinthedoubledigitsuntil September1987. Furthermore,actualtaxcollectionsforMississippishowednegative growthof0.26and0.7percentintheyearsfollowingtherecessionsendingin1982and 1991,respectively. Eventhemoreshallowrecessionsof199091and2001saw unemploymentrateslagbehindgrowth.Despitethe199091recessionendinginMarch, prerecessionaryunemploymentlevelswerenotreacheduntilalmosttwoyearslaterin

December1992likewise,the2001recession,whichlastedonlyeightmonths,resultedin elevatedunemploymentratesthatdidnotreturn tonearprerecessionarylevelsuntil March2004. InDecember2008,theUrbanInstitutereleasedastudyregardingnational unemploymenttrendsandincomeduringarecession,findingthatevenifthecurrent recessionendsin2009,wemaynotseeunemploymentratesaslowas2007s4.6percent foryearstocome. Theaccompanyingchartdemonstratesthatunemploymenthastaken longerandlongertoreturntoprerecessionlevelsineachsucceedingrecessionoverthe last35 years.Weshouldexpectemploymenttostaybelowsummer2008levelsforat least30moremonths.Thispatternwasnotedrecentlyby economistandNobelprize winnerPaulKrugman,whowroteintheNewYorkTimes thatunlesstheeconomy changesdrastically,werelookingatmanyyearsofhighunemployment. Thus,even afterarecessionsend,financialhardshipscausedby high unemploymentandthe associateddeteriorationofpersonalincomewillcontinuefor two,three,orevenmore yearsatthestateandlocallevel. BudgetShortfallsDeepeninFY2011and FY2012 Alongwithdecliningrevenuestreams,Mississippialsowillfaceseveral rising expensesthatwilladdtoourbudgetproblemsforthe2011fiscalyearandcontinueinto FiscalYear2012.Asunemploymentremainshighandwagesforcitizensarereduced, moreandmorepeoplewillqualifyfortheMedicaidprogramimportantly,moreofthese increasedcostswillhavetobepaidbythestate,sinceundercurrentlawfederalMedicaid stimulusdollarswillendinthemiddleofFY2011(December31,2010). Tomeetthis increaseddemandandreplacethelostfederaldollars,Medicaidwillneedmorethan $200 millioninFY2011overthestate appropriationsforthisbudgetyearanother$220 million will beneededforFY2012withoutachangeincurrentlaw.Thisbuiltindeficit willbeaproblemexperiencednationwide,asobservedinanNGAanalysisregarding statefiscalsituations:Thecombinationoffallingrevenues,whichaccompanyhigh unemployment,andanexplosioninMedicaidenrollment,whichoccursverylateinan economicdownturn,explainwhyarecessionsgreatestimpactonstatebudgetsoccurs onetotwoyearsafterthedownturnisover. TheMississippiAdequateEducationProgramformulacallsforasignificant increaseofsome$60millionforFY2011,andthePublicEmployeeRetirementSystem Boardhasproposedincreasingstateemployercontributionratesby$70millionayearto fundthesystemthrough state dollars. Healthcarecostsarerisinginthestate theschool employeeshealthplan hasaskedforan11percent,or$29.3million,increaseinstate funding.Debtservice,whichthestatecannotlegally reduceoravoid,alsohasincreased about$25million.Ifactionisnottakentomitigatetheimpactofthesestructural cost increases,Mississippi willfacea$715millionbudgetgap for the2011fiscalyear. However,wecannotapproachFY2011withbudgetblindersonindeed,wemust understandthatwhileMississippifacesa$715millionshortfallforFY2011,the estimatedbudgetholeundercurrentlawforthefollowingfiscalyear,FY2012,is$1.2

billion.OnereasonisMississippiwillnolongerreceive$370millioninfederal stimulus fundinginFY2012. Whileweshouldhopeforthebest,itisofcriticalimportancetoprepareforthe worst.ActiontakenimmediatelytoaddresstheFY2011budgetshortfall willhelp Mississippi tobebetterpreparedfortheevenmoredifficultFY2012budget,whichmust beadoptedin2011,anelectionyear. PrudentUsageoftheRainyDayFundisCritical Prudent,responsiblebudgetingpracticesbythestatesince2004havepositioned ustobettercopewithdecliningrevenues.IcommendtheLegislatureforfillingthe RainyDayFund(technicallyknownastheWorkingCashStabilizationFund)toits statutorilyauthorizedamountinrecentyears,whichwenowclearlyseewasthe appropriateandresponsiblethingtodo.Lastyear,Irecommendedthatweusethisfund prudently,withanticipationofspreadingthefundbalanceoverafouryearperiod. I appreciatethehardworkofSenateAppropriationsChairmanNunneleeandHouse AppropriationsChairmanStringertolimitthedrainingfromtheRainyDayFundinFY 2010to$95million.However,additionalmoniesfromthefundwererequiredtodigout of theFY2009budget.Consistentwithouragreementlastyear,Iwillonceagain recommendthestateusenomorethan onethirdofourremainingRainyDayFund reserves,or$78million,tocushiontherevenueshortfallforFY2011. Thiswillleave some$80millionforeachofFY2012andFY 2013. IalsoappreciatetheLegislatureagreeingto save$60millionfromtheHealthCareTrustFund touseintheupcomingfiscalyear.Thiswill providesomerelieffromthedwindlingrevenue collectionsinFY2011. RaisingTaxesIstheEnemyofControlling Spending SinceItookofficein2004,Ihave repeatedlysaidthatraisingtaxesistheenemyof controllingspending.Now,morethanever,we mustgetourspendingundercontrol,butletmebe clear:Forcingourcitizenstocoughupmoreoftheir hardearnedmoneybyraisingtaxesisnottheright approach,particularlyinthesedifficulteconomic times. EnhancingEducationalOpportunitiesWhile ReducingAdministrativeCosts

Makenomistakeaboutit:someofthechoicesweneedtomakearegoingtobe unpopular.Wemustkeeptheendgoalinsight:Buildingabetter,sustainableeducational system toservethisandfuturegenerationsofMississippians. Thatstartsbyreducingadministrativecostsinoureducationalsystemand buildingonstudentsuccess.Thisisnoeasytask.Thefactofthematteristhat,evenwith thecuts requiredforK12,communitycollegesanduniversitiesinFiscalYear2010,all threeeducational levelswillhavemoremoneytospendthisyearoneducationthaninFY 2009.Thebiggestreasonforthisisfederalstimulusfunding,whichearmarkednearly $200millionforbothFY2010andFY2011educationspending.Itsimportantto rememberthisfederalstimulusmoneygoesawayattheendofFY2011.Knowingthe currentlevelofeducationfundingisunsustainablewhenthatoccurs,wemustprepare now totrytohaveasoftlandingforourschoolswhenspendingreturnstolevels sustainablebynormalstate,local,andfederal efforts. Whilemostofstategovernmentwillseeacutof12percentbelowFY2010 appropriatedlevels,Iamrecommendinga10.9percentcut,orareductionof$237 million,fortheMississippiAdequateEducationProgram.TotalK12education would seeacutof 9.4percent.Whilethesespendingreductionsarenotoptimal,theywill provideanimpetusfortruereforminourstateseducationalstructure.Afterall,we knowthatreducingthenumberofschooldistrictsmeanswecanspreadmoreresourcesto theremainingschooldistricts,therebyenhancingeducationalachievement.Additionally, justasthestatetapsintoourreservefundsduringperiodsofsignificanteconomic decline,Ibelieveitisincumbentuponschooldistrictstousetheirreservebalancesto offsetthesecutsinstatesupportforpubliceducation. Therearemanywayseducation canabsorbthesecutswithoutnegativeimpactonthequalityofinstructionourstudents receive,andIhopetheLegislatureandeducationleaderswillusethisasanopportunity toimplementinnovative,meaningfulreform. Inarecentinterviewregardingthebudget, HouseEducationChairman Cecil BrowntoldTheClarionLedgerifwereallywanttorungovernmentlikeabusiness,we havetoplanthewaybusinessesdo. Thisistruer thaneverbefore.Successful businessesaretheoneswhoefficientlymanageadministrativecostswhilefocusingon providingquality,affordableservicesandproducts totheircustomers.Weshouldstrive toreplicatethisbusinessmodelinallofstategovernment,includingeducation. ItshightimetorecognizethatMississippishaving152schooldistrictsacross82 countiesisamodelofinefficiency.Consolidatingschooldistrictswillreduce administrationcostsintheshortterm,willultimatelymatcheffectiveteacherswith rightsizedclasses,andwillpushmoremoneyintotheclassroom,improving educationalachievementbyourK12students. Youngpeopleleavingourschoolsmustbeprovidedtheskillsnecessary to succeedatthecollege/universitylevel orintheworkforce.Deliberativethoughtmustbe giventoestablishingcriteriaforconsolidation:studentperformance,districtsize, financialstability,assessedvaluation,themillagerateassessedfordistrictsupport,

potentialadministrativesavings,andotherfactorsimpactingstudentopportunities.The planforreducingthenumberofdistrictsbyathirdshouldbeadoptedbytheState DepartmentofEducationbasedonadviceandcounsel fromablueribboncommissionI willappointinDecember.Thecommissionwillbeauthorizedtocontractfor professionalhelptosetthecriteriaforconsolidatingdistricts. Thesetoughdecisions mustbemadeinFY2011,sothefullimpactofconsolidation anestimated$65million savingswillcometofruitioninFY2012whenweseeoverallbudgetshortfallsgrowas federal educationmoneydisappears.Wecannotaffordtodelaythisdecisionanylonger. Consolidationofschooldistrictsisjustonepieceofourapproachtoreducing costswhileprovidingastrongeducationtoourschoolchildren. Wecansaveupto$18 millionbysuspendingforoneyeartheSTEPsalaryincreaseteachersautomatically receivebasedonyearsofservice. WiththousandsofMississippianslosingtheirjobs,it isfairthatweaskourteacherstotemporarilyforgotheseautomaticpayincreases.Also byholdingSTEPpayforayear,wecancontinuetofundtheNationalBoardCertification programtopreventthose teachersfromtakinganadditional paycut. Schooldistrictconsolidation andtemporarysuspensionoftheSTEPincreaseare boldproposals,butcostsavingsachievedthrough theseinitiativesalonewillnotbe enoughforpubliceducationtomeettargetedsavings.Sinceeducationaccountsformore than 60percentofthestatebudget,educationatalllevelsmustproducealargeportionof thesavings.Again,Iamconvincedthiscanbedonewithouthurtingthequalityofthe educationourstudentsreceive. Additionally,theMississippiSchool of theArtsshouldbemergedintothe existingMississippiSchoolforMathandScienceandmovedtothenewcampusto enhancequality educationwhileachievingatleast$1millionincostsavings. The MississippiSchoolfortheBlindandDeafcanfindcostefficienciesinitsprogramsand serviceswhileenhancingeducationalopportunities. Afeasibilitystudyshouldbe conductedtodeterminethebestmethodtoeducateMississippisblindanddeafchildren. Thisreviewshouldincludethepossibility ofmovingthecampustotheMississippi School of theArtsinBrookhavenorOakleyTrainingSchool,whichwouldallowthe statetoutilizethosepropertiesbetter.Thestatecouldthensellorleaseforalongterm theprimerealestatewheretheSchool fortheBlindandDeafcurrentlysits,bringing muchneededdevelopmenttoJacksonaswellasrevenueforourschools. ToachievetheamountofsavingsneededinFY2011,weshouldrememberthat allschooldistrictshavetheabilitytospenddowntheirfundbalances(roughlyhalfof whichisstatesourcefunds)andfindothercostreductionswithintheirindividualdistricts astheyhavedoneinpreviouscuts. Itisnecessaryforlocalschooldistrictstorelyon theirfundbalances,justasthestatehasdonewithitsrainydayfund. Iamrecommendinga12percentreductioninfundingofMDEsvocationaland technicaldollars,whichareusedinconjunctionwith fundsfromthefederalPerkins CareerandTechnicalEducationprogram tosupportworkforcetraininginMississippiat thehighschoolandcommunitycollegelevel.Becausestatesarerequiredtomeeta

certainspendinglevelinordertoqualifyforPerkinsfunds,IwillworkwithMDEto developafederalwaiverrequestonbehalfofMississippisothatwecancontinuetodraw downtheseimportantfundswhileallowingforstatebudgetingflexibility.Inorderto achievethe12percentreduction,orabout$10millioninsavings,MDEshouldreduce expendituresforareaslikeadministration,equipmentpurchases,andcontractualservices withvendorsnotteachersalariesorworkforcetraininginitiatives.Afterall,alarge portionofthesedollarsareusedtofundpartofteacherpayaswellastosupport workforcetrainingatthecommunitycollegelevel,andIbelieveitiscriticallyimportant thatwemaintainadequatefundingfortheseareas. Additionally,toreduceadministrativecostsfurtherandeliminateduplicationof programs,weshouldbetteralignourresourcesforcareerandtechnicalprogramsatMDE withtheongoingworkforcetraininginitiativesatourcommunityandjuniorcolleges. Already,nearly$30millionayearflowsthroughMDEsvocationalandtechnicalbudget forusebythecommunityandjuniorcolleges.Inthefuture,weshouldmovetoward strongerpartnershipsbetweenourpublicschoolsandcommunityandjuniorcollegesnot only toeliminateduplicativetraining,buttoimproveskillstrainingandprovidestudents withcareerpathwaysstartinginhighschool.Communityandjuniorcollegesarealready theleadingworkforcetrainingprovidersinMississippi.Weshouldadoptanintegrated fundingapproachthatsupportsdualenrollmentanddualcreditopportunitiestoallow highschool studentstolearnatradewhileearningcreditstowardbothahighschool diplomaandcommunitycollegecredentialorassociatedegree. Noareaofeducationcanbeimmunetospendingreductions. Iamaskingmost stateagenciestoachieveatargetedsavingsofnearly12percent,andIexpectthesame fromoureducationalcommunities. Despiterecordenrollmentatourcommunityand juniorcolleges,itisimperativethattheseinstitutionsfindwaystosave. Thereisnoreasonforeachofthe15communityandjuniorcollegestohaveits ownbackroomoperation,suchaspayroll,insuranceandpurchasing.A singlesuch administrativeoperationshouldbesetup,preferablycombinedwiththesamefunctions foralltheIHLuniversities. Sharedservicessavesmoney. Eliminationofcampuses,particularlysatellitecampuses,mustbeconsidered,and reducingthenumberofinstitutionsfrom15toalessernumbercantberuledout.To helpachievebetterfinancialperformance,theSBCJCshouldbecomeaGoverningBoard, asisthecasewith boardsforK12andtheInstitutionsofHigherLearning.Asastate,we mustrevieweliminatingordownsizingintercollegiateathleticsatourcommunityand juniorcolleges.Communityandjuniorcolleges,which reportedly spentalmost$20 million on all athleticprogramsin2007,shouldprioritizewhatisnecessarytoachieve theireducationalgoals. OurcommunitycollegesarecriticalassetsinMississippiseducationalprograms. Theyareindispensableinacademicsforourhighschoolgraduatesbecauseoflowercost andcloseproximity.Butmorehighschoolgraduatesshouldstartincommunitycollege tocatchupwhenremedialcoursesarerequired.

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Twoyearassociatedegreescanpreparetensofthousandsof young Mississippiansforgreatcareers,butahigherpercentageofacademicboundstudentsthan nowneedtocompletetheirdegrees.Similarly,careerprogramstudentsneedtoearn certificatestosucceedintheworkforce. Noncreditworkforcedevelopmentandjob trainingmustcontinuetogrow oneverycampus,andoutputmustgrowatevery institution. WorkforcetrainingwillhelppullMississippioutofthiseconomicdownturn therefore, mybudgetdoesnotreducefundingforworkforceinitiativesatourcommunity andjuniorcolleges. Atatimewhenthefocusmustbeonefficienciesandexcellence,wemust recognizetheunsustainability ofdividingourlimitedIHLfundingamongeightpublic universities. ThisbudgetproposesmergingMississippiValleyStateandAlcornState withJacksonState.Nocampuswouldclose,butadministrationwouldbeunifiedand significantsavingsachieved.Ourhistoricallyblackuniversitieswouldbeunitedintoa premieruniversitywiththelandgrantagricultureandtechnicaladvantagesofAlcorn, MVSUsDeltacampus,andJSUasanemerginggreaturbanuniversity. Similarly,MississippiUniversityforWomen wouldbemergedwithMississippi State. Itscampus,likethoseofAlcornandValley,wouldcontinuetofunction.There wouldbearationalization ofclassofferingsatthevariouscampuses,includingthethree notaffectedbythemergers(DeltaState,OleMissandUSM).Everyuniversitywouldbe expectedtoreducecostsby consolidatingoreliminatingprogramsnotpullingtheir financialweight. MergingtheMUWwithMSUispreferabletoclosingtheschooland movingselectprogramstoStarkville. ThemergerswouldnotachievesignificantsavingsinFY2011astheytaketime toplanandimplement.InFY2012,however,themergersshouldsaveabout35percent bythemselves. ThesesavingscantbeachievedinFY2012ifthedecisionsarenot enactedintheFY2011budget. Currently,theagricultureunitsatMississippiStateandAlcornStatearefundedin appropriationsseparatefromtheuniversitiesmainfunding.Irecommendseparate appropriationsfortheagricultureunitscease,andthefundingbecomepartofthetwo universities appropriations.Thisadministrationconsolidationwillgivetheleadershipof thetwouniversitiesgreaterflexibilityinspendingauthorityandshouldresultinbetter settingofpriorities.MybudgetreducestheFY2011agricultureunitappropriationby15 percent,whichtheuniversitiescanmakeoutofagunitexpendituresorotherefficiencies inthegreateruniversitybudget. TheMississippiStateCollegeofVeterinaryMedicinewillneedtosave15 percentofitsbudgetinthecomingyear.Thecollegereceivedfundsfromthefederal stimuluspackageinFY2010.Stimulusguidelinesdictatethestatemaintainacertain leveloffundingforthecollegeinFY2011.However,thecollegeshouldexpectdeeper cutsinFY2012andconsiderraisingtuitiontobecomparabletoveterinaryprogramsin surroundingstates.

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Closelyrelatedtooureducationalinstitutionsisthestateslibrarysystem and educational television.Librariesareprimarilyafunctionoflocalgovernmentsand shouldbefundedaccordingly.Mybudgetrecommendsareductionof$3.6millionin statesubsidiesforlocallibrariesfortheMississippiLibraryCommission. When tax dollarsarestretched,agencieswithaccesstoprivatefoundationsshouldbeencouragedto utilizethatfundingasreflectedbymyproposalfortheEducationalTelevisionAuthority totrimitsbudgetby 12percent. Simultaneously,statedepartmentsandagenciesare encouragedtouseMississippiPublicBroadcastingsfacilitiesandresourceswhenever practical.Oftenthatwouldsavecostsfor theotheragencyandincreaserevenuefor ETV. MaintainingHealth and Social Services ItisimperativetheDivisionofMedicaidandtheDepartmentsofHealth,Human Services,RehabilitationServicesandMentalHealthidentifyoverlappingexpensesand findwaystosharecosts.Asamatterofgoodpolicy,wemustincreasehomeand communitybasedservicesforMississippianswithdisabilities.Enablingindividualsto livein theircommunitiesnearfamiliesandfriendsfostersindependenceandcostsless thaninstitutionalizingpatients. TheDivisionof MedicaidprotectsMississippismostvulnerablecitizensby providinghealthcareforlowincomeanddisabledindividuals.Thestatewillcontinueto providethesevitalservices,butwemustimplementcostsavingsinordertokeepthe programviable. Unlesslegislativechangesaremadeto theprogram,Medicaidwillneedmorethan $200millionmorestatedollarsinFY2011than wasappropriatedinFY2010.InFY2012, Medicaidwillneedanadditional$220million instatefundingforatotalappropriationof$875 million.Quitesimply,theStateofMississippi cantaffordaMedicaidprogramthatcostsstate taxpayers$875millionayear. WemustreformMedicaid. Wecanstart byimplementingcostcontainmentmeasures thatwillallowMedicaidtogenerate$25million insavings. Themeasuresinclude:rollingback ratesof nonlongtermcareandnonhospital providerstolastyearslevelsincreasingthe longtermcareproviderassessmentto the federallyallowedmaximum rebasingall hospitalinpatientproviderratesimplementing ambulatorypaymentclassratesforallhospital

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outpatientreimbursementsandimplementingfederallyallowedloweroflogicsavings forallMedicarePartBcrossoverclaims.Wemustrelyon existingbroadbased communitysupporttoreducespendingondialysistransportation by25percent. Manyof thesemeasuresrequirestatutorychanges.Similarly,arecentSupremeCourtrulinghas establishedthattheLegislaturecanauthorizechangestotheMedicaidreimbursement programforpharmacies,andIurgelegislatorstoaddressthisissuequicklysoMedicaid canimplementthenecessarychangesthatwillresultin an additional $6millionin savings. Medicaidwillcutitsadministrativebudgetby7percent,producinganother$4 millioninsavings. ForFY2011, wemustspeedupraisingthehospitalassessmentfrom$56.75million to$75million tomatchtheFMAPrateimmediately.Lastyear, theLegislaturerestored partofthetax.Thestimuluspackagehasprovidedreliefinfundingtheprogram,butthe federal fundingisscheduledtorun outinthemiddleofFY2011andMedicaidwillneed morethan$200million.Raisingthehospital assessmentto$75million atthistimewill generatepartoftheneededrevenueforthestateandputthetaxonparwith thestate matchrequirement. Weshouldexpandcoordinatedcareservicesthrough theMississippiCoordinated AccessNetwork(MississippiCAN),aCoordinatedCareProgramforMississippi Medicaidbeneficiaries,asapathtocostsavingsinhealth care.MississippiCANwill improveaccesstoneededmedicalservicesbyconnectingbeneficiariestoprovidersfor preventativeandprimarycare.Theprogramwillimprovethequalityofcareby providingsupportservicesformanagingillnessesandempowerbeneficiaries. MississippiCANwillsavetaxdollarsthroughamoreefficienthealthcareapproach. Overtheyears,theStatehasreliedheavilyoninstitutionalcareformentallyill individuals.Goingforward,thestateneedstocommitfewerfiscal resourcesto institutionalcareandmorefiscal resourcestohomeandcommunitybasedcare.The DepartmentofMentalHealth can achievesavingsbyclosingfourDepartmentofMental Healthfacilitiesandsixcrisiscenters.Theseinclude: CentralMississippiResidentialCenter(includesonecrisiscenter) MississippiAdolescentCenter NorthMississippiStateHospital(includestwocrisiscenters) SouthMississippiStateHospital(includesonecrisiscenter) BrookhavenCrisisCenter ClevelandCrisisCenter

Theseareappropriatefirststepstosave$18millioninthecomingfiscalyearand another$10millioninFY2012. Moresavingswilloccurin theoutyears. Closingthe facilitieswillputagreaterrelianceon homeandcommunitybasedserviceslikethose offeredatthecommunity mental health centers.TheDepartmentofMentalHealthis workingoncontingencyplansforeachfacilitytoensureallpatientscontinuetoreceive mentalhealthservicesduringthetransitionperiod. Notallsavingswillbenetassome

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fundsmustbeprovidedtocommunitymentalhealthcenterstosupportthehomeand communitybasedcare. TheDepartmentofHumanServicesmustexamineexistingcontractsandservicesand reduceitsoverallbudgetby12percent.Additionally,wewillclosetheOakleyTraining Facility,whichcoststhestateroughly$300perchildperdaytocarefor120to150 children.Wewill save$22millionbyclosingthefacilityandredistributeaportionof thesesavingsamonglocaljuvenilecenterssotheymayabsorb currentOakleyresidents. OptimizingStateServices Inthesestarkbudgettimes,significantsavingscannotbeachievedsolely by purchasingfewerofficesuppliesortravelingless. Mississippihasmorethan100 agencies,manyofwhomoffersimilarservices.Allhavedirectorsandhiringdepartments thatmanageasmallstaff.Wehavearesponsibilitytotaxpayerstoavoidredundancyand wastefulspending.Theconsolidationofmanyboardsandsmallerdepartmentsinto existingstateagencieswillreduceadministrativecostsandpreventunnecessary duplicationofcertaintasks. Agencyconsolidationswillsavemoneywhileproviding moreefficientservicestotaxpayers. Evenagenciesthatarewhollyspecialfundagenciescanbecombinedtoachieve savings. Forexample,consideration shouldbegiventowhatsavingscouldbeachieved bymergingourthreestatepublicdefenseagencies. Mybudgetrecommendsdiscontinuationofstatesupportforfourentities,the MississippiTechnologyAlliance,theCommissionontheStatusofWomen,the EnterpriseforInnovativeGeospatialSolutionsandtheMississippiRiverParkway Commission.ThebulkofworkdonebyMTA(whichisnotastateagency)canbe performedbytheMississippiDevelopmentAuthority. TheCommissionontheStatusof Women shouldberolledintotheAttorneyGeneralsOffice. ThefunctionsofEIGScan berolledintotheexistinguniversitystructure,andtheMississippiRiverParkway Commission shouldbemergedintoMDA. Toensurewearespendingtaxpayermoneyinthemostefficientwaypossible, Mississippi will developandimplementacomprehensiveprogram toachievesignificant costsavingsthroughadministrativeinitiatives,suchasbulkpurchasing,joint procurement,andconsolidatingbackroomoperations,preferably intoasingleofficefor alluniversitiesandcommunityandjuniorcolleges.TheDepartmentofFinanceand Administration,inconjunctionwiththeInstitutionsof HigherLearningandthe Community Collegesystem,willcarryouttheseconsolidations. AgenciessuchastheTaxCommissionandMedicaidalreadyhaveworked successfullytorenegotiatestatecontracts. Theirgoodexampleshouldbefollowedby everystateagencythathascontractswithanoutsidevendor. Modernizingthestatestechnologycapabilities

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WhenIwasfirstelectedGovernor,mytopprioritywastocleanup thethen existing$720million budgetshortfall.TheLegislatureenactedlargepartsof Operation Streamlinetoreducecosts.Withyourhelp,wewereabletogetMississippibackinto theblackinonlytwoandahalfyears,withoutraisinganybodystaxes. Thistimepartofourstrategyistoachieveincreasedcollectionsoftherevenue owedthestate.Todoso,wewillprovideadditionalfundingtotheMississippiStateTax Commission,whichbecomestheDepartmentof RevenueatthestartofFY2011. Towardthatend,Iamproposinganincreaseof$4millionfortheMSTCtohire newauditorstoreclaimalargeportionoftheestimatedmorethan$260millioninknown liabilitiesowedtothestate.Collectingtaxesalreadyowedthestateiscriticalintodays budgetenvironment. Wemustalsorealizethatinadditiontomanpower,itiscriticalthat ourtaxcollectionagencyutilizemoderntechnologyinordertooperatemoreefficiently andeffectively. Mississippishouldemploytheimprovednewtechnologiesbeingutilizedbothin theprivateandpublicsectorstoachievecostsavingswhilealsoimprovingservice.For example,astheDepartmentofInformationTechnologyServicesrightlypointsout, significantcostsavingsaswellasimprovedperformancecouldbeachievedby consolidatingduplicativeIThardware,softwareandpersonnelacrossallstateagencies. Streamlinedtechnologypurchasingwouldimprovestategovernmentoperations. Additionally,weshouldarmtheITSBoardwiththeauthoritytoapprovetechnology expendituresandonlywhentherequestisconsistentwiththestatesITplan. Toaccomplishtheseinnovativeideas,therewillbeinitialonetimecapital costs, particularlyintheareaofIT.Weshouldspendanyonetimerevenuereceivedbythe stateforthefollowingonetimepurposes: TheTaxCommission reportsastateinvestmentof$33millionfor purchasinganewcomputersystem willenabletheMSTCtosignificantly enhancerevenuecollections. Sincethisisatoppriority,ifonetime moneydoesnotbecomeavailableIamwillingtoissueshorttermdebtto payforthissystem andpaybackanydebtwiththeincreasedrevenues realizedfromthenewsystem. AnotherneededtechnologyupgradeisDFAsenterpriseresourceplanning system,knownasMAGIC.Providingdollarstothesecritically needed upgradeswillnotonlysavemoney,butwillimproveaccountabilityand increaseefficiencyamongallareasofstategovernment. Privatizingwinesalestoincreaserevenue,improveservice DuringmyJanuary2009StateoftheStateaddress,Icommitted toimproving performanceandsavingmoneybycontractingoutpartsofservicesperformedbythe

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Bureauof AlcoholBeverageControl.Afteranalysis,IbelieveMississippicangenerate $2.5millioninnewrevenuebyprivatizingthewinefunctionsofABC. TheTax Commissionwillarrangecompetitivebiddingtoascertainthatprivatizationwillinfact increasenetrevenuetothestateaswellasimproveservice. EffectiveManagementofNaturalResourcesandAgriculture Fiveyearsago,IsuggestedcombiningtheMississippiForestryCommissionand theDepartmentofAgricultureandCommerceasawaytostreamlineservicesandshare expertise.IrenewandexpandthatproposalforFY2011aswelookoff abudgetarycliff. Mississippiisoneofonly sevenstatesmanagingitsforestryprogram asastandalone stateagency.Otherstatesoverseeforestmanagementthroughagricultural,university, environmentalornaturalresourcesdepartments.Foldingseveral othersmaller, independentlybudgetedagencies theSoilandWaterConservationCommission,the BoardofAnimalHealth,theFairCommission,theBoardofRegisteredForesters,the EggMarketingBoard,andtheBoardofVeterinaryMedicineintoonedepartment shouldresultinadministrativesavingsforallaggregatefunctions.Creatinganew MississippiDepartmentofAgricultureandForestrywillsavethestatemorethan $4 millioninFY2011withgreatersavingsinFY2012. Thenewlyformeddepartmentmust befreefromtherestrictionsoftheStatePersonnelBoard,asshouldallotherdepartments andagenciesduringthenexttwoyears. StreamliningBusinessServices TheDepartmentofBankingandConsumerFinanceshouldbeconsolidatedinto theSecretaryofStatesOffice.TheSecretaryofStatesOfficecurrentlyregulatesand monitorsbusinessesinMississippithroughregistration,licensing,andperiodicandfor causeexaminationsandenforcementproceedings,particularlyinthesecurities,charities andnonprofitsareas. TheDepartmentofBankingandConsumerFinancefitswellintotheSecretaryof StatesOfficebecausetheSecretaryofStatealreadyauditsbrokerdealersandother financialadvisors.Savingswouldbeachievedbyconsolidatingcommonfunctionswithin theSecretaryofStatesOffice.Auditorsandexaminerswouldbecrosstrainedwhen possibletoenhanceenforcementoffinancialregulatory lawsandallowpossible reorganizationofpersonnel.Education,publicationsandoutreachprogramswouldbe consolidatedintotheexistingdivisionattheSecretaryofStatesOffice.Administrative functionswouldbecombinedwithintheSecretaryofStatesOfficeresultinginthe reductionorreassignmentofpersonnel. Further,placinganemphasisononlineorelectronicfilingswouldresultin significantlongertermsavings,aswouldcombiningthefilingandfinancedivisionsof theagencies.TheexecutivedirectorwouldbecomeanAssistantSecretaryofState.

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IproposemovingtheGrandGulfMilitaryMonumentoperationstothe DepartmentofArchivesandHistory.Theagenciesmissionsarealignedandshouldbe operatedunderthesameadministrativestructure. KeepingthePublicSafe Thefirstfunctionof governmentistoensurethepublicssafety,andwecando thiswhileachievinglessersavingsatpublicsafetyagenciesthanbyothers. Theinmatepopulation attheDepartmentofCorrectionshasfallenby1,300 peoplethisfiscalyear,whichmeansthereareemptybedsandpartiallyutilized prisonunits.MDOCwill reviewitscapacityandfindsavings Additionalsavingsmustbemadeinthecostofinmatehealthcare The30/30TrustyTimeprogram which allowsatrusty whomeetseligibility requirementstoearna30dayreductionofsentenceforeach30daysoftrusty work,shouldbeexpandedtoallowadditionalinmatestoparticipateinthe programwhichwillsaveadditionalmonies and Thereimbursementrateforlocalconfinementshouldbereducedby 33percent. Stateinmatesprovideavaluablesourceof laborforMississippicountiesand benefitthelocalcommunities,andthatshouldbereflectedinreimbursements rates. TheDepartmentofPublicSafety willreduceitsnonlawenforcementworkforce andcontractemployees.IproposeshiftingtheDepartmentofTransportation EnforcementDivisiontoDPS.Officersinbothagenciesperformsimilarfunctions,and thereisnoreasonforsuchduplication. Thiswillimprovethepublicssafetyonthe stateshighwaysandroads. WehaveasmanytroopersatthehighwaypatrolaswhenI tookofficein2004. AsmuchasIwouldliketoincreasethenumberofnewtroopers,I donotbelievethestatecanaffordatrooperschoolinthecomingyear. Ensuringthecontinuedsafetyandjusticeforourcitizensmeansthestatehasa responsibilitytomaintainadequatefundingforthejudiciary.Mybudgetexemptsdistrict attorneysandtrialjudgesfromanycuts,andIhaverecommendedlessercutsof6percent forSupremeCourtServicesandtheCourtofAppeals.Whileallareasmustfind efficiencies,wecannotshortchangethestatejudicialsystemanditsmissiontohelplaw enforcemententitiesputcriminalsbehindbars. MaximumFlexibilityforDepartmentHeadstoRightSizeAgencies Stategovernmentmustdeliverservicesinthemostefficientandeffectivemanner, especiallyintheseunprecedentedtightbudgettimes.Ourmanagersinstategovernment mustbeaffordedmoreflexibilitytomanagealignmentoftheirservicestotheneedsof thepeopleandthemoneyavailable.

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Fromahistoricalperspective,weknowthistypeofflexibilityworks. Inrecent years,theLegislaturegrantedmaximumflexibilityandexemptionfromPersonnelBoard rulestotheDepartmentsofCorrectionsandAgriculture,which hassavedtaxpayers$60 million and$49million,respectively,sincethereorganization.Thisrestructuringwas donewithoutadeclineinthequalityofservicesprovided. Toweatherthesebudget constraints,everyagencyshouldbeallowedoutfromundertherestrictionsoftheState PersonnelBoardforatleasttwoyears,whichwillallowdirectors torightsizetheir organizations. InadditiontofreeingouragenciesfromStatePersonnelBoardrestrictions,Ialso recommenda12percentreductioninthe$140feeperPINchargedtostateagenciesto fundStatePersonnelBoardoperations.Byreducingthisfeeto$123,wearealigningthe feestructuretoreflectthe12percentreductionthatmostofstategovernmentwillseein FY2011,aswellasprovidingouragencieswithsomebudgetaryrelief. Budgetflexibilitybyawardinglumpsumappropriationsshouldbethestandard toallowneededflexibilitytomovefundsascircumstancesdictate. Itistimetogive maximumbudgetaryandrightsizingflexibility,butIwillsupportlimitationsonpay raisesasaconditionforthisflexibility. EnsuringtheIntegrityoftheStateRetirementandHealthInsuranceSystems Duetounsustainablebenefitenhancements passedduringthelate1990sandearly2000s, increasedcostsassociatedwiththestateretirement systemareinevitable.Whatwemustbewaryof, however,iscontinuingtoturnablindeyeto wrongheadedpoliciesthatsaddleonly thestates taxpayerswithanimpossiblefinancialburden. Beginninginthelate1990sthrough2002, theLegislatureapprovedbenefitenhancementsfor thestateemployeeretirementsystem.These enhancementsincludedaguaranteedthreepercent costoflivingadjustmenteachyearuntilage55, andcompoundedthereafter,aswellasseveral benefitaccrualincreaseswithacollectiveprice tagofmorethan$3billioninsystemliabilitycosts. ThatmeansMississippitaxpayerspay morethan $700millionannually tofundtheretirement system.Toensurepensionsustainability, considerationshouldbegiventomodifyingthe currentbenefitstructure,includingaccrualratesand automaticcostoflivingadjustments,forcurrent andprospectivestateemployees.

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InOctober,thePublicEmployeeRetirementSystem(PERS)Boardvotedto increasethestates(i.e.,taxpayers)contributionforretirementbenefitsbyafull1.56 percent,from12percentto13.56percent, resultingin additional costof morethan $70 milliontothestatebudgetandtaxpayers.Thisnumberdoesnotincludethe$20.3million costincreasesonotherentitiescoveredbyPERS,suchascountyandmunicipal governments(again,taxpayers).This1.56percentageincreaseintheemployer contributionratemeansthatMississippitaxpayerswouldhavetopayanadditional $90 millionforretirementbenefitsforgovernmentworkers. Whatsmore,thePERSBoardhasproposedalongtermplan thatwouldincrease theemployercontributionrate to18 percent,orawhopping$350millioninnewannual coststofundtheretirementsystem. Whilecitizensarebeingaskedtopay hugeincreasedcosts totheretirement system,employees(whoarethebeneficiariesof thePERSprogram)havepaidthesame rate(7.25percent)intothesystem since1991. Thisisobviouslyunfairtotaxpayers,so wemustrecalibratetheratioofcontributionspaidbyemployersandemployeestoensure thesystemhasintegrity,fairness,andissustainableinthelongterm. Therefore,inordertooffsetincreasedcostsassociatedwiththeretirementsystem, IamrecommendingnoincreaseinthestatecontributiontoPERSforFY2011,and that anynecessary increases,includingthe1.56percentproposedincrease,befundedthrough higheremployeecontributionsuntilwehavereachedafairbalancebetweentheamount ofcontributionspaidbybothemployeesandthe employer.StatelawauthorizesthePERSBoard tosettheemployeecontributionrateinorderto maintainthebenefitsthathavebeenpromisedto stateemployees,andIamcallingonthisboardto stepuptotheplatetoadoptaresponsibleand appropriateemployeecontributionratethatkeeps thesebenefitsintact.Asalongtermfundinggoal, IamrecommendingthatthePERSBoardandthe Legislaturereturnequitytothefundingsystemby avoidingunsustainablebenefitenhancementsas wellasensuringtheratioofemployerand employeecontributionsisnotonlyfair,but fiscallyresponsible. Asageneralretirementpolicy,Mississippi alsoshouldhaveabetterwaytomanagebenefits paidtoretireeswhocontinueservicewiththe state.IcommendtheLegislatureforitsproactive workonthisissueduringthelastlegislative session,whichrequireddocumentationtobefiled regardingallretireeswhocontinueworkingfor

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thestate. Toprotectthepensionplanandasamatteroffairness,retireeswhocontinue workingforthestateinanycapacity shouldalsocontinuecontributingtothefundingof thestateretirementsystem. Anotherrelated,criticallyneededareaofreformisthestatehealthinsuranceplan. Asapreliminarymeasure,theStateHealthInsuranceBoardvotedtoincreasepremiums by11percent,resultinginacosttothestateofapproximately$29.3million.Thisfigure isunacceptablehowever,IampleasedthattheBoardwillmeetagaintoaddressthisvery importantissue. BetweennowandthentheBoardneedstoconsidercostsofbenefitsfor allbeneficiariesoftheplan. Currently,taxpayerssignificantlysubsidizehealthinsurancefornonMedicare eligibleretirees. Benefitsfor theseretireescostthestatesome60percentmorethanthe premiumtheypay.Ipropose their(i.e.nonMedicareeligible,nondisabledretirees) premiumbeincreasedby15percentineachofthenextfouryearssothatpremiumsare moreinlinewiththeactualcostofprovidinginsurance,astheyarewiththecostsfor otherbeneficiaries. TheBoardistryingtokeepcostslowbydevelopingseveralproposalsthatwould helpmitigaterisingcoststothestate.Instinctively,weknowtherearesomeareaswhere truecostssavingscanbeachieved,suchasimplementingprogramstoencourageusageof genericdrugsandimplementingasurchargefortobaccousers.Ilookforwardto receivingtheBoardsfinalproposalsandwillworkwiththemtoenactlegislative changes,whereappropriate. Affordablehealthinsurance WhilethehealthcaredebatehasreachedafeverpitchonCapitolHill,Mississippi hasaplantoprovidequalitymedicalcaretouninsuredindividuals.Myproposed MississippiHealthInsuranceExchangeisdesignedtogivemany Mississippiansawayto buy,ownandkeephealthinsurance.Avoluntary,portableandaffordableoption would helpMississippifamiliesandsmallbusinesses.WhiletheSenatehassupportedthisplan repeatedly,theHousehasnot. Theplancreatesastateauthorizedhealthinsuranceexchangeforhealthinsurance options,andparticipation wouldbevoluntary.Forsmallbusinessestheexchangewould assumemany oftheadministrativefunctionsof ahumanresourcesdepartmentatalarge corporation. Undertheprogram,smallbusinesseswouldcontributeapredesignatedamountof moneytowardthecostof anemployeeshealthinsurance.Bynotingtheexchangeas theemployershealthplan,thecontribution wouldbecometaxfreeforthebusiness,and thehealthbenefitwouldbetaxfreefortheemployee. Forsmallbusinesses,theMississippiHealthInsuranceExchangewouldreduce premiumratesthroughexpandedpurchasingpoweraswellassavingadministrative

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costs.Forindividualsandfamilies,theprogramprovidesmoreoptionsforaffordable healthcare,includingtaxdeductibilityofemployeescontributiontopayinghealth insurancepremiums. Whilethisisnotacureallfortherisingcostofhealthcareorthe availabilityofinsurance,ahealthinsuranceexchangewouldbeaworthwhileway our statecanincreasethenumberofcitizenswithhealthinsurance. Strategicplanningkeycomponentofeffectivebudgeting In2008,IaskedLieutenantGovernorPhilBryanttoleadataskforcetorootout wasteandinefficiencyinstategovernment.Overthecourseofthepastyear,the CommissionforaNewMississippihasbeenworkingtodevelopaplantoachievethis mission,withfinalrecommendationscenteringaroundthreepoints:havingastrategic, statewideplanthatiswellcommunicatedacrossgovernmentalentitiesreforming performancebasedbudgeting,andcreatingastateagencyfromexistingentitiesto providecontinuousreviewandimprovementsofstategovernmentoperations. IurgetheLegislaturetoconsideradoptingthesemeritoriousproposals,whichI believecanhavelongtermimplicationsforimprovingthecurrentbudgetingprocess. Now,morethanever,wemustthinkdifferentlyaboutthewaystategovernmentis operated,includinghowthebudgetingprocessrelatestoefficiencyandeffectivenessin allofstategovernment.IsincerelyappreciatetheLieutenantGovernorandcommission membersfortheirthoughtfulplanthataddressestheseveryissues. Conclusion ThisExecutiveBudgetRecommendationisdramaticbutnotdraconian.The deliveryofservicessuchaseducationwouldchangeinseveralinstances,butquality itself wouldimprove.Savingswouldbeachieved,bothimmediateandlongterm. Someactionswouldbetemporarytogetusthroughthetrough.Usingaportionof localschooldistrictsfundbalances,forinstance,isashortterm fix.Consolidationsof districtsandmergersofuniversitieswillpay off foryearsanddecadestocome. TheLegislaturemaynotacceptalltheserecommendations.Indeed,Iwelcomeits alterationsoradditionalproposalsinFY2011,FY2012andbeyond.Wemustallaccept thatforafewyears,itcannotbebusinessasusualwithanybudget. AsIclose,however,ImustexpressmystrongoptimismforMississippis economyandourfuture.Ourstatewaslatefeelinganyeffectfromtherecessionbecause thestatehadsomuchmomentum ineconomicgrowth andjobcreationthatshouldallow ustohitthegroundrunningastherecessionends. Wecanbefirstoutofthechutebecausewenotonly hadmomentum(percapita incomeincreased27percentinfiveyearsandlowskilled,lowpayingjobswerebeing replacedwithhigherskilled,highertech,higherpayingjobs),butwealsohavedelayed economicdevelopmentprojectsinthepipeline.

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Toyotascontinuedcommitmentmeansinacoupleofyearsorso,our Toyota plantandsix ofourToyotasupplierswillopenwithmorethan4,000jobs.PACCARs engineplantinColumbuswillbeopen withinayearortwo. RedevelopmentatthePort ofGulfportwill beinhighgearsoon,andseveralenergyprojectsaregoingforward. Thebiggestissueisourattitude.Ifwestillhavethecandoattitudeaboutjob creationandMississippisfuturethatprevailedduring20042008,wewillbeanational leaderineconomicgrowthandjobcreation,emergingfromtherecessionsoonerand stronger.

Sincerely,

HaleyBarbour

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