STATE OF NORTH CAROLINA Omca or STATE Bonner AND WNAGEMENT PAT MCCRORY ART POPE 5 ran: BUDGET DtnEC'I'on June 24, 20M MEMORANDUM To: Senator Harry Brown Chairman of the Senate Conferees on Senate Bill 7?44 cc: Senate and House for 3744: Appropriations Act of2014 From: Art Pope aw State Budget Director, Of?ce of State Budget and Management Re: ?Real Numbers on Medicaid and the Lottery? Amy Auth was mistaken when she communicated to the media, on behalf of the Senate, that the Of?ce of State Budget and Management has been withholding ?real numbers on Medicaid and the lottery we [the Senate] requested from DHHS and OSBM to move forward on the budget.? First, in regard to the Lottery, DHHS and OSBM have never received a request from the Senate to provide numbers on the Lottery. As you should know, the NC Lottery Commission provided those initial estimates. Furthermore, the General Assembly?s Fiscal Research Division did a review and provided a formal estimate of the "baseline" revenue for Fiscal Year 201445, which was completed and provided June 20, 2014. OSBM did participate and agree to this estimate, making it a "consensus estimate.? However, if you do not believe these are ?real numbers" for the Lottery, I suggest you address your concerns to your Fiscal Research Division, as they were the primary authors. Second, in regard to Medicaid, OSBM has continuously provided to the General Assembly's Fiscal Research Division, the some ?numbers? in regard to Medicaid that have been received. You have been misinformed if you believe that OSBM and DHHS have a separate set ot??rea1 numbers" that have not been provided to the General Assembly?s Fiscal Research Division. OSBM, DHHS and the General Assembly?s Fiscal Research Division all agree that this is a uniquely dif?cult year to make exact estimates or forecasts based on the information available for Medicaid expenditures and receipts -- because of the historic changes under the Federal Affordable Care Act and two completely new computer systems (NC FAST and NC Tracks) that were initiated during Fiscal Year 2013-14. Of?ce location: 520!) Administration Bundling 116 West Jana. Street til - mm? ?mm 919-131?0640 10120 Ill Sen-tee Center NC 17699-0310 An EEDMA Employer ?Real Numbers on Medicaid and the Lottery" June 24, 2014 Page 2 The primary reason for the differences between the Medicaid projections utilized by the Governor?s Recommended Budget and the Senate version of the budget is due to different methodologies, rather than use ot?different numbers. I will defer to you to articulate in detail the Senate?s methodology, but it appears the Senate methodology is to make a Senate estimate for Fiscal Year 2014-15, which in turn is baSed on a Senate estimate made last year for Fiscal Year 3013?14, which is in part based on even earlier estimates made in previous years. The methodology used by OSBM and DHHS is to review, question and revise those old estimates based on the most recent year to date actual information on expenditures, receipts and, more recently, enrollment. And again, the most recent year to date actual information has already been provided to the General Assembly?s Fiscal Research Division. In regard to the Medicaid estimates for the remainder of this Fiscal Year 2013-14, the Governor?s Recommended Budget has been con?rmed. Based on the year to date actual information available as of March 30, 2014, the Governor?s Recommended Budget released May planned on a $70 Million in state cash surplus to be carried forward to Fiscal Year 2014- 5, which would be suf?cient to pay the state?s share for obligations of an estimated (netted to after accounting for other spending) in pending claims that were incurred that year, but not yet due and payable. This $70 million in cash would be in addition to another $60 Million in cash that would be set aside and carried forward to FY 2014-15 for Federal obligations. Now that the state has issued its last ?check write" for FY 2013-14 and based on the year to day actual receipts, we believe the cash surplus for Medicaid for FY 20 3? 14 to be carried forward to remains safely within this range. See the updated summary Attachment A, containing information previously provided by OSBM to the General Assembly?s Fiscal Research Division. It is good news that for the ?rst time in four years, there is a cash surplus for Medicaid at the end of Fiscal Year 2013?14, and thus no supplemental appropriation was needed during the year, as was the case for the budgets enacted by the Senate in 201 1 and 2012. See Attachment for a summary of Medicaid shortfalls from prior budgets. in regard to Fiscal Year 2014-13, the current enacted biennium budget already contains a $146 Million increase, or "rebase? for Medicaid over Fiscal Year 2013-14, for a total increase of $506 Million over Fiscal Year 20124013. Based on the actual year to date information through March 30, 2014, for Medicaid, the Governor?s Recommended Budget did not recommend an additional increase for the ?rebase.? However, given the uncertainties due to the changes under the Affordable Care Act and the new computer systems, the Governor?s Recommended Budget did recommend a $50 Million Medicaid Risk Reserve, with an additional $100 Million unappropriated, which would make available a total of$150 Million for any potential Medicaid shortfall in Fiscal Year 2014-13. "Real Numbers on Medicaid and the Lottery" June 24, 2014 Page 3 Given the most recent year to date actual information, including the ?nal check write for the current FY 20] 3-14, OSBM still respectfully disagrees with the Senate's ?worst case? scenario for Medicaid based on old estimates, that would require an additional funding of in this year?s budget, For a total increase of$352M for Medicaid for FY 2014?15 over and above the enacted budget for FY 201344. However, as you and I discussed last week, the Governor is willing to support a larger appropriation than the $50 Million to a Medicaid Risk Reserve originally provided in his May 14?11 Recommended Budget, especially since the Senate left zero dollars unappropriated for Fiscal Year2014-l5. Governor McCrory believed we were off to a good start resolving the budget issues at the meeting last Thursday with Senate President Pro Tempore Phil Berger, yourself, other Senators and members ofthe McCrory Administration. OSBM and DHSS have continued to meet with and provide infon-nation to the Fiscal Research Division as updates are received. On behalf of the Governor, we look forward to continuing to work with you and your Senate colleagues, as well as the House, on what is the appropriate amount for a Medicaid Risk Reserve, as part of an overall balanced budget that meets the needs and priorities of the citizen of North Carolina1 without imposing unnecessary hardships. 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