1. Reinventing Michigan: Investing in our Future SAAABA April 18, 2012 Presented by: Phillip Jeffery Chief Deputy Director, DTMB

2. Today’s roadmap Summary of Accomplishments Where we are Today FY 2013 Budget Principles FY 2013 Strategic Investments Questions 2

3. FY 2012 Accomplishments Structurally Balanced Budget – $1.5 B perpetual deficit eliminated New predictable & stable tax system that is simple, fair & efficient Made first deposit of $255 M into the Budget Stabilization Fund since 2004 Fiscal Order Restored 3

4. FY 2012 Accomplishments Fiscal Order Restored Added $280 M to fully fund actuarial required contributions for post retirement benefits OPEB legislation caps long-term post retirement healthcare liabilities Immediately reduces states $14.7 B unfunded liability by over $5 B Protects current employees Incentives for new employees to save for post retirement healthcare needs – 2% match for 401K Addressed Long-term Liabilities 4

5. Improving Economy Where we are today Change in Michigan Private Sector Employment (Thousands) Source: Bureau of Labor Statistics. 5

6. Improving Economy Where we are today 8.3% Jan 12 8.8% Feb 12 Source: Bureau of Labor Statistics. 14.1% Aug 09 – Rank 50th 10.1% Oct 09 Michigan U.S. 8.8% unemployment lowest since September 2008 6

7. Improving Economy Reverse trend of people moving out of Michigan Where we are today 7

8. Improving Economy Where we are today Revenue growth strongest in over 10 years Source: FY12, FY13 & FY14: January 2012 Consensus estimates. GF-GP Revenues Year-Over-Year Percent Change 8

9. FY 2013 Budget Principles Maintain Structural Balance Separate ongoing & one-time money No one-time money in the base budget Protect education & stabilize state agency budgets Invest in critical infrastructure, economic development & public safety needs Meet the needs of the most vulnerable among us by investing in important safety net programs Save for the future 9

10. Total FY 2013 Budget Recommendation Health & Human Services Public Safety $2.5B Total $48.2B Government Services Jobs $5.2B Environment $836M Education $14.7B Budget Stabilization $130M $21.7B $2.6B

11. $195 M gross ($120 M general fund) – continue providing assistance to Michigan businesses $100 M – business attraction & economic gardening – moved to ongoing funding $25 M ongoing – Pure Michigan $25 M ongoing – innovation & entrepreneurship $15 M ongoing – support long-term unemployed $5 M ongoing – arts & cultural grants 2013 Strategic Investments Job # 1 is Jobs – MEDC 11

12. 2013 Strategic Investments Creating Talent in a P-20 System Early childhood – $12.5 M FY 12 K-12 – 2.5% ongoing increase – 1% total increase Protected per pupil foundation allowance – $8.7 B $200 M for performance & innovation Best practices – $120 M Student growth – $70 M Consolidation Grants – $10 M Long term liabilities – $179 M Education – K-12 12

13. Increased funding for higher education institutions by 3% ($36.2 M general fund) tied to new formula based on 4 criteria: 1.Growth in number of undergraduate degrees 2.Undergraduate completions in critical skills areas 3.Undergraduate Pell Grant recipients 4.Compliance with tuition restraint Recommends 9 university capital outlay projects for construction – ($500 M total – $250 M state share) 2013 Strategic Investments Education – Higher Ed 13

14. Increased funding for Community Colleges by 3% ($8.5 M) Distributed based on the number of certificate & associate degree completions in critical skills areas Recommends 9 capital outlay projects for construction ($110 M total – $53 M state share) 2013 Strategic Investments Education – Community Colleges 14

15. Additional $43.1 M in general fund – 16% increase Regional Policing Plan for mobile policing Staffing in Forensic Sciences – reduce processing time for forensic tests for criminal investigations – $3.1 M Replace critical equipment – $2.7 M Two Trooper recruit schools – graduate 180 troopers – $15 M 2013 Strategic Investments Public Safety – Michigan State Police 15

16. $257 M ($87 M general fund) for caseload & utilization growth $34 M ($10 M general fund) – provide autism coverage for children eligible for Medicaid or the MiChild program $25 M ($8.4 M general fund) – Healthy Kids Dental program phased-in expansion $7.5 M ($3.4 M general fund) to expand MI Choice waiver $6 M general fund for health & wellness initiatives 2013 Strategic Investments Safety Net – Community Health 16

17. $11.3 M ($6.3 M general fund) – increase basic rate for foster parents by $3 per day $60 M in restricted funds for home heating assistance for the vulnerable 2013 Strategic Investments Safety Net – Human Services 17

18. Agriculture – $1.5 M – food safety Judiciary – $1 M – Mental Health Courts Natural Resources $5 M – Summer Youth Program – teens in Flint, Detroit, Pontiac & Saginaw Dam Safety Program – $2.5 M 2013 Strategic Investments Other Government 18

19. $119 M – one-time general fund appropriation ($3.3 B gross funding) Allows state to maximize matching federal aid Allows time for the legislature to develop long-term road & transit funding solution 2013 Strategic Investments Infrastructure – Transportation 19

20. $10 M increase for environmental clean-ups – restricted refined petroleum fund $5 M additional general fund – state match to obtain federal grant dollars for drinking water revolving fund 2013 Strategic Investments Infrastructure – Environmental Resources 20

21. No longer deferring maintenance costs for state facilities Preserves critical physical assets – prisons, hospitals & office buildings State Building Maintenance – $25 M total Armory Maintenance – $4.8 M total Restacking $7 M 2013 Strategic Investments Infrastructure – Maintenance 21

22. Restacking Goal Better utilize space assets used by state agencies 1.Maximize state-owned space – filling vacant space resulting from State’s retirement incentive & attrition 2.Increase the capacity of state-owned & leased facilities – align the size of each workstation to private industry standards 3.Enhance use of workspace through technology & shared workstations – examine the space and business needs of each worker during workspace design 4.Improve agency efficiency through co-location within and across departments 10 22

23. Proposed Restacking Plan Standardization Review the balance of individual vs. common space Move toward industry standards Reduce number of standard sizes Review the functional need for floor-to-ceiling offices Phase in as agencies move to cause minimum disruption & expense Overall goal – 225 sq. ft. per employee space utilization (including common areas) 23

24. Proposed Restacking Plan Benefits of Standardization Standards based on private industry practices would: Utilize shared meeting spaces & more innovative design concepts Significantly reduce time & labor cost by minimizing reconfiguration between tenants Increase building capacity by as much as 30% Potential overall reduction of 1.5 M sq. ft. of office space 24

25. Restacking Plan Next Steps Budget request submitted for $7 M for first building: First priority - Constitution Hall - due to significant vacancy Continue working with partner agencies to establish correct standards & determine individual space needs Beginning space planning to meet agency requirements 25

26. Restacking Plan Next Steps Savings will result from “Domino Affect” Work to place agencies together for efficiency in operations Reduce lease space once agency placement is strategically decided ROI will begin between 12 – 18 months - depending on agency placement Payback in 3 – 5 years 26

27. $50 M – ongoing funding to address highest need areas based on a formal risk assessment Technology is the backbone for more efficient & effective government services Long term savings Improved efficiency Improved customer services Increased usage rate 2013 Strategic Investments Infrastructure – Information Technology 27

28. ICT consolidated IT services into one agency Maximizes IT operations & enables innovation Economic climate forced Michigan to re-evaluate everything IT initiatives focus on increased efficiency & financial sustainability for services & operations Mobile devices & social media redefined citizens expectations when interacting with government Engaged Gartner for IT Assessment to identify areas of improvement, untapped opportunities & others means to become more efficient & effective Michigan’s IT Background 28

29. IT Assessment Goals: 1.Improve customer service 2.Implement sustainable & innovative governance model 3.Reduce cost of procuring, implementing, operating, upgrading & replacing ICT infrastructure products, applications & services 4.Increase attraction, retention & development of workforce 5.Enable cost savings & better government through shared solutions & cross-boundary partnerships 6.Implement best-practice ICT solutions & technologies Michigan’s IT Background 29

30. IT in Michigan has been substantially underfunded compared to peer organizations Michigan spends 1% of operating expenses on IT Peer organizations spend an average of 3% of operating expenses on IT IT Spend % of Operations 0% Peer Average (3%) State of Michigan (1%) Peer Range Median 50% 1% 2% 3% 4% 5% Summary of Findings Michigan Spends a Lower Percentage of Operational Expenses on IT than Peer Organizations 30

31. Michigan spends approximately $12,084 per employee Peer organizations spend an average of $15,751 per employee. With 47,918 employees* - Michigan under spends peer organizations by approximately $175M in aggregate IT Spend per Company Employee 0% Peer Average ($15,751) State of Michigan ($12,084) Peer Range Median 50% $2,000 $4,000 $6,000 $8,000 $10,000 $12,000 $14,000 $16,000 $18,000 $20,000 $22,000 Summary of Findings Michigan Spends Less Than Peers on an IT Spending per Company Employee Basis *Source: Michigan Civil Service Commission HWF2, 2011 31

32. Michigan’s spending on capital expenses 11% Peer organization's spending on capital expenses 35% Organizations with a higher capital spending may… Be investing heavily in strategic IT infrastructure Have reached a planned point of investment in their infrastructure life cycle Not have been managing asset investments well (i.e., “catching up”) Simply have a more aggressive capitalization policy Michigan is far below peer averages, which suggests the inverse of the scenarios listed above Summary of Findings Michigan Spends the Majority of IT Funds on Operational Expenses 32

33. High -“run” spending may indicate a limited strategic role for IT High -“grow” & “transform” spending might indicate IT has a stronger strategic role where the focus should be on ROI The graph illustrates peer averages for IT budget distribution from a run/grow/transformation perspective Michigan’s proportion of operational expenses, data suggests that current spending patterns limit growth & transformative efforts Summary of Findings Emphasis on Spending to Run the Business Limits Growth & Transformative Objectives 33

34. Prospective View Assumptions: IT spending increases by $50 M per year 90% of additional spending is allocated to capital projects or capital expense items Percentage operating expenses could be reduced if - Existing expense items are converted to capital expense items Overall application maintenance costs are reduced Prospective View of IT Spending (IT Expenditures % of Total) Current View of IT Spending (IT Expenditures % of Total) Measuring Success Prospective Spending Model for Transformation 34

35. Deposit $130 M into the Budget Stabilization Fund Brings total at the end of FY 2013 to $388 M Total OPEB payment is $744 M gross – $367 M general fund 2013 Strategic Investments Save for the Future 35

36. People are taking note July 2011: Fitch Ratings announced revisions to Michigan’s Rating Outlook for all bonds from Stable to Positive due to: Continued evidence of a return to structural balanced budget Continued progress toward re-building reserve funds Continued employment recovery 36

37. People are taking note November 2011: Bloomberg Economic Evaluation of States (BEES) ranked Michigan 2 nd best forecast for economic health in nation based on 6 key indicators: 1.Tax revenue 2.Personal income 3.Employment 4.Home prices 5.Mortgage foreclosures 6.Stock performance of in-state companies 37

38. People are taking note February 2012: Tax Foundation upgraded Michigan’s State Business Tax Climate Index from 49 th to 7 th in the nation. Tax Foundation measures this based on which states have the most neutral, simple & business-friendly tax structures. According to Tax Foundation, it is clear the 2011 tax reforms are a “major improvement for Michigan’s business tax system.” 38

39. People are taking note February 2012: Moody's Investors Service commented in it’s Weekly Credit Outlook that Governor Rick Snyder’s FY 2013 budget proposal is a “credit positive” for local governments & “a key turning point” for Michigan. 39

40. Thank you Any Questions? 40