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States Face Difficult Task in Balancing Budgets

By Jennifer Burnett, CSG Senior Research Analyst and Debra Miller, CSG Health Policy Director
While some economists believe the national economy began its recovery last year, it will likely take years for states to see any respite from the economic storm wreaking havoc on revenues and fiscal stability. In the meantime, states have to figure out how to balance their budgets using controversial tax increases and program cuts—leading to intergovernmental disagreements, legal challenges and special sessions.
It’s a fight to maintain balance.
The Supreme Court of Minnesota weighed in on the state’s budget process, after it struck down Gov. Tim Pawlenty’s special use of his executive powers last June to make further budget cuts after the legislature went home—what’s called the governor’s “unallotment power.” Pawlenty slashed $5 million from a nutrition program for low-income Minnesotans, among other cuts, pitting him against lawmakers who have long asserted his actions were illegal, according to Minnesota Public Radio.
The Minnesota Supreme Court decision potentially leaves a $3 billion budget gap for the current two-year budget ending June 30, 2011. Pawlenty asked legislators to simply ratify his original cuts but democratic legislative leaders have rejected that proposal so far. The state’s constitution mandates the legislature adjourn by May 17.
Budget battles in the state aren’t just due to the recession and have been brewing over time, according to John Hottinger, former state senator and majority leader. “The state has been on this pathway for nine years. It is a reflection of the stagnant policy directions on both sides of the aisle,” Hottinger said. “No matter the resolution, Minnesota will still face a monstrous deficit for the next two years.”
This isn’t the first battle on balancing a state budget. The Kentucky Supreme Court weighed in on a budget tug of war in 2005. The court ruled that if the legislature did not adopt a balanced budget, the Kentucky governor did not have the authority to continue to operate state government, with some very few exceptions of constitutionally mandated services.
That court decision set the backdrop for this year’s budget battle. The 2010 session of the Kentucky General Assembly ended without a budget and Kentucky Gov. Steve Beshear has said that if no compromise can be reached the results will be “cataclysmic,” according to the Lexington Herald-Leader.  Beshear said in a April 28 letter to state legislators that he needs time to plan for the shutdown of state government and that a budget must be adopted by June 1. That’s also the date when the state must refinance existing bonds to get the savings of lower interest rates that figure into any plan for a balanced budget.
In Nebraska, where net tax revenue in April was 14.6 percent below official projections—that’s nearly $52 million less than expectations—state lawmakers may face another contentious special session this summer, according to the Omaha World Herald. Gov.Dave Heineman was forced to call a special session last November when revenues came in lower than projected, resulting in a $334 million budget gap. The regular legislative session ended in March, in which the governor and legislators reduced the current two-year budget by an additional $48 million, accomplished in part by across-the-board cuts to state agencies. Nebraska’ next two-year budget cycle will begin in July 2011, with current estimates for the budget deficit at that time running around $670 million.
Many states have zeroed in on cuts to the state government work force. The state government work force across the country has certainly not been immune to the budget cuts, according to Leslie Scott, executive director of the National Association of State Personnel Executives, an affiliate of The Council of State Governments.
“Although controversial, furloughs have been a common approach to cutting personnel costs with at least half of the states utilizing this option,” said Scott. While state worker furloughs have become more common, such action has led to legal battles with employee unions.
New York Gov. David Paterson announced May 10 the legislature had approved a one-day-a-week furlough for state employees, eliciting a swift response from the state’s 100,000 workers and unions. According to the Long Island Press the Public Employees Federation and the Civil Service Employees Association unions are already seeking a temporary restraining order to block the measure. Paterson defended the move saying, “(the budget) includes tough, but necessary cuts across every single area of state spending. At a time of unprecedented fiscal crisis, every single organization and individual that relies upon state funding needs to make sacrifices.” 
New York will likely face legal battles now familiar to California, which has been using furloughs to cut costs since early 2009. California public labor unions have fought the furloughs, filing more than two dozen lawsuits. In April, the California Supreme Court decided it would not step into the fight, leaving the fate of the lawsuits up in the air, with lower courts split over whether the governor has the authority to furlough, according to the Los Angeles Times.
In Illinois, legislators were sent home to cool off after the House and Senate failed to agree on the budget, battling over tax increases, budget cuts and bonding to balance the budget. The legislature faces a May 31 deadline, after which the state constitution requires supermajority votes to approve the budget. The Senate has a sufficient Democratic majority to meet the supermajority requirement but the House does not.
Illinois Sen. Mattie Hunter said legislators are considering several options predicts the state will have a budget by midnight May 31. She is less sanguine about the budget cuts the state faces, noting that all the interest groups are coming to protest in Springfield. “Had we passed tax increases last year, we wouldn’t be looking at a $13 billion deficit,” said Hunter.
While many states still face a long road of controversy and compromise to finalize budgets for the upcoming fiscal year, others have found common purpose in the crisis.
Alabama’s legislative and executive branches worked together to protect Medicaid and corrections from the negative impact of 12 percent across-the-board general fund cuts in the current year budget. The legislature this year increased the two budgets. That meant when the across-the-board cuts were applied through proration, which Alabama Gov. Bob Riley was required by law to declare on April 30, the Medicaid and corrections budgets essentially remained whole.
State leaders, however, expect more layoffs and furloughs before the end of the budget year, which in Alabama is not until Sept. 31. “State government is going to live within its means just as Alabama families and businesses do,” Riley said in an April 30 press release . “That’s what the taxpayers expect and that’s what they’re getting today.”

 

Resources
  1. Senate, House pass budget bill; veto looms, Minnesota Public Radio
  2. "Beshear says government shutdown would have ‘cataclysmic impact’" Lexington Herald-Leader
  3. State revenue falls short, Omaha World-Herald
  4. Public Workers Union Fights NY Furloughs, Long Island Press
  5. General Fund Agencies Begin Proration as Expected, Press Release from Alabama Gov. Bob Riley

 

 

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