State Officials Share Real Solutions
by Mikel Chavers
Virtually all state officials are talking about the recession and its historic effect on state finances. But Kentucky Senate President and 2010 Chair of The Council of State Governments David L. Williams said “we can do more than just talk about it.”
Williams and South Dakota Gov. Mike Rounds, 2010 President of CSG, hosted the CSG Economic Summit of the States in New York City May 20–23 to provide a forum for state officials to share real solutions to the issues the states face.
You’ve heard all the stats.
States are cutting budgets and revenues are dwindling. Thirty-eight states increased taxes and fees to the tune of $24 billion, the largest net increase since 1979, according to Susan Urahn, managing director of the Pew Center on the States, a speaker at the summit.
“We will have a new economy after this recession,” Oregon Rep. Arnie Roblan said at the summit, “so we had best figure out some long-term solutions to control some of those costs.”
But that’s exactly the challenge. Thinking long-term isn’t easy when states are struggling to balance the budgets. “We spend all the time and resources reacting to the fires at the time,” Kansas Senate President Stephen Morris said during the summit.
One of those long-term challenges is funding states’ pension obligations, a can that’s being kicked down the road as states skip out on fully paying for their employee retirement benefits. Urahn said this is an issue that’s really bubbling to the surface as states are facing a trillion dollar gap in unfunded pension liabilities.
“We make some of these decisions without that long-term fiscal impact discussion,” Hawaii Rep. Cindy Evans said at the summit. She’s seeing this in Hawaii’s public retirement system.
States not funding pensions is a national threat, Williams said, and one that needs to be pushed on a state-by-state basis.
Some states must fully fund pensions by law, and that’s led states such as Arizona to have healthy pensions even in a recession.
Public education, health care and retirement benefit costs will continue to be a significant cost driver for states, said Scott Pattison, executive director of the National Association of State Budget Officers, who spoke at the summit. He suggested states will likely have to require public employees to contribute more to their health care benefits.
In addition, Pattison said states will have to cut some services, manage their rainy day funds carefully and use their market power to keep their costs down.
South Dakota is one state with more in its rainy day fund than most.
“Since 2008, we haven’t touched our reserves in large part, because we used the federal (stimulus) money to replace the dollars that we were losing,” Rounds said. He headlined the Opening Session of CSG’s Economic Summit of the States.
This year the state made some additional cuts in higher education and state employees didn’t get a raise for the second year in a row, for example, according to Rounds.
“We’ve been able to live within our means so far,” he said.
But it isn’t always as straightforward as living within a state’s means. For some states, there have been many more outside factors at work. The decline of the domestic auto industry hit Michigan hard. But it’s not the only state battling against reduced revenues.
Michigan has a projected $1.7 billion shortfall in the next fiscal year, for example, said Sen. Ron Jelinek, chair of Michigan’s Appropriations Committee. The state is exploring alternative energy, redirecting trust fund dollars and raising some fees and taxes, he said.
“We’re trying to spread our wings out a little bit, but it’s a slow process,” Jelinek said.
In Florida, the state is battling the misperception that it hasn’t cut spending, said Sen. Thad Altman, chair of the state’s Committee of Finance and Tax. In truth, Florida currently has a $70 billion budget, slightly down from previous years, Altman said. Still, the state was hurt by a decline in property tax revenue in 2007 and is also exploring alternative energies and renewable energies such as biomass, he said.
Clear collaboration between legislators, fiscal analysts and the executive branch can also help states close their fiscal gaps, John Nixon, executive director of the Governor’s Office of Planning and Budget in Utah, said at the summit.
“It is these times that test us. We have to ask those questions that we didn’t ask when there was enough money not to ask the questions,” Roblan from Oregon said.
—Mary Branham and Mike Jackson contributed to this report.