October 2009

State News: August 2009



As states grapple with the faltering national economy, many are coming up short on their budgets, forcing cuts to essential programs and the looming prospect of employee layoffs or wage freezes. Forty governors gave their State of the State addresses before Feb. 4, and offered their perspective on the dire situation.
By Mary Branham Dusenberry
Connecticut Gov. M. Jodi Rell cut straight to the point as she stood before lawmakers to give her State of the State address Jan. 7.
“These are the worst financial times any of us can remember,” she said. “Let’s face it, it’s scary.”
Perilous, challenging, painful—the words used by governors echoed Rell’s sentiment about the state of the economy across the country.
In fact, budget gaps ranging from $150 million in Vermont to $42 billion in California have left governors with little room to propose or grow programs.
California Gov. Arnold Schwarzenegger focused the entirety of his brief address Jan. 15 on California’s budget shortfall and souring economy. “The $42 billion deficit is a rock upon our chest and we cannot breathe until we get it off,” he said. “It doesn’t make any sense to talk about education, infrastructure, water, health care reform and all these things when we have this huge budget deficit.”
As he worked with legislators for a plan to fill the hole, Schwarzenegger warned in early February of pending layoff notices for more than 20,000 state workers unless a deal was reached, according to the San Francisco Chronicle.
Schwarzenegger wasn’t alone in having to deal with cuts and layoffs. Governors in several states—including Alabama, Alaska, Colorado, Hawaii, Kansas, Kentucky, Minnesota, Montana, Nevada, Pennsylvania and Virginia—proposed hiring freezes, wage freezes and/or pay cuts for state employees in their State of the State addresses.
Michigan Gov. Jennifer Granholm took the wage cuts a step further: She directed the State Officers Compensation Commission to reduce the salaries of all state elected officials in Michigan by 10 percent. And Minnesota Gov. Tim Pawlenty imposed a wage freeze on state employees for two years, and proposed legislation requiring a wage freeze for any Minnesota government entity that accepts state money.
Nevada Gov. Jim Gibbons stressed a 6 percent pay reduction for state employees would be better in the long run than wide-scale layoffs. “We cannot give raises with money we do not have,” he said.

Filling the Budget Gap

Several states had been facing budget shortfalls even before the economy tanked in September. At least 46 states face a combined budget gap of at least $350 billion through this and two subsequent fiscal years, according to the Center on Budget and Policy Priorities. Only Montana, North Dakota, Wyoming and West Virginia do not have a shortfall in this fiscal year or are projecting one for next year, according to the center.
That means many states are putting projects on hold and cutting programs. And several states are pulling money from their rainy day funds to cover needed programs.
“We cannot commit to expensive new programs or huge increases in existing programs, because we don’t have the money to do so,” said South Dakota Gov. Mike Rounds. The state pulled $28.2 million out of reserves to balance this year’s budget, but Rounds requested only $4.6 million for next year’s budget. If approved, that action would drop the state’s budget reserves to $99 million, he said.
New York Gov. David Paterson said his state, hit hard by the national recession, is facing “savage fiscal choices” and the largest budget deficit in its history.
“Our government must now do what New York families have been doing for years—make painful choices about what we can and cannot afford … We must sacrifice what we want today so that we can pay for what we need tomorrow.”
Separating “wants” from “needs” wouldn’t go far enough in some states. While some governors proposed across the board cuts, others proposed more targeted cuts. But even sacred programs like education take a hit in some states.
“Political mantras aside, cutting more than 10 percent from a budget cannot be achieved by simply cutting waste,” said Georgia Gov. Sonny Perdue. “While we have worked for six years to do more with less, at some point, in business or government, it becomes less with less.”
He recommended pulling the maximum amount for appropriations from reserves—$50 million for this year, $408 million for next year and $187 million for a midyear education adjustment.
And New Mexico Gov. Bill Richardson proposed drawing down the reserves from 10 percent to 8 percent to balance the budget and maintain the state’s high bond rating. “For the last six years, I’ve staunchly defended a 10 percent reserve—or rainy day fund,” he said. “But, if our national economy is the weather, then it’s raining—hard.”
But even as most states are dealing with cuts and raiding the reserves, North Dakota is building its rainy day fund. Gov. John Hoeven plans to grow the budget stabilization fund from $600 million to between $800 million and $1.2 billion.
“Our economic growth and diversification, along with good financial stewardship, has enabled us to build a surplus and a solid financial reserve for the future,” he said.
Even though Wyoming is not listed on the Center on Budget and Policy Priorities list of states projecting a shortfall, Gov. Dave Freudenthal is making pre-emptive cuts to avoid bigger problems down the road.
“We have a false sense of immunity in Wyoming,” he said. “Wyoming has historically been a state that enters a recession late and exits a recession late. And that pattern is being repeated in Wyoming today.”
The dramatic rise and fall of the price of oil led to that false sense of immunity, Freudenthal said. People were talking about a huge budget surplus in the summer and interim committees were putting together proposals that included those revenue forecasts, he said. His budget proposal cut funding for such programs as the Wildlife Trust Fund, the Library Trust and the Cultural Trust Fund, as well as individual projects like a proposed Big Horn Basin Discovery Center.
Wyoming and other states, though, face far greater cuts in core programs as the recession deepens. Some governors, though, tried to exempt programs such as education, health care and corrections from cuts, and even offered increases in funding in some areas. And the prospect of a federal stimulus bill looming, many governors stressed the importance of work on state infrastructure.
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