States are well-positioned to handle an economic downturn, but long-term budget challenges remain

Shelby Kerns jokes that when she worked in the Idaho state budget office in the not-so-distant past, she “probably would have sold my soul” for year-over-year revenue growth of 5 percent.

Collectively, states got a lot more than that in fiscal years 2021 and 2022: inflation-adjusted increases of 12.7 percent and 7.6 percent, respectively. Several factors led to this unparalleled period in state finances — most notably, large amounts of federal dollars going directly to states as well as into the overall economy, and a temporary shift in consumer spending toward taxable goods and away from nontaxable services.

“We have some pain on the horizon rolling off these one-time [federal] funds, and eventually we will have an economic downturn,” Kerns, now executive director of the National Association of State Budget Officers, said in July to the region’s fiscal leaders at the Midwestern Legislative Conference Annual Meeting.

But Kerns said states are better prepared than ever before to handle the pain.

At one time, the goal of budget leaders was to have the size of state rainy day funds be equal to 5 percent of general fund spending. Estimates for FY 2023 among the 50 states showed rainy day funds on pace to be at 13.2 percent; that compares to 4.4 percent in FY 2009.

More than in years past, too, state leaders are recognizing the cyclical nature of state budget conditions, Kerns said, as evidenced by a change in the kind of tax-cutting measures being proposed by governors: In FY 2024, they called for more than $13 billion in tax cuts, but more than half of that amount only would have only a one-time, rather than recurring, impact on revenue.

“That’s a really important point and shows how strategic you all are being,” Kerns said.

In a separate presentation during the same session, Justin Theal of The Pew Charitable Trusts discussed the value of incorporating long-term fiscal strategies into ongoing budget discussions and negotiations. For example, by conducting budget “stress tests,” legislators learn how prepared their state is for a moderate or severe recession — and how large rainy day funds should be.

Likewise, fiscal leaders can get a better picture of potential structural deficits on the horizon by requiring budget projections to go beyond the next year or two, but instead as much as 10 years into the future.

Over the longer term, Theal said, states face three major fiscal challenges, all of which are best addressed during times likes this  — when revenue has been growing and surpluses are high.

One of those challenges is the need for more funding to respond to natural disasters. Most states have accounts for this purpose, he said, but little money is in many of them.

Second, about 30 percent of states’ future pension obligations are unfunded, though these numbers can vary widely from state to state. For example, Wisconsin’s and South Dakota’s systems are fully funded, whereas Illinois’ system is less than 50 percent funded. Indian a is among the states where a portion of budget reserves is now automatically directed toward paying down pension obligations, Theal said, while the Illinois, Kansas and Michigan legislatures recently authorized supplemental payments (above what is required by statute) to state or local pension systems.

A third long-term challenge is infrastructure, Theal said, with states facing unfunded liabilities of at least $1 trillion in deferred infrastructure maintenance.

 

 

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New MLC Energy & Environment Committee hears how changes in climate, shift to renewables will impact electrical grid

The Midwest’s transmission grid is rapidly evolving to handle the dramatic shifts toward renewable energy for power generation and customer usage patterns wrought by climate change, but this transition is still measured in years.

That was the message from Bob Kuzman, director of state regulatory affairs for the Midcontinent Independent System Operator (MISO).Map of Midwestern states showing their percentages of total 2022 electricity generation from wind, solar, nuclear or hydro

Kuzman, a former Indiana legislator, provided lawmakers with an introduction to the regional electrical grid at the Midwestern Legislative Conference Annual Meeting in July. He was the featured presenter at the first meeting of the MLC’s new Energy and Environment Committee.

MISO operates 72,000 miles of transmission lines, including in Illinois, Indiana, Iowa, Manitoba, Michigan, Minnesota, North Dakota and parts of South Dakota.

“We’re like an insurance policy; we spread the risk,” Kuzman said. “If someone’s having a bad day in Indiana, we can move electricity from as far away as Manitoba or Nebraska.”

MISO is neither a utility operator nor a power generator. Its main jobs, he said, are planning for future transmission needs as well as buying electricity at the wholesale and retail levels to deliver power where it’s needed for 42 million end users.

While taking no position on the fuel sources used, MISO does care about how new generating capacity is connected to the grid, and how dependable the power will be as usage patterns shift.

Big shifts in both of these areas pose potential challenges for MISO and state energy leaders.

According to Kuzman, renewable energy generation projects are “growing massively.” As of September 2022, of the 1,723 proposed projects in the MISO “queue” (not all of which will be built), 96 percent were either planned renewable or storage operations: 54 percent solar, 17 percent a hybrid mix, 16 percent storage and 9 percent wind. Only 3 percent were gas or other fuels; coal-generated projects haven’t been in the queue since 2011.Photo of MLC Energy & Environment Committee Co-Chair Illinois Sen. Laura Ellman speaking during the committee's July 9 meeting, as Co-Chair Indiana Rep. Ethan Manning and Vice Chair Ohio Rep. Sharon Ray look on.

“This does pose new risks to the reliability of the grid,” he said, “because there are days when the wind doesn’t blow, there are days when the sun doesn’t shine.”

Part of MISO’s new planning regimen, he added, includes how to fill in daily morning and evening gaps in electrical generation as solar and wind power get going or wind down. Battery storage technology is improving, but isn’t yet at the point where MISO can rely on it to cover those gaps, he said.

Further complicating matters are the effects of changes in the climate. MISO used to plan for a “worst day,” or highest demand on the system, twice per year; now, Kuzman said, it needs to make sure power is delivered across the region on a “worst day” in every season and in every month.

He said “shoulder” months such as April or October — neither too hot nor too cold, when gas or coal plants could be taken offline for maintenance or to switch fuel sources — don’t really exist anymore.

With more 70- and 80-degree days in October, and even November, more electricity is being used in those months, and temperatures are staying hotter deeper into nighttime hours, thus extending daily peak morning and evening demand hours — all of which increase demand on the grid.

Asked about nuclear power as another non-hydrocarbon source of electricity, Kuzman said MISO doesn’t expect to see proposals for large-scale nuclear plants due to costs. Small modular reactors are a potential option, but no one knows when they’ll be ready. When, and if, they are, MISO will plan for them, too.

“MISO is resource neutral. We just want to keep the lights on,” Kuzman said.

 

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By making most of new resources, states can build better pathways to recovery from substance abuse

Amid the despair of broken and lost lives due to a rise in the prevalence of substance use disorder (SUD), there is at least one glimmer of hope. States have more financial resources and tools to address SUD.

More money is flowing to states through two federal grant programs: 1) the Substance Use Treatment, Prevention, and Recovery Services Block Grant; and 2) State Opioid Response grants. The National Opioids Settlement is providing new dollars as well, and revamped federal rules on Medicaid are offering states new options to meet the needs of higher-risk populations, including incarcerated individuals returning to their communities.

Making the most of these new funding and policy opportunities was the focus of a July session at the Midwestern Legislative Conference Annual Meeting. Organized by the MLC Health and Human Services Committee, the session provided legislators with a set of evidence-based principles to guide future decision-making.

“Maximizing how the state is spending Medicaid dollars for opioid use disorder …. is really critical because it’s such a big payer,” said Andrew Whitacre, an officer with The Pew Charitable Trusts.

Among nonelderly adults with opioid use disorder, nearly 40 percent rely on Medicaid for their health insurance. A first step for legislators is to make sure their state’s Medicaid program is covering all evidence-based services allowed under federal law. But he said a second step is equally important: evaluate and, when necessary, boost reimbursement rates for services such as care coordination and medication-assisted treatment for opioid use disorder (the “gold standard” for treatment, he said).

“There are a number of states that do cover all those [SUD] services, but the pay is so low that no providers will participate in the network,” Whitacre noted.

Other obstacles stand in the way of access to effective treatment. Among them: the lack of an information technology infrastructure that would enable providers to establish proper billing systems, coordinate with other providers and evaluate practices. Non-Medicaid, flexible federal funds can be used to build up this infrastructure, Whitacre said, as well as address other areas not covered by the public insurance program. That includes harm reduction strategies such as the distribution of overdose-reversal drugs and fentanyl test strips, as well as funding for syringe service programs.

Opioid-settlement dollars can help in these non-Medicaid areas as well, and Whitacre said it’s critical for states to have guardrails in place to make sure these dollars fund new programs and services. Without such safeguards, the new money may simply be used to supplant current funding streams for existing initiatives.

New federal Medicaid waivers are another way of expanding access to care, John O’Brien, a former senior advisor for the U.S. Substance Abuse and Mental Health Services Administration, said during the session. For instance, some states are taking advantage of a new opportunity to provide treatment services, via Medicaid, to individuals in the 90 days before they leave prison or jail and to continue that care upon re-entry. (An estimated 65 to 90 percent of individuals in jails and prisons have a substance abuse disorder.)

Likewise, a handful of states (California, Montana and West Virginia) are seeking waivers to pay for “contingency management” — providing incentives to individuals on the path to recovery (payments for a negative urine sample, for example). This treatment method has proven to be effective, O’Brien said.

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Southern Pulse Newsletter, August 2023

The start of fall is on the horizon: the cheers of college football, the smells of the pumpkin patch, and lots of programming here at CSG South! 

Our fall programming begins in September with the Legislative Service Agency (LSA) Directors Group’s fall retreat in Northwest Arkansas. This group spearheads our wonderfully crafted government staff tracks at SLC, and we can’t wait to see what they have in store for The Greenbrier in 2024. In October and November, our two flagship leadership development programs, the Center for the Advancement of Leadership Skills (CALS) and the Staff Academy for Government Excellence (SAGE), will convene. These programs offer regionally focused networking, unique training sessions for elected and appointed officials (CALS) and staffers (SAGE), and an overall fantastic time. Our staff will contact selected applicants for these programs in the coming days and weeks, as the deadlines have passed to apply for the CALS and SAGE classes 2023. Good luck to all who applied! 

Our program offerings also continue in full force throughout the fall months with three Policy Masterclasses: Leveraging Learning Loss: A Public Policy Approach (September 26-28), The Opioid Crisis: Understanding and Addressing the Public Health Emergency (October 10-12), and All of the Above: Ensuring Energy Independence (October 24-26). Each Masterclass is a unique and regionally driven experience that brings in expert speakers on different policy areas and formulates an open forum for discussion between attendees. We don’t let the learning stop there – each Masterclass also holds immersive site visits – giving attendees a full hands-on experience. Space is limited, so if you wish to attend, click here to submit your interest form.  

As we look forward to new beginnings this fall, we also want to look back and celebrate our accomplishments at the 2023 Southern Legislative Conference in Charleston, SC. Our Summary Report has been released, and you can read it below. Thank you again to our attendees, staffers, and volunteers who executed the largest SLC in history!  

We hope you continue to keep us in your corner and remember that our staff is here for you and anything you need. 

All the best,
Lindsey G.

Click here to read Southern Pulse- August 2023

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For 28th year, BILLD program gives newer lawmakers the chance to develop skills for success in the legislative arena

Five days of learning, leadership development and relationship building marked the experience of legislators taking part in The Council of State Governments’ 28th annual Bowhay Institute for Legislative Leadership Development.

The 2023 BILLD program was held in August in Madison, Wis., with participation from a bipartisan, binational group of legislators from across the Midwest.

Read about this year’s class »

Serving state and provincial legislators in their first four years of service, BILLD is a signature program of CSG’s Midwestern Legislative Conference. Fellows are selected via a competitive application process overseen by the MLC’s BILLD Steering Committee.

The 2023 program featured:

  • a roundtable discussion on legislative strategies with Minnesota House Minority Leader Rep. Lisa Demuth (BILLD Class of 2021); Indiana House Minority Leader Phil GiaQuinta (BILLD Class of 2009); and Wisconsin Senate President Pro Tempore Patrick Testin (BILLD Class of 2018);
  • training on communication, leadership style, time and focus management, bipartisan collaboration, negotiation and conflict resolution;
  • policy sessions on the Midwest’s labor force and economy, cybersecurity and digital modernization in state governments, and U.S.-Canada relations;
  • featured speakers who provided their expertise on the region’s state legislative institutions and how to build excellence in them, the interplay between the legislative and judicial branches, and the enduring legacy of principled political leadership.

Applications for next year’s BILLD program will be available later this year or in early 2024.

Learn more about BILLD »

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Seven Midwest legislators, all BILLD Fellows, graduate from CSG 2023 Toll Fellows program

The newest class of national CSG Toll Fellows includes seven legislators from the Midwest, all of whom are graduates of the Midwestern Legislative Conference Bowhay Institute for Legislative Leadership Development.

Toll Fellows is the nation’s premier leadership development program for state government officials. Participants are nominated by their peers and chosen by alumni of the program.

Congratulations to the seven BILLD graduates on becoming Toll Fellows (all pictured here).

Commitment to leadership training

Leadership development is a core part of The Council of State Governments’ mission to champion excellence in state government. CSG Midwest’s BILLD program provides annual training for newer state and provincial legislators from this region. Toll Fellows is an “intensive leadership boot camp” for officials in all three branches of state government.

This year’s five-day Toll Fellows program was held in August.

“Fellows are selected based on their demonstrated commitment to solve problems, to work collaboratively to get things done, and their belief that state government can and must be a force for good,” said David Adkins, CSG’s executive director and CEO.

Here is the full list of 2023 Toll Fellows from the Midwest:

  • Michigan House Majority Floor Leader Abraham Aiyash
  • Ohio Senate Assistant Minority Leader Hearcel Craig
  • Bryan Echols, senior advisor and deputy director of impact investments for the Illinois treasurer
  • Kansas Rep. Mari-Lynn S. Poskin
  • Michael Queensland, Wisconsin Senate chief clerk and director of operations;
  • South Dakota House Majority Whip Rebecca Reimer
  • North Dakota Senate Majority Caucus Leader Kristin Roers
  • North Dakota Rep. Shannon Roers Jones
  • Sara Stolt, deputy commissioner for the North Dakota Department of Health & Human Services;
  • Wisconsin Sen. Mark Spreitzer
  • Jason W. Thompson, senior assistant revisor of statutes in Kansas

 

 

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