Holiday cheer is in short supply this year in the nation’s state capitols. Although revenues are gradually returning to pre-recession levels, there are dismal expectations of new budget gaps in the 2012 fiscal year as federal stimulus funds disappear and program costs soar. Worse yet, the short-term struggles of states to balance budgets while maintaining adequate services conceal deeper structural problems. Recently, in an alarmist page-one story, The New York Times worried that states will be overwhelmed by mountains of accumulated debt and quoted financier Felix Rohatyn as saying that “crying wolf is probably a good thing to do at this point.”
Against this backdrop I anticipated a somber attitude when several hundred state legislators convened in Phoenix earler this month at the Fall Forum of the National Conference of State Legislatures. Instead, I discovered cautious optimism and a quiet commitment among legislators of both parties to keep core programs funded until the economy recovers.
That is not to say that anyone thinks this will be easy. At a meeting with state fiscal officials held in conjunction with the Phoenix conference, legislators from both parties agreed that voters want a continuation of social services as state revenues decline but are unwilling to pay for them with higher taxes. State Sen. John Vratil, a Kansas Republican, expressed the prevailing sentiment when he said: “The time is going to have to come when the public realizes there’s no free lunch and if you want services you’ve got to pay for (them).”
Call this the New Realism — and it was much on display in Olympia, Wash., the day after the Fall Forum ended. In the space of six hours, Washington state legislators acted swiftly across party lines to close about $600 million of a $1.1 billion 2009-2010 budget gap by making roughly equivalent cuts in higher education, K-12 schools, prisons and social services. Several liberal Democrats thought the budget scalpel cut too deeply and some conservative Republicans wanted more radical surgery, but the key budget bill passed by overwhelming votes of 86-6 in the Washington House of Representatives and 30-9 in the state Senate.
Although Washington legislators will have to trim another $500 million from the budget when they reconvene next month, Gov. Chris Gregoire, a Democrat, was right to praise them for “the bipartisan way in which they stood up to the most challenging time in 80 years.” Gregoire then demonstrated her own realism by proposing reductions in pension benefits for public employees that would amount to $11 billion over the next 25 years.
It won’t get any easier for Gregoire or Evergreen State lawmakers in hashing out the next two-year budget, estimated to be approximately $4.6 billion in the red. On Dec. 15, she proposed a budget that would impose $4 billion in cuts, including more than $2 billion from public education. A visibly shaken Gregoire choked back tears in announcing her plan, saying in a news conference, “I hate my budget. ... I hate it because in some places I don’t even think it’s moral.” She also urged lawmakers to keep working together to solve the latest crisis.
“They will learn what I’ve learned and they will find ... there aren’t any options,” she said. “What options there are, are ugly.”
Various panel discussions at the Phoenix conference also provided glimpses of realism and innovation on issues where the federal government has long been gridlocked. Arizona has been in the news this year for its controversial law empowering local police departments to inquire into the immigration status of crime suspects, but several of the immigration proposals in other states are more benign.
The Utah Legislature, for instance, is considering a wide-ranging state guest worker program that growers and other employers say is needed because of the repeated inability of the federal government to address this issue. On immigration issues, by the way, Utah does not fit its conservative stereotype. Unlike most states, it permits illegal residents to drive under a successful and carefully monitored program that requires them to renew their licenses annually and purchase insurance.
On fiscal issues, legislators are discussing a variety of “pay-go” rules that would require new spending proposals to be matched by compensating budget reductions or new revenues. This idea could find its way into a pending constitutional amendment likely to go before California voters in 2012. Meanwhile in Pennsylvania, incoming Gov.-elect Tom Corbett and incoming House Majority Leader Mike Turzai, both Republicans, are trying to raise $2 billion and halve the budget deficit by selling the state’s 850 retail and wholesale liquor stores. Two previous Republican governors who tried to do this were blocked by a coalition of religious groups, conservatives and labor unions. This unusual coalition hasn’t gone away, but Pennsylvania’s fiscal plight may make the time right for this overdue idea.
“Privatization” in various forms can be expected to make headway at state levels in 2011. This idea excites Republicans more than Democrats, and the November elections produced more Republicans at every level of government. GOP gains were especially impressive in the statehouses, which will have more Republican legislators than at any time since 1928. Republicans won 20 new legislative chambers and a net of five additional governorships. New Republican governors in Iowa, Ohio and Wisconsin and a re-elected one in Arizona are proposing to outsource economic development programs.
Scott Pattison, executive director of the National Association of State Budget Officers, believes that partnerships between states and private companies are a wave of the future — and not only in states where Republicans dominate. This trend is less a reflection of ideology than of the credit crunch and lack of infrastructure capital.
“If there’s no money available up front and you need to build a bridge, this may be the best way to do it,” Pattison said.
The biggest partnerships of states under the U.S. system of federalism are with the federal government. This is a mixed blessing. Economists generally agree that many states survived the Great Recession more or less intact because of financial assistance from the American Recovery and Reinvestment Act of 2009, the most successful component of President Barack Obama’s stimulus package.
But what the federal government gives with one hand it often takes away with the other. For years, Washington has imposed program mandates on states without providing the means to pay for them. NCSL data show that up to 10 percent of states’ general fund revenues are used to pay for these unfunded federal mandates. Even mandates that are ostensibly fully funded have proven a burden during the Great Recession and the slow recovery that has emerged from it. States have been hardest hit by continuing increases in the caseload of Medicaid, the federal-state program that provides health care for the poor. NCSL’s November budget update found that 18 states reported fiscal shortfalls in Medicaid or other health programs.
Some states are harder hit than others. The NCSL budget update describes Illinois’ fiscal situation as “dire” and the same word could be used to describe the ongoing budget crisis in California, which faces a two-year deficit of $25 billion after years of kicking its fiscal problems down the road with an array of gimmicks.
Even in states that have been provident, the withdrawal of the federal stimulus is looming. According to the NCSL report, 35 states and Puerto Rico face budget gaps in fiscal 2012. These financial shortfalls are going to mean more belt tightening by the states and put more pressure on education and social services of all kinds. This will require more awareness by voters about the cost of these services. It will require reductions in public pensions, at least for new employees. And it will also require much more of the kind of realism demonstrated in Washington state by the Legislature and Gregoire and that has been hinted at in California by the once and future Democratic governor, Jerry Brown.
Republican and Democratic legislators have many philosophical differences and face congressional redistricting in 2011 that will invariably have a partisan tinge. Nonetheless, the opinions expressed at the Phoenix conference and the impressive performance of many states in balancing budgets during a time of declining revenues suggest that state legislators may be more successful than their congressional counterparts in finding common ground. The problems are real and they are not going away, but the sky is not falling. For all the nay saying, there’s a lot to like in the states.
— Summerland resident Lou Cannon is a longtime national political writer and acclaimed presidential biographer. His most recent book — co-authored with his son, Carl — is Reagan’s Disciple: George W. Bush’s Troubled Quest for a Presidential Legacy. Cannon also is an editorial adviser to State Net Capitol Journal, which published this column originally.
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