State budget issues, 2009-2010

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State and local government budget makers face challenges as the nationwide economic downturn that began in 2008 continues to cause budget problems. One of the greatest challenges that budget makers face is lower-than-expected revenues from taxes. In Fiscal year 2009, budget makers were overwhelmed by lower-than-expected revenues from taxes. As a report produced by the National Center of State Legislatures concluded,

Lawmakers in virtually every state scrambled to keep their FY 2009 budgets balanced while at the same time struggling to enact new ones for FY 2010. Hemorrhaging revenues drove the massive difficulties they faced. No matter how pessimistic revenue forecasts were, actual collections seemed to come in lower. This happened over and over and over again. Ultimately, states were not just faced with lower revenue growth rates, they confronted year-over-year declines in actual collections[1].

In total, states faced a budget shortfall of $113.2 billion in FY 2009. As substantial as that is, it is far less than the deficit some have forecast for FY 2010. According to one such projection, states could face a total shortfall of $142.6 billion this year.[1]

Federal “stimulus” funds, authorized under the American Recovery and Reinvestment Act, helped some states avoid some cuts in programs and civil service employment. However, as the entry below explains, that short-term fix carries costly consequences as well.[1]

Contents

[edit] Federal “Stimulus” Deepens State Budget Woes

Revenue shortfalls will make budgeting for FY 2011 particularly difficult for state legislators. The task will be made tortuously more complex by an entirely new set of fiscal obligations resulting from states’ use of federal “stimulus” funds.

Under the American Recovery and Reinvestment Act of 2009 (ARRA), Congress awarded states and localities some $280 billion (35% of all stimulus dollars) to sustain employment, create jobs and promote economic activity and growth. The vast majority of the state and municipal outlays — some 85% — have been designated for health, transportation, education and training programs.

The Wall Street Journal on 01.02.10 identified federal stimulus funds as making the state budget situation worse.[2] Legislators, enticed by the promise of federal money, spent more money instead of adjusting budgets to declining revenue. Money was added for K-12 education; higher education; child care; health and welfare benefits; and a large expansion of Medicaid to cover the health care of unemployed workers and single workers without children. In 2011, when the federal funds run out, states will be stuck with one million more people on Medicaid with no money to pay for it.

A variety of conditions accompany acceptance of the funds. Foremost among them are assurances from states to maintain specific levels of program spending after the stimulus spigot runs dry. Such “maintenance of effort” standards apply to no less than 15 types of services buoyed by ARRA dollars, including Medicaid, K-12 education, road construction, and unemployment benefits.

Locked into such spending levels, state legislators now have far less flexibility in budgeting. For example, Illinois officials told researchers with the General Accountability Office that lower-than-expected fuel tax receipts will require the state to use general funds to comply with the maintenance of effort requirements. That will necessitate either spending cuts in other services or a tax increase to make up for the revenue shift.

States may appeal to the federal government for a waiver from specific maintenance of effort amounts. However, a waiver would still require the recipient state to maintain the same proportion of the total budget for applicable programs.

An accounting of stimulus funding by state is available at Recovery.gov, a Web site created by Congress as a repository for information related to stimulus spending.

The Government Accountability Office also has issued a report on the challenge to states in complying with maintenance of effort requirements.[3]

It appears that the federal stimulus bailout of the states resulted “in decreased state sovereignty, encouraged future fiscal responsibility and rewarded the most fiscally irresponsible states at the expense of the fiscally responsible states.”

[edit] Public employee salaries impact on state budgets

State and local governments employ some 20 million people nationwide. Employee compensation costs represent the largest set of expenditures in every state budget. Analyzing the fiscal dynamics of the civil service system reveals some of the most significant constraints and opportunities legislators confront in balancing state budgets.

Total state expenditures exceeded $2.2 trillion last year, of which wages and benefits amounted to $1.1 trillion.[4] Consequently, budgeting decisions related to at least 50 percent of all state budgets are driven by the wage provisions of civil service contracts and funding obligations for state workers’ health care and pension plans.

Labor costs also constitute a sizable proportion of private-sector business costs. But the average wages and benefits provided to public sector employees far exceed the rates paid by private employers. For example, the average hourly wage of public employees last year—$39.66—was 45 percent more than the average hourly wage of $27.42 paid in the private sector.[4]

States fulfill health care and pension obligations through direct contributions as well as investment earnings on those contributions. At its most fundamental, the formula for sustainability of health care and pension funds is: Contributions + Investments = Benefits + Expenses.

States’ recent investment losses, which exceeded $800 billion in 2008, have worsened the budgetary pressures of pension obligations. For example, the state of Illinois was forced to borrow $3.5 billion to meet its pension obligations, thereby incurring tens of millions of dollars in additional debt service costs. Estimates peg the total unfunded liabilities of state and local pension plans between $1 trillion and $3 trillion.[5]

Health care obligations likewise are sapping state budgets. Unlike the private sector, state and local governments have largely adopted “defined benefit” plans, under which specific types of services are assured. (In 2009, for example, defined benefit plans were provided to 84 percent of state and local workers compared to 21 percent of private-sector employees.[6]) The costs of defined benefit plans escalate annually. In contrast, “defined contribution” plans provide a fixed payment for pensions and thus in fully funding pensions. Moreover, public employees contribute far less to their health care coverage compared to workers in the private sector.

Demographics also are exacerbating the budgetary burden of the public-sector workforce. Current retirees leave work at an earlier age and live longer, thus drawing substantially more retiree health care and pension benefits than their predecessors.

[edit] Charts

Below, there are three charts. One is for the state budgets in FY 2009. The other is for state budgets in FY 2010. The third chart contains information about the allocation of funds under the ARRA.

[edit] Fiscal Year 2009

The following chart lists state budget information for the Fiscal Year 2009[1]. If information is in italics, it is based off April data. Otherwise, information for a state's budget is from June and July of 2009 surveys, which is after Fiscal year 2009 ended.

State budget Spending Transparency Shortfall Percent of General Fund Budget
Alabama budget No $269 million [1] 13%[1]
Alaska budget Partial $1.52 billion [1] 21% [1]
Arizona budget No $2.43 billion [1] 24.2% [1]
Arkansas budget No no shortfall [1] n/a [1]
California budget No $19.64 billion [1] 18.8% [1]
Colorado budget No $1.19 billion [1] 15.1% [1]
Connecticut budget No $1.35 billion [1] 7.9% [1]
Delaware budget No $236 million [1] 6.8% [1]
District of Columbia budget No
Florida budget No $3.18 billion [1] 12.3% [1]
Georgia budget Yes $2.93 billion [1] 14.1% [1]
Hawaii budget No $639 million [1] 11.1% [1]
Idaho budget No $405 million [1] 14.8% [1]
Illinois budget Partial $4.32 billion [1] 13.7% [1]
Indiana budget No $973 million [1] 7% [1]
Iowa budget No $35 million [1] .50% [1]
Kansas budget Yes $186 million [1] 2.9% [1]
Kentucky budget Yes $456 million [1] 5.1% [1]
Louisiana budget Yes $341 million [1] 3.5% [1]
Maine budget No $270 million [1] 8.7% [1]
Maryland budget Partial $1.38 billion [1] 9.5% [1]
Massachusetts budget No $2.59 billion [1] 10.5% [1]
Michigan budget No $313 million [1] 3.2% [1]
Minnesota budget No $426 million [1] 1.2% [1]
Mississippi budget Partial $407 million [1] 8% [1]
Missouri budget Yes $779 million[1] 10.4%[1]
Montana budget no shortfall [1] n/a [1]
Nebraska budget Yes $5.3 million [1] .20% [1]
Nevada budget Yes $1.09 billion [1] 28.1% [1]
New Hampshire budget No $250 million [1] 10% [1]
New Jersey budget No $4.4 billion [1] 13.3% [1]
New Mexico budget No $454 million [1] 7.5% [1]
New York budget Partial $1.7 billion [1] 3.4% [1]
North Carolina budget No $2.2 billion[1] 10.3% [1]
North Dakota budget no shortfall [1] n/a
Ohio budget No $1.18 billion[1] 6.1% [1]
Oklahoma budget Yes $6.8 million [1] 0.10% [1]
Oregon budget No $755 million [1] 10.4% [1]
Pennsylvania budget No $2.6 billion [1] 9.2% [1]
Rhode Island budget Yes $449 million[1] 13.7%[1]
South Carolina budget Yes $1.18 billion [1] 17.6% [1]
South Dakota budget Yes $71.4 million [1] 6.2% [1]
Tennessee budget No $1.07 billion [1] 11.5% [1]
Texas budget Yes[1] no shortfall[1] n/a
Utah budget No $875 million [1] 15.6% [1]
Vermont budget Partial $75 million [1] 6.5% [1]
Virginia budget Partial $1.66 billion[1] 9.8% [1]
Washington budget Yes $1.37 billion [1] 8.0% [1]
West Virginia budget Partial no shortfall[1] n/a[1]
Wisconsin budget No $942 million [1] 6.8% [1]
Wyoming budget No no shortfall[1] n/a [1]

[edit] Fiscal Year 2010

The following chart lists up-to-date state budget projections for the Fiscal Year 2010. The budgets are recent as of October 9th, 2009[1] [7] .


State budget Spending Transparency Estimated Shortfall Estimated Percent of General Fund Budget
Alabama budget No $1.2 billion [8]
Alaska budget Partial $1.35 billion [1] 31% [1]
Arizona budget No $1.4 billion [9]
Arkansas budget No no shortfall [1] n/a [1]
California budget No $41.6 billion [10]
Colorado budget No $560.7 million [7]
Connecticut budget No $4.1 billion [1] 22.2%
Delaware budget No $300 million [11] 12.9% [1]
District of Columbia budget No
Florida budget No $6 billion [1] 27% [1]
Georgia budget Yes $900 million [7]
Hawaii budget No $1.41 billion [1] 25.4% [1]
Idaho budget No $151 million
Illinois budget Partial $7.29 billion [1]  %21.2 [1]
Indiana budget No $569 million [1]
Iowa budget No $779 million [1]
Kansas budget Yes $1.11 billion [1] 17% [1]
Kentucky budget Yes $1.08 billion [1]
Louisiana budget Yes $2.02 billion [1]  %19.8 [1]
Maine budget No $640 million [1] 18.8% [1]
Maryland budget Partial $1.95 billion [7]
Massachusetts budget No $400-600 million[7]
Michigan budget No $1.2 billion [1] 12.3% [1]
Minnesota budget No $2.6 billion [1] 14.7% [1]
Mississippi budget Partial no shortfall[7] n/a[7]
Missouri budget Yes $388 million [1]  %5.3 [1]
Montana budget $67.1 million [1] 3.6% [1]
Nebraska state budget Yes no shortfall [7]
Nevada budget Yes $1.24 billion [1] 31.6% [1]
New Hampshire budget No $12.2 million [1] .8% [1]
New Jersey budget No $8.71 billion [1] 24.4% [1]
New Mexico budget No $440 million [7]
New York budget Partial $2.9 - 3.5 billion [7]
North Carolina budget No $4.6 billion [1]  %20.8 [1]
North Dakota budget no shortfall [1] n/a [1]
Ohio budget No $1.29 billion [1]  %.48 [1]
Oklahoma budget Yes no shortfall [7] n/a[7]
Oregon budget No $1.6 billion [1]  %18 [1]
Pennsylvania budget No $3.97 billion [1] 13.5% [1]
Rhode Island budget Yes $587 million [1] 19.6% [1]
South Carolina budget Yes $797 million [1]
South Dakota budget Yes
Tennessee budget No $1.04 billion [1]
Texas budget Yes $3.3 billion [1] 7.6% [1]
Utah budget No $685 million [1] 13.5% [1]
Vermont budget Partial $28 million [7]
Virginia budget Partial $1.35 billion [7]
Washington budget Yes no shortfall [7] n/a[7]
West Virginia budget Partial $200 million [1] 4.5%
Wisconsin budget No $3.1 billion [1] 20.1% [1]
Wyoming budget No no shortfall[1] N/A [1]

[edit] ARRA

The chart lists the amount of money States have been awarded, as well as received, from the American Recovery and Reinvestment Act. The chart is recent as of October 21st, 2009[12].


State ARRA Funds Awarded ARRA Awarded Per Capita ARRA Funds Received
Alabama $178.58 million [12] $38[12] $14.82 million[12]
Alaska $260.03 million [12] $379 [12] $25.53 million [12]
Arizona $139.39 million [12] $21 [12] $29.60 million [12]
Arkansas $59.15 million[12] $21 [12] $6.68 million [12]
California $1.14 billion [12] $31 [12] $157.92 million [12]
Colorado $553.78 million [12] $112 [12] $48.33 million [12]
Connecticut $47.24 million[12] $13 [12] $1.04 million [12]
Delaware $30.29 million [12] $35 [12] $4.81 million [12]\
District of Columbia $562.32 million [12] $950 [12] $22.45 million [12]
Florida $334.59 million [12] $18 [12] $48.00 million [12]
Georgia $209.48 million [12] $22 [12] $19.20 million [12]
Hawaii $122.43 million [12] $95 [12] $12.54 million [12]
Idaho $477.89 million [12] $314 [12] $82.19 million [12]
Illinois $473.75 million [12] $37 [12] $21.65 million [12]
Indiana $146.37 million [12] $23 [12] $12.04 million [12]
Iowa $79.31 million [12] $26 [12] $3.13 million [12]
Kansas $118.09 million[12] $42 [12] $20.75 million [12]
Kentucky $225.46 million[12] $53 [12] $22.82 million [12]
Louisiana $115.02 million [12] $26 [12] $33.3 million [12]
Maine $22.62 million [12] $17[12] $16.28 million [12]
Maryland $590.51 million [12] $105[12] $48.24 million [12]
Massachusetts $335.24 million [12] $52[12] $47.62 million [12]
Michigan $315.02 million [12] $12[12] $149.57 million [12]
Minnesota $90.98 million[12] $17[12] $33.00 million [12]
Mississippi $138.94 million[12] $47[12] $10.03 million [12]
Missouri $144.14 million[12] $103[12] $11.45 million [12]
Montana $99.22 million[12] $103[12] $11.45 million [12]
Nebraska $48.44 million[12] $27[12] $1.55 million [12]
Nevada $70.84 million[12] $27[12] $15.51 million [12]
New Hampshire $16.32 million[12] $12[12] $427 thousand[12]
New Jersey $208.11 million[12] $24[12] $29.73 million [12]
New Mexico $514.91 million[12] $259[12] $263.56 million [12]
New York $750.77 million[12] $39[12] $59.97 million [12]
North Carolina $121.27 million[12] $13[12] $11.91 million [12]
North Dakota $95.45 million[12] $149 [12] $16.91 million [12]
Ohio $259.27 million [12] $22 [12] $23.53 million [12]
Oklahoma $79.86 million [12] $22 [12] $10.21 million [12]
Oregon $105.69 million [12] $28[12] $48.57 million [12]
Pennsylvania $626.54 million [12] $50[12] $29.24 million [12]
Rhode Island $7.59 million [12] $7[12] $540,798 [12]
South Carolina $253.84 million[12] $57[12] $219.56 million [12]
South Dakota $33.79 million[12] $42[12] $4.64 million [12]
Tennessee $1.11 billion [12] $179[12] $75.58 million [12]
Texas $524.02 million[12] $22[12] $47.08 million [12]
Utah $194.36 million[12] $71[12] $17.37 million [12]
Vermont $12.58 million[12] $20[12] $495 thousand[12]
Virginia $366.32 million[12] $47 [12] $80.01 million [12]
Washington $2.22 billion [12] $339[12] $228.82 million [12]
West Virginia $58.19 million[12] $32[12] $4.37 million [12]
Wisconsin $46.16 million [12] $8[12] $12.29 million [12]
Wyoming $18.38 million [12] $35[12] $585 thousand [12]

[edit] See also

[edit] External links

[edit] References

  1. ↑ 1.000 1.001 1.002 1.003 1.004 1.005 1.006 1.007 1.008 1.009 1.010 1.011 1.012 1.013 1.014 1.015 1.016 1.017 1.018 1.019 1.020 1.021 1.022 1.023 1.024 1.025 1.026 1.027 1.028 1.029 1.030 1.031 1.032 1.033 1.034 1.035 1.036 1.037 1.038 1.039 1.040 1.041 1.042 1.043 1.044 1.045 1.046 1.047 1.048 1.049 1.050 1.051 1.052 1.053 1.054 1.055 1.056 1.057 1.058 1.059 1.060 1.061 1.062 1.063 1.064 1.065 1.066 1.067 1.068 1.069 1.070 1.071 1.072 1.073 1.074 1.075 1.076 1.077 1.078 1.079 1.080 1.081 1.082 1.083 1.084 1.085 1.086 1.087 1.088 1.089 1.090 1.091 1.092 1.093 1.094 1.095 1.096 1.097 1.098 1.099 1.100 1.101 1.102 1.103 1.104 1.105 1.106 1.107 1.108 1.109 1.110 1.111 1.112 1.113 1.114 1.115 1.116 1.117 1.118 1.119 1.120 1.121 1.122 1.123 1.124 1.125 1.126 1.127 1.128 1.129 1.130 1.131 1.132 1.133 1.134 1.135 1.136 1.137 1.138 1.139 1.140 1.141 1.142 1.143 1.144 1.145 1.146 1.147 1.148 1.149 1.150 1.151 1.152 1.153 1.154 1.155 1.156 1.157 1.158 1.159 1.160 1.161 http://www.ncsl.org/documents/fiscal/StateBudgetUpdateJulyFinal.pdf National Conference of State Legislatures, State Budget Update July Final]
  2. ↑ Wall Street Journal, The States and the Stimulus, January 2, 2010
  3. ↑ Government Accountability Office, Planned Efforts and Challenges in Evaluating Compliance with Maintenance of Effort and Similar Provisions, November 2009
  4. ↑ 4.0 4.1 US Bureau of Economic Analysis, Table 6.2D. Compensation of Employees by Industry, August 20, 2009
  5. ↑ Government Accountability Office, STATE AND LOCAL GOVERNMENT RETIREE HEALTH BENEFITS, November 2009
  6. ↑ American Economic Association (AEA), WILL PUBLIC SECTOR RETIREE HEALTH BENEFIT PLANS SURVIVE? ECONOMIC AND POLICY IMPLICATIONS OF UNFUNDED LIABILITIES, January 2009
  7. ↑ 7.00 7.01 7.02 7.03 7.04 7.05 7.06 7.07 7.08 7.09 7.10 7.11 7.12 7.13 7.14 7.15 National Conference of State Legislatures, FY 2010 Post-Enactment Budget Gaps & Budget Cuts
  8. ↑ Center on Budget & Policy Priorities, “New Fiscal Year Brings No Relief From Unprecedented State Budget Problems,” September 3, 2009
  9. ↑ The Arizona Republic,"Few options left for fixing Arizona budget," January 11, 2010
  10. ↑ California Department of Finance, “Governor’s Message,” January 9, 2009
  11. ↑ The News Journal,"Delaware lawmakers return, once again facing tough choices with budget shortfall," January 10, 2010
  12. ↑ 12.000 12.001 12.002 12.003 12.004 12.005 12.006 12.007 12.008 12.009 12.010 12.011 12.012 12.013 12.014 12.015 12.016 12.017 12.018 12.019 12.020 12.021 12.022 12.023 12.024 12.025 12.026 12.027 12.028 12.029 12.030 12.031 12.032 12.033 12.034 12.035 12.036 12.037 12.038 12.039 12.040 12.041 12.042 12.043 12.044 12.045 12.046 12.047 12.048 12.049 12.050 12.051 12.052 12.053 12.054 12.055 12.056 12.057 12.058 12.059 12.060 12.061 12.062 12.063 12.064 12.065 12.066 12.067 12.068 12.069 12.070 12.071 12.072 12.073 12.074 12.075 12.076 12.077 12.078 12.079 12.080 12.081 12.082 12.083 12.084 12.085 12.086 12.087 12.088 12.089 12.090 12.091 12.092 12.093 12.094 12.095 12.096 12.097 12.098 12.099 12.100 12.101 12.102 12.103 12.104 12.105 12.106 12.107 12.108 12.109 12.110 12.111 12.112 12.113 12.114 12.115 12.116 12.117 12.118 12.119 12.120 12.121 12.122 12.123 12.124 12.125 12.126 12.127 12.128 12.129 12.130 12.131 12.132 12.133 12.134 12.135 12.136 12.137 12.138 12.139 12.140 12.141 12.142 12.143 12.144 12.145 12.146 12.147 12.148 12.149 12.150 12.151 12.152 12.153 http://www.recovery.gov/pages/textview.aspx?data=homeMapRecipient&datasource&datasource=recipient Recovery.org, State And Agency Data Reported by Federal Contract Recipients]
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