State Governors Face Fiscal Strain

Monday, 12 Jul 2010 07:49 AM

 

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BOSTON - State governors meeting in Boston this weekend had plenty on their minds, from the Gulf oil spill to Arizona's border security controversy. But the economy -- and another year of fiscal pain -- topped the bill.

After two years of deep cuts, states still face large deficits going into their 2011 fiscal years. With the need to keep budgets balanced from year to year, that has meant cutting services and jobs, raising taxes, borrowing and dipping into rainy-day stabilization funds.

"We have used our rainy-day fund because we considered it to be pouring down rain," Washington Governor Christine Gregoire said at the National Governors Association meeting.

Gregoire, a Democrat, has needed to cover a combined $12 billion shortfall in Washington over three years, on an annual budget of roughly $32 billion.

A biannual report, The Fiscal Survey of States, released by the NGA in June, showed fiscal year 2010 was the toughest for state budgets since the Great Depression. Combined state budgets tumbled by more than 10 percent from fiscal 2008 to fiscal 2010, a drop of some $74 billion.

State revenue typically lags behind any national recovery, meaning for 2011, "states will have to make additional spending cuts or increase taxes to close their budget gaps, actions that will slow the economic recovery," the report said.

Yolanda Kodrzycki, an economist at the Boston Federal Reserve, warned that many towns and cities will be crying out for more help from the states in 2011, when falling property tax revenues threaten to choke off municipal budgets.

"You have a tough fiscal environment. Next year will be at least as tough," said Kodrzycki, director of the Boston Fed's New England Public Policy Center.

UNIONS UNDER FIRE

New Jersey Governor Chris Christie opened the three-day meeting with a blistering attack on public service unions and resumed that theme on Saturday. The Republican said it was galling "that one sector of our population" had been protected from the recession.

Many governors kept up pressure on Congress to continue for another six months the additional Medicaid benefits that have been part of the federal stimulus bill.

Congress has stalled action on bills worth about $40 billion to help states pay for Medicaid programs and to retain teachers. State aid from 2009's $787 billion stimulus package is due to run out at the end of this fiscal year.

Some states, including Illinois and Pennsylvania, included millions of dollars in prospective payments in their recently enacted fiscal 2011 budgets and would face the need to cut jobs if the funds are not available.

Supporting the Medicaid budget would be a short-term but badly needed fix for the states, said Arkansas Governor Mike Beebe, a Democrat.

Even so, "we can't be hypocrites and ask the federal government to bail us out of everything and then decry deficit spending," Beebe said.

Over time, though, more fundamental issues face states in terms of defining the government's role, said Wyoming Governor Dave Freudenthal, a Democrat,

"Discussions on redesigning government always come down to 'how you deal with supply side issues' but what about the 'demand side issues,' regarding what services the public expects the government is going to pay for?" he said.

For programs like Medicare, "you're going to have to trim back what (that) provides, to more basic services."

The NGA meeting is often a showcase for governors to step up onto the national stage.

One high-profile governor skipping the meeting was Minnesota's Tim Pawlenty, discussed as a potential Republican presidential contender in 2012. Pawlenty instead visited neighboring New Hampshire, a state pivotal to national politics, for the third time in seven months.

The NGA meeting drew a small crowd protesting Arizona Governor Jan Brewer and her state's new law ordering police to crack down on illegal aliens. Others carried signs expressing support for Brewer.

The Arizona immigration law is set to take effect July 29 but is being challenged by the federal government.

"From comments that I've heard, many, many are supporting the state of Arizona because they too understand the problems and the issues that we face, because our border is not secure," Brewer said.

© 2014 Thomson/Reuters. All rights reserved.

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