How the Great Recession is Redefining State Government

How the Great Recession is Redefining State Government
Strategic Issues Program University of Denver John Thomasian and Lauren Stewart National Governors Association, Center for Best Practices

The Landscape for States Revenues still anemic, and well below 2008 levels (in fact, total state revenues are roughly at 2000 levels) General fund tax revenues in 2010 were 11.8 percent below 2008 levels. Governors' recommended fiscal 2011 budgets are 8.4 percent below fiscal 2008 levels. The slow climb back should begin in FY 2011

Proposed FY 2011 Spending is $52 billion less than FY 2008 In Billions * FY 2007, 2008, and 2009 are actual. FY 2010 is estimated and FY 2011 is proposed.

Focus of State Government Reform Corrections K–12 education Higher education Employee costs Shared services and agency consolidation Privatization and asset sales Tax expenditures

Corrections 40 states have made program area cuts to corrections Prison Closures (CO, CT, LA, MI, NV, NY, WA) Sentencing Reform, Parole and Probation Reform (AL, AZ, CA, HI, KS, NY, SC) Releasing Nonviolent inmates to community supervision (CO, VA, VT, WA) Graduated Sentencing (HI) Incentives for Local Governments (AZ, CA, IL) Early Release, Geriatric Care (AL, CA, ID, MI, NY, NC, VA, WA)

K-12 Education 39 states made broad program area cuts to K-12 Changes to School Aid (FL, RI, TX, VA) School District Consolidation and Shared Services (MA, ME, MI, MS, OR) Teacher and Administrator Compensation (GA, IN, NJ, VT) Changes to K-12 Programs and Policies Virtual Learning, Digital Textbooks (CA, GA, TX, VA) Cuts to noncore programs, such as summer and after-school

Higher Education 39 states also cut higher education budgets Reviewing State Higher Education Systems (KY, LA, ME, VA, WA) Tuition levels Financial Aid formulas Elimination of unproductive programs and Majors Reducing Employee Costs (AZ, CT, NJ, PA) Salary freezes, furloughs, layoffs Increasing Performance (CA, CO, FL, GA, IN, LA, MO, OR, PA, SD, TN) Giving more weight to degrees in the funding formulas Relying more heavily on community college systems

State Employee Costs Furloughs and Layoffs 26 states have instituted furlough days during 2009 and 2010 Many states have significantly reduced workforces (IA, IN) Wage Actions 15 states have made salary reductions during 2009 and 2010 Retirement Benefits 18 states have reformed some aspect of their pension systems during 2009 and 2010

Employee Costs

Shared Services and Agency Consolidation At least 17 states consolidated or eliminated agencies identified as duplicative or nonessential Combining services in IT and back-office functions (CA, WA) Consolidating Agencies (IA, MA, MI, WA) Eliminating Nonessential Boards and Commissions (NJ, MI, WA)

Privatization and Asset Sales Outsourcing State Services (GA, IL, NJ, VA) Private firm to run state lottery (IL) Private firm to manage rest stops (GA) Outsource certain agency functions, like human resources or food services (GA, LA) Privatizing State Functions (AZ, LA, NJ) State Privatization Commissions (AZ, NJ) Liquor sales (NC, VA, WA) Asset Sales (CA, CT, MO) Real Estate Management (DE, GA, LA)

Tax Expenditures California is considering a plan to delay corporate tax breaks in 2011 Georgia state legislators did not renew the back-to-school tax break weekend Hawaii may repeal tax exemptions for nonprofit organizations Missouri Governor Jay Nixon has proposed scaling back and consolidating Missouri’s tax credits Oregon is considering a temporary reduction of the residential energy tax credit Pennsylvania has proposed eliminating a provision in the state’s tax code that gives large vendors, such as Wal-Mart or Home Depot, a 1 percent discount for remitting their sales tax to the state on time.

Opportunities from Crisis Budget pain bringing needed overhaul to corrections policies K-12 system needs wake-up call: more online learning, digital textbooks, back-office consolidation; lower administration; collective purchasing Governors putting needed pressure on higher education to increase degree productivity, performance, relevance to state economy Political will to bring state pension policies in line with private sector Elimination/consolidation of agencies, boards, commissions overdue in many states Many tax expenditures not effective as economic development tool; need to be reviewed

Casualties A number of states had to cut early childhood programs to preserve K-12 funding Infrastructure investments deferred; most new projects relying on private investment and user fees Higher education funding beginning to be crowded out by health care costs Quality of life cutbacks—parks, art, revitalization suffering

In the Long Run Revenues will grow, but slower than in recent decades The big pivot has occurred: federal stimulus is over and traditional programs under pressure to reduce State will continue trimming for next several years because health care costs will exceed growth Health care cost containment is battleground of the future

How the Great Recession is Redefining State Government