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A Grim Fiscal Forecast for States- Survey Predicts Continuing Crisis and Pressure to Raise Taxes–Legislative analysis raises issues with Martz budget plan
A Grim Fiscal Forecast for States
Survey Predicts Continuing Crisis and Pressure to Raise Taxes
By Dale Russakoff
Washington Post Staff Writer
The fiscal crisis now shaking state and local governments appears likely to grow even larger in the next budget year, bringing with it deep cuts in a range of services and mounting pressure to raise taxes, according to a survey of state budget documents by the Center for Budget and Policy Priorities.
As state governments struggle to close current deficits — by slashing Medicaid spending, raising state college tuitions and, in some cases, releasing nonviolent prisoners — the survey of preliminary budget documents in 42 states shows that the fiscal outlook for next year is no better. And most states already have exhausted billions of dollars put aside during the boom years as a cushion against recession.
"The states have done the easier things first, and now they’re left with much starker choices," said Robert Greenstein, executive director of the center, a liberal research group. The study found that 11 states have adopted or proposed plans to eliminate health coverage for 1 million people living near the poverty level.
The study is based on preliminary figures taken from working documents used by governors and legislators, and could change if the economy improves before most 2003-2004 budgets are enacted in June. On average, the states surveyed were anticipating deficits of 13 to 18 percent of their general fund budgets, or more than twice the gap faced in the recession of the early 1990s.
Officials of national organizations that monitor state fiscal health said it is impossible to pinpoint the anticipated deficits for 2004. But they generally agreed with the center’s prediction of a continuing crisis for state governments, caused by plunging tax revenue and the steeply rising cost of Medicaid, which expanded dramatically in the 1990s to cover families leaving welfare.
"Getting the real number is virtually impossible right now," said Scott Pattison, executive director of the National Association of State Budget Officers. "But given that, this is as good an effort as one can do."
Maryland and Virginia are facing shortfalls of around 10 percent, according to the study, less than the average for the 42 states. Some states — including Alabama, Alaska, California, Nevada and Oregon — face shortfalls close to one-fourth of their general fund budgets.
Iris Lav, the center’s deputy director, said that even deep cuts in basic services and tax increases probably would not overcome deficits of 25 percent. Only three governors have proposed or signed tax increases so far — in New Jersey, Connecticut and Arkansas — but Lav said that more than 40 states raised taxes in the 1990s recession, when deficits peaked at 6.5 percent of general fund budgets, far below next year’s anticipated shortfalls.
The report appeared likely to fuel debate over whether President Bush should include help for the states in his economic stimulus package. Sen. Max Baucus (Mont.), the ranking Democrat on the Finance Committee, has proposed directing $75 billion to states to relieve fiscal crises. Economists have warned that deep cuts and tax increases at the state level would dampen the effects of the president’s proposed tax cuts.
White House officials have responded in the past that the federal government faces its own deficits. But one official, speaking on condition of anonymity, said, "The president will continue to look at options for securing economic growth, and constructive suggestions from the nation’s governors will certainly be given consideration."
http://www.washingtonpost.com/wp-dyn/articles/A31285-2002Dec23.html
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Legislative analysis raises issues with Martz budget plan
By CHARLES S. JOHNSON
Gazette State Bureau
HELENA – A report issued Monday by the Legislative Fiscal Division raises a number of issues with the two-year budget plan proposed by Gov. Judy Martz to address a projected deficit of $232 million.
The Martz budget for the two-year period beginning July 1, 2003, calls for a $6.8 billion all-funds budget, including money from the federal government and earmarked sources such as fishing and hunting licenses. The general-fund portion of the budget, paid for by state taxes and investment earnings and often referred to as the state’s checking account, is $2.6 billion over two years.
By law, the Legislative Fiscal Division, headed by Clayton Schenck, performs an independent, nonpartisan analysis of the governor’s budget. Here are some of the issues, by topic, raised by the fiscal division staff:
TRANSFER FROM COAL TAX TRUST FUND. The Martz budget relies on $102.6 million in spending reductions and $115.4 million in revenue adjustments to fund the budget. The revenues include a net of $86.3 million (the net left after anticipated lost interest is subtracted from the $93 million sought) from the state’s permanent coal tax trust fund and $17.3 million from the state workers’ compensation fund’s "old fund."
The fiscal division noted it takes a three-fourths vote of the House and Senate to authorize the transfer from the permanent coal tax trust fund. "Although several attempts have been made to transfer these funds for direct operational expenditures, none have ever been successful," the division said.
ADEQUACY OF BUDGET SURPLUS. The Martz budget proposal calls for an ending fund balance of $50.1 million, or 1.9 percent of the total proposed general fund appropriation, as of June 30, 2005. Using revenue estimates made by a legislative panel in November, the Martz budget would have a surplus of just $36 million in mid-2004.
"In consideration of economic uncertainties and the lack of a budget for wildfire suppression, the Legislative Fiscal Division suggests 2.5 percent of ongoing revenue reserve as a minimum, which would translate into a $65 million ending balance," the report said. "National fiscal experts recommend a balance of 3 to 5 percent."
STRUCTURAL IMBALANCE. The Martz budget would have a structural imbalance, where expenditures would outpace anticipated revenues, by $34 million in mid-2005.
"With the likelihood that state revenues will not experience similar growth rates of the late ’90s, the Legislature should consider long-term solutions to provide a permanent solution to the budget shortfall," the Legislative Fiscal Division said.
FISCAL 2003 SHORTFALL. The budget shortfall for the current budget year, ending June 30, 2003, has not been completely resolved, despite a special session in August. The Martz budget projects a general-fund surplus or $6 million as of mid-2003, while the Legislative Fiscal Division projects a $4.4 million ending balance.
"This balance falls well short of the required statutory minimum fund balance of $26 million," the Legislative Fiscal Divison concluded.
ECONOMIC DEVELOPMENT. The Martz budget proposes spending $8.4 million in general funds and $9.4 million in other funds for economic development programs, which is a decrease of $8 million in general funds and $1.3 million in other funds compared with the current two-year budget.
"The Legislature needs to consider whether an investment in economic development is a high priority," the Legislative Fiscal Division said. "If successful, the investment could be a partial solution to the current budget crisis by providing more stimulus for economic recovery. It is also important to assess the effectiveness and whether these investments are producing cost benefits."
PENDING LITIGATION. The state faces three lawsuits that could drastically effect state government finances, the Legislative Fiscal Division said. They are two seeking changes and increased funding for services to the developmentally disabled and one that challenges the adequacy of state funding for schools.
The Martz budget proposes increased funding for developmentally disabled programs by $7.7 million in general fund spending and $18.4 million in total funds and uses general funds made available from refinancing efforts to strengthen and expand services. However, the Legislative Fiscal Division said if the state loses these two lawsuits, a conservative estimate of the potential additional costs is $20 million.
The Martz budget proposes holding state support for schools at fiscal 2002 levels over the 2005 biennium, while the Legislative Fiscal Division said the education funding lawsuit is scheduled to heard in the first few months of 2004.
"State support for school district costs as a percent of total district cost is very likely to decline further under the executive budget proposal," the Legislative Fiscal Division said.
The Legislative Fiscal Division’s detailed reports, which are being published in book form to be available by later this month or early January, also can be found in full on the agency’s Web site: leg.state.mt.us/css/fiscal/2005_biennium/budget_analysis.asp.
Copyright © The Billings Gazette, a division of Lee Enterprises.
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