Ail­ing Illi­nois and New Jer­sey aren’t alone

Ex­perts say bud­get woes will grow if Congress slashes fed­eral funds

The Washington Post Sunday - - POLITICS & THE NATION - BY EMMA BROWN AND SANDHYA SOMASHEKHAR emma.brown@wash­post.com sandhya.somashekhar@wash­post.com Amy Gold­stein con­trib­uted to this re­port.

It has be­come a sum­mer rit­ual: State law­mak­ers, un­able to agree, la­bor late into the evening to hash out a last-minute bud­get deal to en­sure debts get paid, school buses show up, the el­derly get their daily meals and parks stay open for tourists.

But the po­lit­i­cal the­ater — which just played out in dra­matic fash­ion in Illi­nois and New Jer­sey — is a symp­tom of a wors­en­ing prob­lem, state fis­cal pol­icy ex­perts say. Years af­ter the hous­ing cri­sis un­der­mined the U.S. economy, state bud­gets are still be­ing bat­tered, fac­ing the strain of plum­met­ing en­ergy prices, gen­er­ous tax cuts and a boom in on­line shop­ping that has de­pressed sales tax col­lec­tions.

The par­tic­u­lar fac­tors are as di­verse as the states. But one thing is clear: More states are fac­ing fi­nan­cial trou­ble than at any time since the economy be­gan to emerge from the Great Re­ces­sion, said ex­perts who say the sit­u­a­tion will grow more dire as the Trump ad­min­is­tra­tion and GOP lead­ers on Capi­tol Hill try to cut spend­ing and rely on states to pick up a greater share of ex­pen­sive ser­vices such as ed­u­ca­tion and health care.

“When you look at so many states al­ready re­ally not pro­vid­ing in the way that they need to in terms of in­vest­ments that sup­port our com­mu­ni­ties, and then you po­ten­tially have the rug pulled out from un­der them with fed­eral cuts . . . that’s go­ing to re­ally mag­nify the cri­sis at the state level,” said Misha Wer­schkul, ex­ec­u­tive di­rec­tor of the left-lean­ing Wash­ing­ton State Bud­get and Pol­icy Cen­ter.

On Thurs­day, law­mak­ers in Illi­nois — a state in­fa­mous for bud­get dys­func­tion — took the his­toric step of over­rid­ing the gover­nor’s veto of the state’s first bud­get since 2015. Gov. Bruce Rauner (R) had ob­jected to a tax in­crease in­cluded in the spend­ing plan, but some Repub­li­cans joined with the leg­is­la­ture’s Democrats to sup­port the mea­sure in the face of $15 bil­lion in un­paid bills and threats from credit-rat­ing agencies that the state could be re­duced to junk sta­tus.

In New Jer­sey, a clash be­tween Demo­cratic lead­ers in the Gen­eral Assem­bly and Gov. Chris Christie (R) last week led to a gov­ern­ment shut­down, in­clud­ing the clos­ing of state beaches the week­end be­fore the July 4 hol­i­day. The dis­pute, which has since ended, grabbed head­lines when Christie was spot­ted soak­ing in the sun with his fam­ily on one of the beaches or­dered closed.

Other states are in sim­i­larly bad straits, although their sit­u­a­tions haven’t got­ten the same pub­lic at­ten­tion. In some cases, states are fac­ing a drop in rev­enue caused by lower-than-ex­pected tax col­lec­tions or other eco­nomic prob­lems. In oth­ers, the is­sue is largely po­lit­i­cal as law­mak­ers clash along party lines about whether to tax more or spend less.

Thirty-three states faced rev­enue short­falls in 2017, bring­ing in less money than they pro­jected for pub­lic ser­vices, ac­cord­ing to the Na­tional As­so­ci­a­tion of State Bud­get Of­fi­cers. That’s more than any year since 2010.

With just hours to go be­fore the new fis­cal year be­gan July 1, 11 states still had no bud­get — an un­usu­ally high num­ber, even con­sid­er­ing the brinkman­ship that rou­tinely over­takes the state bud­get process. Even now, six states have yet to agree on a new spend­ing plan.

Alaska is fac­ing a multi­bil­lion­dol­lar bud­get hole be­cause of the steep de­cline in the price of oil, which ac­counts for 90 per­cent of the state’s rev­enue. Trad­ing at more than $100 per bar­rel in July 2014, oil is now at less than $50 per bar­rel. The state, which lacks in­come and sales taxes, has tried to make up for that loss by draw­ing from a rainy-day fund and cut­ting ser­vices.

The sav­ings are all but gone now, and Alaskans have a hard time en­vi­sion­ing fur­ther ser­vice cuts. Courts now close at noon on Fri­days, thou­sands of low-in­come fam­i­lies no longer re­ceive sub­si­dized heat, and school dis­tricts have grown ac­cus­tomed to the an­nual rite of dol­ing out pink slips to teach­ers: An­chor­age laid off 99 teach­ers this sum­mer, while ru­ral Lake and Penin­sula District — home to 13 schools in an area the size of West Vir­ginia — saved money by shrink­ing its aca­demic year by 20 days.

The pain is shared in its en­ergy-de­pen­dent brethren such as Louisiana and Ok­la­homa. Law­mak­ers re­main deeply di­vided about what to do, as rais­ing taxes re­mains un­ap­peal­ing for many, even as oth­ers ar­gue that states have no other choice.

“There are times when you’re in po­lit­i­cal of­fice you have to do things that are po­lit­i­cally un­pop­u­lar,” said Alaska Gov. Bill Walker (I), who is push­ing to tax Alaskans’ per­sonal in­come for the first time in nearly four decades.

Law­mak­ers in Wash­ing­ton state nar­rowly averted a gov­ern­ment shut­down af­ter com­ing to a last-minute agree­ment to raise prop­erty taxes, a move meant to help the state ful­fill a court or­der to in­vest more in its pub­lic schools.

The tax will be capped af­ter 2021, lead­ing some law­mak­ers to fear that it will fail to keep up with es­ca­lat­ing costs, turn­ing the new bud­get into just an­other short­term Band-Aid.

Sev­eral Repub­li­can-led states ap­proved a wave of tax cuts in re­cent years, ex­pect­ing that they would kick-start eco­nomic growth. But some of those states have since seen their rev­enue stag­nate, leav­ing yawn­ing gaps in their bud­gets that have forced dra­co­nian cuts to so­cial ser­vice pro­grams and in­fra­struc­ture.

Per­haps best known among th­ese states is Kansas, which en­acted deep tax cuts in 2012 and 2013. But the cuts did not yield the hoped-for wind­fall, and per­sis­tent bud­get short­falls led of­fi­cials to cut back on so­cial safety net pro­grams, such as Med­i­caid and food stamps, as well as spend­ing on courts, roads and bridges. The re­duc­tions led to a voter back­lash and an about-face by the leg­is­la­ture, which raised some taxes this year.

A grow­ing num­ber of states — in­clud­ing some led by Repub­li­can gov­er­nors — have pro­duced fore­casts in re­cent weeks warn­ing that the GOP health-care bill be­fore the U.S. Se­nate would have dam­ag­ing ef­fects on their bud­gets and on low-in­come res­i­dents cov­ered by Med­i­caid. The plan would phase out fed­eral money that al­lowed 31 states to ex­pand Med­i­caid un­der the Af­ford­able Care Act and shift the pro­gram from an open-ended en­ti­tle­ment, most likely to one with per-per­son spend­ing lim­its.

“It’s an un­mit­i­gated dis­as­ter,” Con­necti­cut Gov. Dan Mal­loy, chair­man of the Demo­cratic Gov­er­nors’ As­so­ci­a­tion, said in an in­ter­view. “It is not too strong to say this will kill peo­ple. What Repub­li­cans are de­bat­ing in back­rooms is a plan the re­sult of which will cause peo­ple to die.”

An anal­y­sis by Con­necti­cut’s Of­fice of Pol­icy and Man­age­ment es­ti­mates that, by 2026, the Se­nate bill would shift as much as $2.9 bil­lion in an­nual costs to the state, po­ten­tially forc­ing as many as 230,000 peo­ple off its Med­i­caid rolls. Con­necti­cut al­ready is strug­gling; a week into the new fis­cal year, its law­mak­ers have yet to agree on a bud­get to deal with a con­sid­er­able rev­enue short­fall.

Ari­zona, Cal­i­for­nia and Min­nesota have is­sued sim­i­lar analy­ses. Late last month, the Na­tional As­so­ci­a­tion of Med­i­caid Direc­tors is­sued a state­ment say­ing that the Med­i­caid changes con­tem­plated by the Se­nate “would be a trans­fer of risk, re­spon­si­bil­ity, and cost to the states of his­toric pro­por­tions.”

Repub­li­can lead­ers in Wash­ing­ton ar­gue that cap­ping fed­eral Med­i­caid pay­ments would im­pose needed dis­ci­pline on the pro­gram, forc­ing states and providers to be­come more ef­fi­cient.

Many on the right also say that state-level tax cuts have been un­fairly de­mo­nized.

Joel Grif­fith, di­rec­tor of the Cen­ter for State Fis­cal Re­form at the con­ser­va­tive Amer­i­can Leg­isla­tive Ex­change Coun­cil, or ALEC, said Kansas’s mis­take wasn’t mak­ing steep cuts. Rather, he faulted state lead­ers for flinch­ing in the face of crit­i­cism.

“Now is cer­tainly not the time to be rais­ing taxes,” Grif­fith said. “The fo­cus should be on how do they con­tinue the re­forms that were started.”

Since 2011, 11 states have en­acted large tax cuts meant to be phased in over a pe­riod of years, ac­cord­ing to the Cen­ter on Bud­get and Pol­icy Pri­or­i­ties.

Phas­ing in tax cuts aims to ease their im­pact. But crit­ics say that states often fail to plan for the re­sul­tant de­cline in rev­enue and that law­mak­ers are shielded from ac­count­abil­ity when the full con­se­quences of their votes won’t be felt for years.

One of those states is Mis­sis­sippi, which this year faced a short­fall of $170 mil­lion. It has led to steep re­duc­tions in state spend­ing, from cuts to fire­fighter po­si­tions to shut­tered health clin­ics. Now, the state is set to ab­sorb a mas­sive $415 mil­lion tax cut to be phased in over the next decade.

The elim­i­na­tion of 650 po­si­tions in men­tal health, an­nounced in April, has sparked fear among ad­vo­cates for peo­ple with dis­abil­i­ties.

Janie O’Keefe, ex­ec­u­tive di­rec­tor of Dis­abil­ity Con­nec­tion, an ad­vo­cacy non­profit group in south­ern Mis­sis­sippi, said even some­thing as in­nocu­ous-sound­ing as a re­duc­tion in fuel fund­ing could harm dis­abled peo­ple, be­cause gas money helps those who live in in­sti­tu­tions get out into the world and in­ter­act with the broader pop­u­la­tion.

“I un­der­stand that our coun­try needs to start cut­ting some­where,” O’Keefe said. “But I think it’s very sad if they are look­ing at dis­abil­i­ties, peo­ple who are very sick, the el­derly, vet­er­ans — sup­port­ing them is the very thing the coun­try has to do.”

AN­DREW MILLS/NJ AD­VANCE ME­DIA VIA ASSOCIATED PRESS

ABOVE: New Jer­sey Gov. Chris Christie (R), right, sparked crit­i­cism when he and his fam­ily vis­ited a beach closed dur­ing a gov­ern­ment shut­down. BE­LOW: Illi­nois law­mak­ers ar­gue over the state bud­get.

JUSTIN FOWLER/STATE JOUR­NAL-REG­IS­TER VIA ASSOCIATED PRESS

Bill Walker

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