States Make Tough Calls To Close Budget Gaps

Jul 17, 2012
Originally published on July 17, 2012 2:30 pm
Copyright 2018 NPR. To see more, visit http://www.npr.org/.

JENNIFER LUDDEN, HOST:

This is TALK OF THE NATION. I'm Jennifer Ludden in Washington. It's been three years since the recession ended, and state governments are still hurting. An independent task force today warns their fiscal problems could well get worse without forceful action. By some estimates, over half of the states in the U.S. faced a combined budget gap of $55 billion this fiscal year.

Raising taxes is controversial, so many states are slashing services to close the gaps. But after years of cutbacks, the choices can be stark. We'll speak with some state officials making these tough calls in a moment. What do you value that you're willing to give up or pay more for? Our number is 800-989-8255. Our email address is talk@npr.org, and you can join the conversation at our website. Go to npr.org, and click on TALK OF THE NATION.

Later in the program, college graduates slouching towards adulthood and the parents who continue to love and house and feed them. But first, NPR's senior business editor Marilyn Geewax joins us. Welcome, Marilyn.

MARILYN GEEWAX, BYLINE: Hi, Jennifer.

LUDDEN: Put this in perspective for us. I mean, I feel like we've gotten used to this era of cutbacks. You know, we know the economy's bad, but it's better than it was a few years ago, slowly growing. How bad are things for the states?

GEEWAX: It's a tough problem for states because the economy really has not bounced back the way one would hope. We're still taking in revenues at a lower rate when you adjust for inflation from before the recession. But it's been years now. And the population has grown. More people are going to college, more older people.

There are more unemployed people trying to collect unemployment benefits. So the states have had a lot of pressures, and they're paying out more and more, and they just can't get those revenues back up to where they were. So what's happened, and that's what this independent task force - took a look at state budgets, and they released this report this morning. And what they're finding is that what states have been doing is kind of gimmicky, trying to cover up for the fact that they just don't have enough revenues.

But we've got to make some choices at this point.

LUDDEN: Gimmicky how? What's been happening?

GEEWAX: Well, you can do things like take a one time sale of an asset and count that as, you know, ongoing revenue when really it's a one time thing. That's an easy example. But there's also too much dependence on things like cigarette taxes and gas taxes and things that can be very volatile, and that really isn't the kind of overall revenue stream you want, which is a lot of good, say, property taxes coming in.

But when houses are in foreclosure, when things are bad on the property front, and incomes are down, you have a very hard time getting those nice, steady streams of revenues. So states are looking at shortfalls of all sorts, and they're not funding their pensions as fully as they should. So we've got a lot of kind of smoke and mirrors, and when you blow that smoke away, what you see is that states, and cities, as well, are in a lot more trouble than we'd like them to be in.

LUDDEN: And this comes after several years where, OK, besides the gimmicks, they have made cutbacks. Have they not? What's been cut?

GEEWAX: And that's a problem because this has gone on so long that states have been tightening their budgets. They've been cutting teachers, cutting all sorts of subsidies for state universities, for example. There are ways that states have been trying to tighten their budgets. But we're at the point now where those kinds of choices that you were saying what do we value, where you have to look at things like do we want to continue to have a state park that's open seven days a week, or do you have to start to cut back on those kinds of things.

Do you need to really raise revenues significantly? Now, maybe you don't want to raise tax rates, but are there things that can be done, fees, you know, everything from a fishing license to fees on the turnpike, I mean, just any number of ways that states can try to raise revenues without calling it a tax increase.

But again, a lot of those things that are easy to do have been done because this has gone on so long.

LUDDEN: Well, and then I keep reading about this vicious cycle: You cut back, and that further depresses the economy.

GEEWAX: The biggest concern, I think the single biggest worry that people who really look at these state budgets get to is the infrastructure. You need roads to break this cycle. You've got to be able to attract businesses. And if your roads are full of potholes, if the port in your state is not functioning well, if you're allowing your airports to go downhill, if there's no investment in infrastructure, it makes it very hard to break this cycle and start to grow again.

You know, I was looking at state defaults from the 1840s. That was a real problem. There were like eight states that filed for bankruptcy back in the 1840s.

LUDDEN: I didn't know there was a recession back then.

GEEWAX: Well, yeah, they ran into a little trouble. They got ahead of themselves on some building projects, and there was a downturn, and they defaulted. But what really saved them was how fast the country was growing. The railroads came along. You know, eventually they were able to work their way out of their problems just because the economy took off.

And in some ways that's sort of what happened with New York City. You may recall in the 1970s, New York City ran into just a tremendous budget shortfall, and they had to get federal loans to work their way out of it. Well, New York got onto much better footing once the city turned itself around in terms of getting the economy growing again.

Wall Street started booming, real estate took off, and they were able to get past those problems of the '70s. By the time you got into the '90s, they were able to get away from that debt-deficit cycle. So right now that's where states are at. They need to be investing in schools. They need to beef up their universities. They need to improve their transportation systems to attract the businesses of the future.

But it's really hard to do that when your budget deficit is as bad as they are.

LUDDEN: All right, we're asking callers what they value and they would be willing to give up. Let's take a call here. Patrick is in Cedar Rapids, Iowa. Hi, Patrick.

PATRICK: Hi, hello. It's a great discussion, and I'd like to see the leadership engage in a more proactive form of sacrificing for the greater good, back to the spirit of stating very clearly our nation was founded with the idea that there will be some sacrifice. And I'm willing to pay more, absolutely, for the infrastructure side of things, for the business development side, as well as those essential services that we all consider to be part of our lives for the greater good.

And I'm a small business owner. I have a hard time with high taxes, but I'm totally disgusted with my former Republican Party for their intransigence on this position that I feel has left us a rather selfish, self-centered and really victim mentality society when it comes to taxes.

We need leadership to articulate a vision, and then I'll give Reagan the benefit of the doubt on this one. I though President Reagan did a wonderful job mobilizing the nation behind a vision of positive, positive, greater-good sacrifice...

LUDDEN: OK, but back to the actual budget, you would be willing to pay more for infrastructure, you said?

PATRICK: Absolutely, and roads and bridges, as well as - I personally am very forward-looking on the whole energy front. I think the states need to become independent of the national energy scene and develop their own energy policies. And there's a great return on that.

In the state of Iowa, we have $33 billion that's currently contributing to our state from the largest wind power, as well as other alternative fuels development policies that make a huge difference. And I'm willing to pay more taxes for this kind of forward thinking.

LUDDEN: OK, I think Marilyn Geewax has a question for you.

GEEWAX: I just wanted to jump in on this issue of the infrastructure that he brings up, mentioning the word bridges especially. Right now, interest rates are so low that states could borrow money pretty cheaply to do those things, to fix the bridges.

PATRICK: Exactly.

GEEWAX: The day may come when we'll look back on this time and say, oh, my God, I can't believe we didn't do what we could have done at interest rates that were that low.

LUDDEN: All right, Patrick, thanks for the call. You know, let's bring in now H.D. Palmer, who is making these tough choices we're talking about. He's deputy director of external affairs for the California Department of Finance, and he joins us now from a studio at the state capital in Sacramento. Welcome to you.

H.D. PALMER: Thank you for having me, Jennifer.

LUDDEN: So you have quite a big budget gap over there, projected to be over $15 billion, do I have that right, by some estimates.

PALMER: The budget that Governor Brown signed last month closes a budget gap that we estimate to be about $15.7 billion.

LUDDEN: Wow.

PALMER: All the states have been weathering through these difficult times during the recession, but California got hit harder and earlier than probably any other state in the country. Give you a couple of numbers to touch on that. From 2007 to 2009, the state's general fund revenue dropped by 25 percent. It went from $95 billion down to $71 billion.

And in terms of the number of jobs that we lost during the recession, from the peak to the trough, we lost more than 1.3 million nonfarm jobs. And as of the first quarter of this year, we're still down about 935,000 jobs. And according to our latest economic forecast, we won't get back to those pre-recession levels until the fourth quarter of 2015. So that kind of gives you some idea of the magnitude.

LUDDEN: The pre-recession levels of income coming in.

PALMER: No, the pre-recession levels of nonfarm employment in California.

LUDDEN: Oh wow. So I have, just as a lay listener here, not living in California, I've heard a lot of stories in the past few years about teacher cuts in the public schools. And I'm not what else they've cut. Can you give us a sense of one of the toughest cuts you just had to make in this budget you just wrapped up?

PALMER: Well, there are a number of reductions that we had to make. About $8 million of it would be in expenditure reductions. But we've tried to do some - not take a meat-axe approach to it and to be thoughtful, and I'll give you a case in point. In our Medi-Cal Program - it's California's version of Medicaid - we have a number of Californians who are eligible for both Medicare and Medicaid.

And the problem that we've had is there's been kind of a bifurcated care system that's been more costly and has led to more issues of hospitalization and higher costs of care. One of the things that's part of the new budget that was adopted is a coordinated care initiative that integrates care for those individuals who are both in Medicare and Medicaid. And that's going to generate about $600 million in savings, we estimate, in the coming year.

So we're trying to make these reductions in a way that has significant, you know, positive policy outcomes, as well.

LUDDEN: Other tough things that you had to cut, though?

PALMER: Well, the tough things that may be lying ahead - as you may know, Governor Brown has proposed a ballot initiative that will go before the voters this November that would temporarily increase both the personal income and the sales tax rates for a period of time.

And the governor - the budget is predicated on that measure passing. So what happens if it doesn't? Well, we still...

LUDDEN: Well, is it fair to call that - I don't know, Marilyn's been telling us about gimmicks. That's - well, how could you do that?

PALMER: Well, part of what the governor put forward and the legislature adopted is a menu of about $6 billion in so-called trigger reductions that will take effect in January if that measure is not approved in November.

LUDDEN: And I'm so sorry, I've lost track of my clock here. H.D. Palmer, hang with us, you'll come back in a moment.

PALMER: Sure.

LUDDEN: We're talking with NPR's Marilyn Geewax, as well, about state budgets. Call us, 800-989-8255. What would you be willing to give up? It's TALK OF THE NATION from NPR News.

(SOUNDBITE OF MUSIC)

LUDDEN: This is TALK OF THE NATION. I'm Jennifer Ludden. State budgets across the country are in crisis, so let's talk for a minute about why that matters. Here's one big reason: About 15 percent of all workers in the U.S. draw paychecks from state or local governments. That is 19 million workers, six times more than the federal government employs.

That's the big picture, but the details are significant too. For example, state and local governments pay 90 percent of all the money spent on educating kids through the 12th grade. So when state budgets are maxed out, and cuts are on the table, as they have been for years now, it affects just about everyone, and cuts are unpopular, but so is raising revenue through taxes.

So what do you value that your state provides that you'd be willing to give up or pay more for? Our number is 800-989-8255. Our email address is talk@npr.org, and you can join the conversation at our website. Go to npr.org, and click on TALK OF THE NATION.

My guests are Marilyn Geewax, senior business editor here at NPR, and H.D. Palmer, deputy director of external affairs for the California Department of Finance. Mr. Palmer, I just had to cut you off there. You said that the governor there just passed a budget that's predicated on some tax increases that will be put to ballot this fall. What happens if they don't pass?

PALMER: Well, what happens is that we still have an obligation to have a balanced budget. So if that measure does not - is not approved by the voters, then the legislature has already pre-approved roughly $6 billion in what are called trigger reductions that would automatically go into effect in January of 2013.

The largest share of those would be in education, nearly $5.4 billion of that $6 billion would come from K-through-12 schools and community colleges. And to give you an order of magnitude, that would be the equivalent to taking three weeks off of the school year next year.

LUDDEN: Wow.

PALMER: So - and also we're talking about trigger reductions of about $250 million each for the University of California and the California State University system. So that's the backup plan should the ballot measure not be approved.

LUDDEN: Marilyn?

GEEWAX: The things he just enumerated there are such great reminders of why state budgets matter so much. We've heard a lot in the recent years about the battles in Washington over the federal deficits and the national debt, and that's certainly an incredibly important issue, but states are really where we live.

I mean that's the intersection of our lives and government that he's talking about. So while I may never see in my lifetime - or I hope I don't - see, you know, guided missiles flying over my house, or I don't see fighter jets, a lot of the spending that happens at the federal level, it's not directly a part of my life.

But the policeman on the beat, that's a part of my life. Schoolteachers, the things that are - really make a citizenship enjoyable and important, having everything from a community swimming pool to a schoolteacher you trust with your children, those are the things that states and cities are in charge of, and these budgets have not gotten a whole lot of attention, and yet they're really absolutely critical to how we live.

And I think these issues, especially in California, it's come much more to the fore. I mean I think you folks in California have been more aware of your state budget, but the rest of the states are catching up as everybody struggles with this.

LUDDEN: We've got a couple of emails here. David writes in: I would pay more property tax to support my schools. I just think they're too afraid to ask and can't seem to put the ask in a good context. A $100-per-house would - $100 per house would make a dramatic impact on education. Just tell us what it would mean for teachers, classrooms and so forth.

And I'm not sure where David's writing in from there. Sara(ph) in Chambersburg, Pennsylvania, writes: I worked for the local arts organization in my town for a few years when I was earning my degree in art history. I loved working with local artists, providing opportunities for them.

When the state of Pennsylvania needed to cut funds for budgeting, although I find the arts incredibly important, I agree with the funding cut to the Pennsylvania Council on the Arts. So some really tough calls. H.D. Palmer, what was something that was discussed and maybe kept in the budget?

PALMER: Well, there were a number of things that were discussed, and some of the things were not approved, what the legislature was considering, that the governor felt wasn't going to lead to a balanced budget or wasn't going to be a solution that was going to be long-term.

One of the things, to get back to some of the more thoughtful reductions that we're trying to do, is in the public safety area. We have what's - we're in the second year of what's called realignment, where instead of having low-level offenders be supervised at the state level, they are being transferred to the counties.

We're not just sending those inmates to the counties, we're also sending dedicated revenue of about $6 billion this year. And we think that's going to accomplish three goals. Number one, it's going to reduce the state's prison population. We're under a federal court order to reduce our prison population, which had been almost crowded at twice its capacity.

The second thing is we're going to achieve budget savings. We're going to reduce our corrections budget, which had been growing dramatically, by about a billion dollars on a year-over-year basis.

And the third thing is that as well as having the responsibility of these inmates go to the local level, we're also sending down dollars and programs for related things like mental health services, substance abuse treatment, foster care, that we think taken as a whole is going to make it more likely that these low-level offenders are not as likely to re-offend. So that's another kind of one of the thoughtful ways that we're trying to approach the necessity of achieving savings (unintelligible).

LUDDEN: So you're still looking long-term. How can we do something today that's going to save money five years from now?

PALMER: Right, and if you look at the roughly - the solutions that we just adopted in this budget, more than half of them are ongoing, in terms of having a multi-year effect, and that's one of the problems that we had in recent years, is a number of the solutions in the state budget were one-time in nature, or they really weren't realistic.

The budget that was adopted in 2010, for example, assumed that there was going to be $4 billion in assistance coming from Washington, D.C., that clearly was not going to materialize and did not materialize. So we're trying to move away from those short-term fixes and unrealistic fixes and look for more long-term stability and structural, getting it to a point hopefully in the next few years of structural balance.

LUDDEN: H.D. Palmer, deputy director of external affairs for the California Department of Finance, joined us from a studio at the state capitol there in Sacramento. Thank you so much for your time.

PALMER: Thank you, Jennifer.

LUDDEN: Let's turn now to Scott Feldt. He is the deputy state treasurer at the Wisconsin State Treasurer's Office, and he is in his office now in Madison, Wisconsin. Welcome to the program.

SCOTT FELDT: Hello, Jennifer.

LUDDEN: So what is the toughest call that you've had to make there as you close your budget? And maybe give us a sense of what your deficit has been.

FELDT: Well, when - you may know, a couple years ago Governor Walker was elected and was facing a $3.6 billion deficit. And that had been a structural deficit that had been well over a billion dollars for well over 10 years. And so what he was looking for was a way to really focus and attack that deficit without raising taxes.

And what he has done, which other states are looking at, as well as some municipalities and localities, is looking at the personnel side of it regarding contracts, labor contracts, retirement contributions and health insurance premiums. And he had put in a budget repair bill that had dealt with the collective bargaining laws, which therefore gave municipalities the flexibility regarding requiring employees to make increased contributions to their retirement, as well as increased contributions toward their health insurance premiums.

And by doing that he also reduced the amount of aid that he had put to his - to the localities, by over $800 million, especially with the schools, but again gave those municipalities and localities the flexibility then to work on the contributions from the public employee side.

LUDDEN: Right, and we did see how controversial a lot of that was there in Wisconsin. You mentioned how difficult it is to raise taxes. I'm wondering: Are there other sources of revenue that you've been able to find, other acceptable ways to bring in money? Because so many people who look at this problem say it's just hard to do just cutting, you kind of need to bring in more money in some way.

FELDT: Well, when you look at the state of Wisconsin and, you know, basically how our budget works out, 50 percent of our budget basically goes to assist local governments, and then another 22 percent goes to individuals. Only roughly 20 percent goes towards operations if you're not counting the university.

So when we're talking about revenues to come in, the majority of our revenues come from taxes. And so if we're going to be trying to do something that is going to deal with the budget and also deal with revenue, you have taxes and not much else.

You have taxes, which is 50 percent of your revenue. Your - thirty percent comes from the federal government, and 10 percent comes from program revenue itself.

GEEWAX: Excuse me, this is Marilyn Geewax, and I'm wondering: Did you folks do anything like raise, you know, hunting fees or transportation fees of some sort?

FELDT: There may have been a little bit of what I guess - what I'd call nibbling at the edges. But even then, when you're talking about total dollar amount, those are just drops in the bucket. Of that, what you're basically coming down to when we're talking about this, is you're talking about millions of dollars when you have to deal with billions of dollars in deficits so - and I'm - to not be political, what one side of the aisle is looking at is they believe that a structural part of it have to do with looking at it from the employee side, or the public employee side, since the majority of a state budget and a municipal budget deals with paying of workers. So what the governor and the Republicans looked at was trying to address the issue of retirement, and health insurance benefits, and salaries and do it from that side as opposed to from the revenue of raising fees or taxes.

LUDDEN: Let's get a listener on the line here. Danielle is in Rochester, New York. Hi, Danielle.

DANIELLE: Hi.

LUDDEN: Go right ahead.

DANIELLE: Well, I think this is, first of all, a very important conversation because I think when it comes to spending in our nation, in general, the question of value and priority is really what that question here, and not whether we have the money or not, but what we decide to spend our money on. That being said, I am someone who think that spending needs to be done wisely, so we shouldn't be spending willy-nilly. But one thing that's very important that I would be willing to spend as much as it takes to continue it in the state of New York where I live, is Medicaid.

I think we are - we've forgotten that in 2008 right prior to the downturn in the economy, the most important, the most pressing issue during the 2008 elections was health care and the fact that there are hundreds of thousands of Americans who are, to this day, being crushed by the burden of financial care, especially those who would be qualifying for Medicaid where they have very little sources, and that is the one and only resource for them to get access to care.

And if we want to be a country that is going to reduce funding in other places - if we're going to cut arts programs, if we're going to reduce the amount of recreational activities such as opportunities for after school or local pools or community centers - well, then we need to be able to deal with the consequences of that lack of community care, and it comes out in effect that people aren't going to be getting their needs met. And therefore, those will manifest themselves in physical maladies and the fact that people are not going to be able - they're going to have mental health concerns then. These are - this is a very vulnerable population.

And in the state of New York, I think that we need to prioritize Medicaid, and I'm willing to spend whatever it takes. That doesn't mean I'm willing to spend willy-nilly, but I'm willing to spend whatever it takes in order to ensure that members of my community, regardless of their ability to pay or what got them in that circumstances, are taken care of because that is what we should be valuing as a nation.

LUDDEN: All right. Danielle, thank you so much. Thanks for the call.

DANIELLE: Thank you.

LUDDEN: And let's get one more here. Ellen is in Provo, Utah. Hi, Ellen.

ELLEN: Hi. I'm a public school teacher, and even worse, I'm a music teacher.

(LAUGHTER)

LUDDEN: And you still have your job?

ELLEN: Luckily, I still have my job. But I know they're threatening to cut, not only my program, but dozens of others around the district, around the state. And I would - I just - I would pay through the nose to keep public education going strong because in contrary to the last caller, sorry, she said some great things, but people stay healthier, they become better workers, they'll do more if they are successful in public education. And so we won't have to pay as much for the rest of us if we can keep a strong a public education going.

GEEWAX: These are the kinds of decisions we really are going to be looking at. It's choosing between individuals' health, the collective school system and also things like adult daycare, centers for the elderly. A lot of people depend on community centers to have something to do in the daytime. Libraries, where are we going to go with those kinds of public goods that are - that can be very expensive.

ELLEN: Right.

LUDDEN: Yeah.

GEEWAX: So we'll need to make a lot of choices about our values in coming years.

LUDDEN: Ellen, thank you so much for your phone call.

ELLEN: Mm-hmm.

LUDDEN: You're listening to TALK OF THE NATION from NPR News. Scott Feldt, who do you listen to? There must - I can only imagine all the lobbying and the concern and everyone worried about their program being cut, and people have different values when it comes to what they'd make a priority of?

FELDT: Absolutely. And to, basically, refer back to the previous caller, actually, I serve on my local school board. And so, what's very interesting about when you go from a state budget to a local budget, it's much more personal when you're dealing with a school board budget, because you're talking about children's kids that you meet at the little league games or that you're talking to the parents at the grocery store, and you are - when you make those decisions regarding those budgets - what to cut, what to fund - it has a personal - a truly personal impact that you can see firsthand, which therefore makes it at times very difficult and very challenging and sometimes very rewarding.

As for who we listen to, we have to remember we have, you know, 99 legislators in the assembly and 33 senators in the state Senate, plus you have a whole list of constituency groups. So what we need to do is not only take them into account, but also just the financial realities, when we talk to our legislature, the fiscal bureau, the Wisconsin Taxpayers Alliance and the number of these groups that have some financial acumen, as well as, can show you the fiscal trends that have been going on year after year and what can be done to help reverse the trend of deficits and try to bring us back up into surplus.

LUDDEN: All right. Scott Feldt, deputy state treasurer at the Wisconsin State Treasurer's Office, from Madison, Wisconsin. Thank you so much.

FELDT: Thank you, Jennifer.

LUDDEN: So, Marilyn, in the moment we have left, the state task force today warned of worse to come unless states kind of change the way they draw - come up their budgets. What have they recommended?

GEEWAX: Really, key thought here, is that there needs to be more honesty, that people really have to look at this in a way that addresses the problem, not just the smoke, the mirrors that cover it up and kicking in to the next year, that it's time for states, cities, to set these priorities. What are our values? Do we really want to cut police, or do we want to cut schools, or do we want to cut Medicaid? We need to actually come up with a list and be much more honest about it. And that's really the driving thought behind this, is to expose just how serious the problems are and the choices need to be made. And if we don't, the long-term consequences will be serious. For example, if a bridge collapses because of lack of maintenance, it will be a lot more expensive to fix it in the future. They want people to deal with it, honestly, now.

LUDDEN: Marilyn Geewax, NPR senior business editor, here in Studio 3A. Thank you so much, Marilyn.

GEEWAX: You're welcome.

LUDDEN: Coming up, Sally Koslow joins us to talk about the college grads all around slouching toward adulthood. Parents of graduates, if you're living together once again, what are the new rules? Call us at 800-989-8255 or send us an email, talk@npr.org. Stay with us. I'm Jennifer Ludden. It's TALK OF THE NATION from NPR News. Transcript provided by NPR, Copyright NPR.