Responding to the Crisis in State Budgets: Analysis

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Responding to the Crisis in State Budgets
Analysis Action

• 2002 KIDS COUNT Annual Conference
• September 11, 2002
• Bethesda, Maryland
• Nick Johnson
• Director, State Fiscal Project
• Center on Budget and Policy Priorities
• 202-408-1080 www.cbpp.org/state
  johnson_at_cbpp.org

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Responding to the Crisis in State Budgets
Analysis and Action

• Defining the problem
• How much trouble are states in?
• Will the problem go away soon?
• Identifying and promoting solutions
• What can child advocates do about the budget
  problems?
• Who can help?

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The Fiscal Crisis, Part I Short-term Revenue
Decline

• State tax revenues fell about 38 billion or
  about 9 percent from 2001 to 2002, adjusted for
  inflation and law changes
• No revenue growth projected for 2003, so the 39
  billion hole remains
• Spending growth is a small part of the problem
• Medicaid over budget by 2.9 billion in FY02

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The Fiscal Crisis, Part IILonger-term fiscal
problems

• State tax bases are slowly eroding due to policy
  choices
• Erosion was masked by unusual boom of 1990s
  e.g. unsustainable capital gains growth and high
  consumption
• States enacted 35 billion in permanent tax cuts
  in 1990s
• Federal government making things worse
• No new aid to states
• Federal tax changes undermining state revenue

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State Responses To Date

• Relatively few states so far enacting significant
  tax increases
• Six states in 2002 raised taxes by more than 5
  percent
• Eight states raised taxes between 1 and 5
• Nearly every state is cutting spending
• Some states protecting some parts of the budget,
  e.g. education
• Many states enacting cuts in all parts of the
  budget

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Spending Cuts May Be Expected To Have Significant
Effects on Programs for Children

• State government spending (general fund), 2003
• K-12 education 36 percent
• Medicaid 14 percent
• Higher ed 12 percent
• Public assistance 3 percent (source NASBO)
• Other
• K-12 and Medicaid accounted for majority of
  spending growth in 1990s

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Examples of Spending Cuts

• Medicaid
• At least 18 states cutting eligibility
• 14 states reducing benefits
• 19 states increasing co-payments (source Kaiser
  Commission)
• Child care
• At least 10 states cutting eligibility
• 5 states reducing or freezing provider
  reimbursements
• 5 states hiking parent fees
• 9 states expanding wait lists. (source CDF)

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More Examples of Spending Cuts

• Other cuts for FY 2003 higher ed (at least 16
  states), corrections (14), K-12 (11), aid to
  localities (11). (source NCSL)
• These figures may be understated not all states
  willing to acknowledge all cuts in national
  surveys.
• Additional cuts likely under governors
  discretion.
• More budget-cutting likely in 2003 sessions.

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A Research and Action Agenda

• Put human faces on proposed cuts
• Make link between revenues and spending
• Build coalitions around revenue solutions
• Think Federal
• Be credible and principled
• Look out for the long run

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1. Put Human Faces on Cuts

• A budget cut in dollar terms means nothing to
  most people.
• Budget cutters recognize this may try to hide
  impacts
• Express it in terms of specific services and
  people affected in specific communities
• Example Voices for Illinois Children, The Human
  Cost of Cuts to the Illinois Budget,
  http//www.voices4kids.org/humancosts.pdf
• Focuses on specific, quantifiable impacts of
  possible cuts (e.g. reduced number of teachers,
  increased Medicaid copays, etc.)

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2. Make the Link Between Revenues and Expenditures

• Its about priorities
• The tax cuts of the 1990s vs. proposed budget
  cuts now
• Spending on programs vs. tax expenditures
  (spending through the tax code)
• Different legislators/committees need to hear the
  same message
• Save Services, Raise Revenue
• Example CT Voices for Children, Enhancing State
  Investments Through Smart Budget Choices,
  www.ctkidslink.org.

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3. Build Coalitions Around Revenue Solutions

• (Omitting, for the moment, how to come up with
  the list of revenue solutions in the first place)
• Round up the usual suspects
• Persuade single-issue advocates that revenues
  matter to everyone
• Consider strange bedfellows
• Labor, local governments, grassroots organizers
• Example Massachusetts Stop the Cuts Coalition

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4. Think Federal

• Recent federal actions have undermined state
  revenues
• Bonus Depreciation
• Estate tax
• No aid to states
• U.S. Senate in July passed an amendment as part
  of the generic drug bill (S. 812) that provides
  9 billion in temporary federal aid - 6 billion
  by increasing federal share of Medicaid and 3
  billion in grants for social services.
• Role of state advocates
• Push harder for aid
• Protect revenue systems from federal changes
• Oppose further federal tax cuts

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Federal Non-Health Grants
Includes education, training, employment, and
social services
Source US Budget, Fiscal Year 2003, Analytic
Perspectives
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State Estate Tax Revenue In Danger of Vanishing
billions
State Fiscal Years
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5. Be Credible and Principled

• Revenue proposals should be
• Realistic
• Should be supported by solid analysis
• Should deliver revenue as promised, in short and
  long run
• Fair and balanced
• Should focus on those with ability to pay, in
  whole or in part
• Should contain protections for low-income
  families who are hit hardest in recession
• It is not easy to be taken seriously by tax
  policymakers, but it can be done

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6. Look out for the Long Run

• Most states probably face structural deficits
  simply put, projected spending growth exceeds
  revenue growth
• Many of this years enacted or proposed budget
  solutions actually make things worse in future
  years
• Deferred spending
• Accelerated revenues
• Structural barriers, eg tax supermajorities
• Use of temporary or declining revenue sources
• Need to support sustainable solutions.
• Who else will worry about the long-term financing
  of programs?

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Learning More About State Tax and Budget Policy

• CBPPs State Fiscal Project
• Workshop tomorrow on revenues
• New papers at www.cbpp.org/state
• Technical assistance, research, etc. available to
  state non-profits 202-408-1080 or
  johnson_at_cbpp.org
• Conference in D.C. December 8-9
• Analysts assigned to each state
• Fiscal analysis organizations in your state
• The State Fiscal Analysis Initiative
  http//www.cbpp.org/sfai.htm
• Ask me for contacts