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
General Fund Spending: FY 2007-FY 2011 (in billions)
$700
$687
$680
$660
In
Billions
$658
$655
$635
$640
$613
$620
$600
$580
$560
FY 2007
FY 2008
FY 2009
FY 2010
FY 2011*
* FY 2007, 2008, and 2009 are actual. FY 2010 is estimated and FY 2011 is
proposed.
State Revenues, Constant 2008 4Q $
Moody's Economy.com
$900,000
$850,000
Millions
$800,000
$750,000
$700,000
$650,000
FY08
FY09
FY10
FY11
Revenues
2008 Revenues
FY12
FY13
FY14
State General Fund Expenditures, FY2008
Source: NASBO
11.3
1.8
16.3
7
0.8
34.5
28.4
Medicaid
Corrections
Transportation
K-12
Higher Education
Public Assistance
All Other
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
Where the Money Goes
Category
Higher Ed Other Employees
Higher Ed Instructional Employees
Corrections
Hospitals
Highways
Public Welfare
Judicial and Legal
All Other and Unallocable
Health
Financial Administration
Natural Resources
Other Education
Police Officers Only
Social Insurance Administration
Other
Percent Total Pay
21
17
10
9
5
5
5
5
4
4
3
2
2
2
6
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