State budget issues, 2010-2011

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State and local government budgets faced unprecedented budget challenges for states as the recession led to lower than anticipated revenues from taxes. Revenues had already started declining the prior year, making budgeting for FY2011 even more difficult. While states attempted to close their budget gaps through a variety of measures, including budget cuts, tax increases or taking money from rainy day funds, they face at least a combined $127 billion gap through fiscal 2012.[1] It also appears that the situation will not improve in the near future. Yolanda Kodrzycki, an economist at the Federal Reserve Bank of Boston, told the National Governors Association meeting in July 2010 that budgeting for next year would be "just as tough" for state budget makers.[2]

Some are estimating the total debt at $2 trillion and say that over 100 cities are facing bankruptcy.[3]


See also: Find your state budget


State deficits data

Aggregate state debt now exceeds $1.8 trillion according to State Budget Solutions.[4]

The biggest problem-states include Alabama, California, New York, Illinois, Massachusetts, and Pennsylvania.[5]

According to the Watchdog article, the following tables are based on "research by State Budget Solutions reveals the total official financial liability for each state according to the latest comprehensive annual data available. The research included total debt outstanding, recent budget shortfalls, pension and retirement health care liabilities, and Unemployment Trust Fund loans. The research also looks at the overall financial landscape for each state by considering top income tax rates, past economic performance, and economic outlook."[4]

The SEC recently started conducting hearings about municipal bond financial disclosures as part of a concern about accuracy, timeliness, and fiscal transparency.[6] The Meredith Whitney Advisory Group recently published a report saying that municipal spending has doubled since 2000.[7] The following municipalities have even considered declaring bankruptcy: Los Angeles, Detroit, Harrisburg, PA, and Jefferson County, AL.[7]

2010 State Budget Gap in Millions

State Budget Gap.png

Per capita

As of 2009, total state debt averages almost $17,000 for each of the 107 million private sector workers in the United States.[4] .

Income tax rates were obtained from the Federation of Tax Administrators and state rankings are from the American Legislative Exchange Council’s 2010 report “Rich States, Poor States.” Outstanding debt and outstanding debt per capita were obtained from each state’s most recent Comprehensive Annual Financial Report, which can lag current data by one to three years.

State Max Personal Income Tax Rate (%)1 Max Corporate Income Tax Rate (%)2 Economic Outlook Ranking3 Economic Performance Ranking4 Debt Per Capita5 Debt Per Capita Ranking Outstanding Debt (In Thousands)6
Alabama 5 4.23 17 26 $357 5 $1,663,232
Alaska N/A 9.4 22 9 $2,936 43 $1,995,349
Arizona 4.54 6.97 3 8 $1,249 22 $8,115,545
Arkansas 7 6.5 13 17 $902 20 $2,598,939
California 10.55 8.84 46 38 $2,808 41 $107,092,107
Colorado 4.63 4.63 2 15 $1,247 21 $5,972,627
Connecticut 6.5 7.5 36 45 $5,181 50 $18,137,626
Delaware 6.95 9.98 37 30 $2,984 44 $2,614,869
Florida N/A 5.5 5 6 $1,495 30 $28,128,000
Georgia 6 6 9 27 $1,354 25 $13,110,432
Hawaii 11 6.4 39 16 $4,375 49 $5,651,975
Idaho 7.8 7.6 7 10 $661 10 $1,015,845
Illinois 3 7.3 47 48 $1,837 32 $23,610,974
Indiana 3.4 8.5 20 47 $201 3 $1,286,107
Iowa 8.98 9.9 28 41 $780 16 $2,342,414
Kansas 6.45 7.05 25 40 $1,934 34 $5,450,878
Kentucky 6 8.2 40 31 $1,292 23 $5,515,889
Louisiana 6 5.2 16 34 $2,541 38 $11,111,263
Maine 8.5 8.93 44 19 $698 12 $942,407
Maryland 9.3 8.25 29 20 $2,482 37 $13,983,112
Massachusetts 5.3 9.5 32 43 $3,340 47 $21,536,894
Michigan 4.35 9.01 26 50 $855 18 $8,549,000
Minnesota 7.85 9.8 38 36 $863 19 $5,443,002
Mississippi 5 5 18 42 $1,483 29 $4,358,761
Missouri 6 5.81 15 35 $668 11 $3,950,022
Montana 6.9 6.75 33 2 $401 6 $387,480
Nebraska 6.84 7.81 34 29 $24 1 $42,692
Nevada N/A N/A 11 13 $1,501 31 $3,903,469
New Hampshire N/A 8.5 30 28 $798 17 $1,059,968
New Jersey 10.75 9 48 39 $4,073 48 $51,216,527
New Mexico 4.9 7.6 35 5 $3,010 46 $6,050,683
New York 10.5 15.95 50 37 $2,693 40 $52,493,000
North Carolina 7.75 6.9 21 23 $768 15 $7,207,211
North Dakota 4.86 4.23 12 11 $2,682 39 $1,720,591
Ohio 8.24 5.14 42 49 $1,438 28 $16,519,326
Oklahoma 5.5 6 14 7 $575 7 $2,122,197
Oregon 11 11.55 41 25 $2,830 42 $10,816,228
Pennsylvania 3.07 13.97 43 46 $743 14 $9,254,592
Rhode Island 9.9 9 45 33 $3,000 45 $2,730,259
South Carolina 7 5 31 24 $1,847 33 $8,320,109
South Dakota N/A N/A 4 12 $617 8 $496,029
Tennessee N/A 6.5 10 32 $229 4 $1,429,427
Texas N/A 5.56 19 3 $1,368 26 $33,945,000
Utah 5 5 1 18 $1,415 27 $3,970,000
Vermont 9.4 8.5 49 22 $737 13 $457,890
Virginia 5.75 6 8 4 $638 9 $5,003,955
Washington N/A 5.22 24 14 $2,479 36 $16,533,000
West Virginia 6.5 8.5 27 21 $1,319 24 $2,393,715
Wisconsin 7.75 7.9 23 44 $2,024 35 $11,393,755
Wyoming N/A N/A 6 1 $88 2 $46,970
Total N/A N/A N/A N/A N/A N/A $553,691,342

Pension & unemployment data

Since they are prone to market price fluctuations, Pensions and Other Post Employment Benefits play a crucial role in budget strain. Minimum unfunded liabilities totaled more than $1 trillion before markets crashed and states deferred their Annual Required Contributions. Estimates of the true retirement liability are as high as $3 trillion, and Unemployment Trust Fund loans and stagnant employment rates add billions more.

Pension and OPEB liabilities were obtained from PEW’s “Trillion Dollar Gap” report on pension funds as of 2008. Official Unfunded Pension Liabilities based on assumptions of annual investment returns of 7 percent to 8.5 percent are from the CAFRs of each state’s major pension funds.

  • According to the report unemployment Trust Fund Loans are from the National Council of State Legislatures, and current budget shortfalls are from the Wall Street Journal and the Center on Budget and Policy Priorities. Total State debt is the sum of outstanding official debt, pension and OPEB liabilities, Unemployment loans, and current budget gap. Figures for debt per private worker were computed using data from the Bureau of Labor Statistics.
State Pension UAAL7 Pension UAAL Ranking OPEB UAAL8 OPEB UAAL Ranking Pension UAAL + OPEB UAAL Pension UAAL + OPEB UAAL Ranking Unemployment Trust Fund Loans as of 6/29/20109 Unemployment Trust Fund Loans Ranking
Alabama $9,228,918,000 31 $15,549,411,000 39 $24,778,329,031 39 $283,001,164 9
Alaska $3,522,661,000 19 $4,032,052,000 27 $7,554,713,019 19 $0 N/A
Arizona $7,871,120,000 27 $808,818,000 14 $8,679,938,027 23 $7,016,253 1
Arkansas $2,752,546,000 17 $1,822,241,000 20 $4,574,787,017 13 $330,853,383 10
California $59,492,498,000 50 $62,463,000,000 48 $121,955,498,050 50 $7,207,436,466 31
Colorado $16,813,048,000 45 $1,127,179,000 16 $17,940,227,045 33 $169,126,150 6
Connecticut $15,858,500,000 44 $26,018,800,000 41 $41,877,300,044 43 $498,452,705 15
Delaware $129,359,000 4 $5,409,600,000 29 $5,538,959,004 15 $12,901,505 2
Florida -$1,798,789,000 2 $3,081,834,000 26 $1,283,045,002 5 $1,612,500,000 22
Georgia $6,384,903,000 25 $18,322,123,000 40 $24,707,026,025 38 $416,000,000 13
Hawaii $5,168,108,000 24 $10,791,300,000 34 $15,959,408,024 32 $0 N/A
Idaho $772,200,000 11 $489,421,000 8 $1,261,621,011 4 $202,401,700 7
Illinois $54,383,939,000 49 $39,946,678,000 46 $94,330,617,049 48 $2,239,582,343 25
Indiana $9,825,830,000 32 $442,268,000 7 $10,268,098,032 25 $1,709,743,840 23
Iowa $2,694,794,000 16 $404,300,000 6 $3,099,094,016 10 $0 N/A
Kansas $8,279,168,000 29 $316,640,000 4 $8,595,808,029 22 $88,159,421 4
Kentucky $12,328,429,000 40 $11,660,245,000 35 $23,988,674,040 36 $795,100,000 18
Louisiana $11,658,734,000 38 $12,542,953,000 36 $24,201,687,038 37 $0 N/A
Maine $2,782,173,000 18 $4,347,702,000 28 $7,129,875,018 17 $0 N/A
Maryland $10,926,099,000 36 $14,723,420,000 37 $25,649,519,036 40 $133,840,765 5
Massachusetts $21,759,452,000 47 $15,031,600,000 38 $36,791,052,047 42 $387,313,005 12
Michigan $11,514,600,000 37 $39,878,500,000 45 $51,393,100,037 47 $3,876,782,333 30
Minnesota $10,771,507,000 35 $1,011,400,000 15 $11,782,907,035 28 $580,825,783 16
Mississippi $7,971,277,000 28 $570,248,000 9 $8,541,525,028 21 $0 N/A
Missouri $9,025,293,000 30 $2,851,826,000 23 $11,877,119,030 29 $722,116,933 17
Montana $1,549,503,000 13 $631,918,000 11 $2,181,421,013 9 $0 N/A
Nebraska $754,748,000 10 N/A 50 $754,748,010 3 $0 N/A
Nevada $7,281,752,000 26 $2,211,439,000 21 $9,493,191,026 24 $438,155,817 14
New Hampshire $2,522,175,000 15 $3,054,188,000 25 $5,576,363,015 16 $0 N/A
New Jersey $34,434,055,000 48 $68,900,000,000 49 $103,334,055,048 49 $1,749,563,533 24
New Mexico $4,519,887,000 22 $2,946,290,000 24 $7,466,177,022 18 $0 N/A
New York -$10,428,000,000 1 $56,286,000,000 47 $45,858,000,001 45 $3,176,873,428 29
North Carolina $504,760,000 8 $28,741,560,000 44 $29,246,320,008 41 $2,288,985,365 26
North Dakota $546,500,000 9 $81,276,000 2 $627,776,009 2 $0 N/A
Ohio $19,502,065,000 46 $27,025,738,000 42 $46,527,803,046 46 $2,314,186,799 27
Oklahoma $13,172,407,000 41 $359,800,000 5 $13,532,207,041 31 $0 N/A
Oregon $10,739,000,000 34 $609,793,000 10 $11,348,793,034 27 $0 N/A
Pennsylvania $13,724,480,000 42 $9,956,800,000 33 $23,681,280,042 35 $3,008,614,961 28
Rhode Island $4,353,892,000 21 $788,189,000 13 $5,142,081,021 14 $225,472,937 8
South Carolina $12,052,684,000 39 $8,638,076,000 32 $20,690,760,039 34 $886,662,352 19
South Dakota $182,870,000 5 $76,406,000 1 $259,276,005 1 $0 N/A
Tennessee $1,602,802,000 14 $1,746,879,000 19 $3,349,681,014 11 $0 N/A
Texas $13,781,228,000 43 $28,611,584,000 43 $42,392,812,043 44 $1,290,700,472 20
Utah $3,611,399,000 20 $672,843,000 12 $4,284,242,020 12 $0 N/A
Vermont $461,551,000 7 $1,614,581,000 17 $2,076,132,007 8 $32,657,065 3
Virginia $10,723,000,000 33 $2,621,000,000 22 $13,344,000,033 30 $346,876,000 11
Washington -$179,100,000 3 $7,901,610,000 31 $7,722,510,003 20 $0 N/A
West Virginia $4,968,709,000 23 $6,108,398,000 30 $11,077,107,023 26 $0 N/A
Wisconsin $252,600,000 6 $1,700,396,000 18 $1,952,996,006 7 $1,424,768,541 21
Wyoming $1,444,353,000 12 $174,161,000 3 $1,618,514,012 6 $0 N/A
Total $452,195,687,000 N/A $555,102,484,000 N/A $1,007,298,172,275 N/A $38,456,671,022 N/A

Total debt

State FY2010 Total Budget Gap (In Millions)10 FY 2010 Total Budget Gap Ranking Total Debt11 Total Debt Ranking
Alabama $1,600 26 $28,324,562,195 32
Alaska $1,300 22 $10,850,062,019 16
Arizona $5,100 42 $21,902,499,280 26
Arkansas $395 8 $7,899,579,400 11
California $54,600 50 $290,855,041,516 50
Colorado $1,600 27 $25,681,980,195 28
Connecticut $4,700 40 $65,213,378,749 43
Delaware $557 10 $8,723,729,509 12
Florida $817 12 $31,840,545,002 35
Georgia $6,000 45 $44,233,458,025 41
Hawaii $4,500 39 $26,111,383,024 29
Idaho $1,200 19 $3,679,867,711 7
Illinois $562 11 $120,743,173,392 47
Indiana $14,300 48 $27,563,948,872 31
Iowa $1,400 24 $6,841,508,016 9
Kansas $1,300 23 $15,434,845,450 21
Kentucky $1,800 30 $32,099,663,040 36
Louisiana $1,200 20 $36,512,950,038 37
Maine $1,900 31 $9,972,282,018 15
Maryland $849 13 $40,615,471,801 38
Massachusetts $2,800 32 $61,515,259,052 42
Michigan $5,600 43 $69,418,882,370 45
Minnesota $3,400 34 $21,206,734,818 25
Mississippi $917 14 $13,817,286,028 18
Missouri $1,700 29 $18,249,257,963 24
Montana $0 1 $2,568,901,013 5
Nebraska $305 6 $1,102,440,010 2
Nevada $1,500 25 $15,334,815,843 20
New Hampshire $430 9 $7,066,331,015 10
New Jersey $11,000 47 $167,300,145,581 49
New Mexico $995 16 $14,511,860,022 19
New York $21,000 49 $122,527,873,429 48
North Carolina $5,000 41 $43,742,516,373 40
North Dakota $0 2 $2,348,367,009 4
Ohio $3,600 36 $68,961,315,845 44
Oklahoma $1,600 28 $17,254,404,041 22
Oregon $4,200 38 $26,365,021,034 30
Pennsylvania $5,900 44 $41,844,487,003 39
Rhode Island $990 15 $9,087,812,958 13
South Carolina $1,200 21 $31,097,531,391 34
South Dakota $48 4 $803,305,005 1
Tennessee $1,100 18 $5,879,108,014 8
Texas $3,500 35 $81,128,512,515 46
Utah $1,000 17 $9,254,242,020 14
Vermont $306 7 $2,872,679,072 6
Virginia $3,600 37 $22,294,831,033 27
Washington $6,200 46 $30,455,510,003 33
West Virginia $304 5 $13,774,822,023 17
Wisconsin $3,200 33 $17,971,519,547 23
Wyoming $34 3 $1,699,484,012 3
Total $197,109 N/A $1,796,555,185,297 N/A

Taxes

In 2010, taxpayers paid $25 billion more in taxes to state and municipal governments then they did in 2007.[8] The total tax increase has been 2 percent, while the average household income dropped 3 percent.[8]

Declines in Spending

The Fiscal Survey of States issued in June 2010 by the National Governors Association and National Association of State Budget Officers noted an "unprecedented" decline in state general fund spending, with declines in state spending anticipated in FY2011 after declines in spending in both FY2009 and FY2010.[1] FY2010 general fund expenditures are currently estimated to be $612.9 billion compared to $657.9 billion in FY2009, a 6.8 percent decline.[1] In FY2008, spending $687.3 billion in fiscal 2008, the last fiscal year on record in which states were not significantly affected by the national recession.[1]

Budget Cuts Made After FY2010 Budget Passed

Because economic conditions continued to worsen and revenues continued to be less than forecasted, states were forced to make cuts to budgets that had already been passed. In addition to dwindling tax revenues, states also saw a decline of tens of billions of dollars in fees and other taxes.[1]

State FY 2010 Size of Cuts ($ in millions) Programs Exempted from Cuts
Alabama $426.7 Debt service and federal court decrees
Arkansas 205.9
Arizona 120.0
California 1,000.0
Colorado 500.1
Connecticut 158.5 Program funding which is compulsory for ARRA funding
Delaware Yes
Florida 3,000.0
Georgia 1,253.4
Hawaii 342.6 Employees health insurance
Idaho 87.8
Illinois 382.9 Debt service, statutory exemptions, and federal mandates
Iowa 564.4
Indiana 726.5 Student financial aid, transportation, and public assistance
Kansas 262.0 Debt Service
Kentucky 1,110.5 Corrections, Prosecutors, Debt service, Retirement contributions, Parks, Revenue/tax collection efforts, Mental

Health/mental retardation programs, Corrections, Student financial aid

Louisiana 247.9 Programs which are Constitutionally required were not cut
Maryland 565.0 Mandated K-12 expenditures and debt service
Massachusetts 2,394.0 Debt Service
Minnesota 89.0 Military and veterans affairs, core public safety
Mississippi 499.1 Debt service and statutory exemptions
Missouri 380.4 K-12 foundation formula and higher education Institutions
Nebraska 55.0
Nevada 107.5
New Hampshire 25.0 Appropriation reductions to the University System of NH, the NH Community College System and the Department of Education – Adequacy Funding
New Jersey 2,028.0 Debt Service
New Mexico 368.9
New York 1,083.0
North Carolina 500 Debt Service, Medicaid, CHIPS
Oklahoma 709.1
Pennsylvania 135.0 After budget enactment, the Governor does not have the authority to reduce appropriations to the Attorney General, Auditor General and Treasurer (which are independently elected); the legislature and judiciary
Rhode Island 155.4
South Carolina 566.5 Higher Education Scholarships and Tuition Grants; Southern Regional Education Board Professional Scholarship Programs and Fees; Debt Service; Aid to Fire Districts; First Responder Interoperability; National Guard Pension Fund; Compensation of County Registration Board Members & County Election Commissioners; Commission on Indigent Defense Legal Services Corporation; Clemson University Public Service Authorities; Boll Weevil Eradication Program; Department of Revenue; Homestead Exemption Fund
South Dakota 5.5
Texas 527.4
Utah 39.0 Public education
Vermont 21.0
Virginia 1,044.0
Washington 130.0 K-12 basic education, debt service, retirement contributions
West Virginia 120.0 Debt service & retirement
Total $ 21,973.0 ----


Rainy Day Funds

Because prior economic downturns resulted in lower than anticipated revenue collections, states established “rainy day” accounts during times of economic expansion to help stabilize budgets from future declines in tax collections. The effort to maintain adequate balances helps mitigate the disruption to state services during an economic downturn. Also, rainy day funds can be used to balance budgets when revenues are below expectations. The informal guideline has been that budget reserve balances should equals at least five percent of total expenditures to provide a relatively adequate fiscal cushion.[1]

Total Year-End Balances as a Percentage of Expenditures, Fiscal 2009 to Fiscal 2011 (number of states)[1]

Percentage Fiscal 2009 (Actual) Fiscal 2010 (Estimated) Fiscal 2011(Recommended)
Less than 1.0% 11 14 15
1.0% to 4.9% 16 16 17
5.0% to 9.9% 14 12 10
10% or more 9 8 8

Federal “Stimulus” Deepens State Budget Woes

Revenue shortfalls made budgeting for FY 2011 particularly difficult for state legislators. The task will be made tortuously more complex by an entirely new set of fiscal obligations resulting from states’ use of federal “stimulus” funds.

In addition, the funds given to states also included large expansion of Medicaid to cover the health care of unemployed workers and single workers without children. In 2011, when the federal funds run out, states will be stuck with one million more people on Medicaid with no money to pay for it. The estimated increase from the temporary increase in the Federal Medicaid Assistance Percentage (FMAP) from ARRA is $87 billion over the 27 months which began October 2008 and ends December 2010.[1] Medicaid enrollment increased by 6.0 percent during fiscal 2009.[1]

Then National Governors Association acknowledged this fact in its Fiscal Survey of the States, noting the loss of ARRA funds combined with the anticipated slow recovery of state revenues is expected to result in the continuation of difficult state fiscal conditions for the next few years.[1]

A variety of conditions accompany acceptance of the funds. Foremost among them are assurances from states to maintain specific levels of program spending after the stimulus spigot runs dry. Such “maintenance of effort” standards apply to no less than 15 types of services buoyed by ARRA dollars, including Medicaid, K-12 education, road construction, and unemployment benefits.

Locked into such spending levels, state legislators now have far less flexibility in budgeting. For example, Illinois officials told researchers with the General Accountability Office that lower-than-expected fuel tax receipts will require the state to use general funds to comply with the maintenance of effort requirements. That will necessitate either spending cuts in other services or a tax increase to make up for the revenue shift.

States could appeal to the federal government for a waiver from specific maintenance of effort amounts. However, a waiver would still require the recipient state to maintain the same proportion of the total budget for applicable programs.

Future Years

Federal reserve economist Yolanda Kodrzycki told a gathering of governors that anticipated “lackluster” economic growth of about 3 percent a year and the need to help local governments confronting falling property tax collections will limit fiscal recovery. “The road to economic recovery is a long one,” she said. “It’s a sobering picture.”[2]

See also

External links

References