Budget Gaps Hit States Hard
In the fifth year of an economic recovery since the recession, states are still struggling to balance their budgets, as an unexpected trend of deficits has emerged despite the current overall successes of the nation’s economy. According to the Associated Press at least 22 states project shortfalls for the coming fiscal year, posing serious challenges for state governments both red and blue. These deficits range from the relatively small, in states such as Vermont and Rhode Island, with deficits of $17 and $34 million respectively, to large states like Illinois with a gaping $6 billion hole that somehow needs to be filled. Unlike the federal government, states cannot legally run a deficit. The National Conference of State Legislatures reports that 49 states have statutory and constitutional provisions mandating budgets are balanced, Vermont being the only exception. This often forces state officials to make aggressive tax cuts to government-funded programs or borrow from “rainy day funds.”
Among all states facing gaps, Illinois is facing the largest deficit by far this year and new Republican Gov. Bruce Rauner has suggested cuts to health care, local governments and other areas. He campaigned against the tax plan, but even reversing last year’s tax cut isn’t enough.
Alabama is facing a $290 million gap this coming fiscal year and proposed cuts would lead to more than 600 layoffs in the state’s court system. In order to skirt that disaster, Republican Gov. Robert Bentley has proposed increased tobacco and automobile sale taxes. Additionally Senate President Pro Tem Del Marsh, R-Anniston, sponsored a constitutional amendment that would create a state lottery and allow casino-type gaming at four racetracks. The bill, SB 453, is pending in a Senate committee.
Kansas is facing one of the most dire fiscal situations in the nation, entirely caused by the state’s aggressive tax cuts. Republican Gov. Sam Brownback implemented a hawkish tax plan in 2012, which included gradually eliminating the income tax and drastically reducing school funding, in order to stimulate job growth. Not only did Governor Brownback’s plan backfire, from January 2014 to January 2015 Kansas only experienced a 1.5 percent increase in job growth, lagging both the region and nation, the cuts have left the state with a $710 million budget deficit for the current fiscal year.
Wisconsin’s Republican Gov. Scott Walker’s hopes for a 2016 presidential bid are being distressed by the $2.2 billion budget deficit in the state, mostly as a result of heavy tax cuts and increased Medicaid spending. Governor Walker now faces the task of resolving a deficit of his own creation; he previously based his 2014 reelection campaign on his elimination of a $3.6 billion deficit he inherited from Democratic Gov. Jim Doyle in 2011. Walker also campaigned on eliminating the income tax, much like Brownback. These now have the potential to work against him in his expected presidential campaign.
Poor fiscal health in a majority of states is associated with their failure to achieve pre-recession status in areas of tax revenue, financial reserves and employment. According to a recent report by The Census Bureau, despite over all state government tax collections increasing by 2.2 percent, 17 states reported declines in tax revenue from the previous fiscal year.
In a number of states, one of the major causes of this downturn has been declining oil prices. Many energy-producing states, such as Alaska, rely on revenue from oil and gas companies for significant parts of their budget. In Alaska, oil tax revenue finances an astounding 90 percent of their budget and the state saw the biggest drop in revenue ever last year, taking in $1.7 billion less than expected. As a result, Alaska is facing a $3.2 billion budget deficit for this fiscal year and will most likely have to dip heavily into their “rainy day” reserves in order to cover the difference.
The prevalence of deficits across the country serves as a warning, steering the states that are currently experiencing a boom, such as California and Colorado, to be weary of spending and instead save for the next economic slow-down. The increasing costs of education and health care are making it especially hard for states to survive on their revenue, fill boundless budget holes, and put money into rainy day funds for future issues. As the 2015 legislative session winds down, lawmakers are struggling to finalize budgetary decisions that will have significant impacts on states and their constituents.