Stateline Story

Commentary: The Economic Downturn: An Opportunity For Fovernors?

  • April 02, 2008
  • By Raymond C. Scheppach

Most governors recognize that they have the best political job in America. Most also would concede that the job is more satisfying when the economy is strong and revenues are growing than during an economic downturn, when cutting budgets becomes the major task. But even a recession can present opportunities for governors to make improvements that yield lasting benefits for their states.

The current economic recession likely began in December 2007 and likely will last at least 10 to 12 months-although some economists are forecasting a severe two-year contraction. Already about 25 states are facing combined budget shortfalls of about $34 billion. History tells us that both the number of states facing shortfalls and the severity of those shortfalls will grow over time. In fact, if the current downturn approximates the last two, the deterioration of the state fiscal picture will continue for a year or more after the recession ends. This means that between 35 and 40 states will face budget cuts in 2009 and even 2010.

The upside of budget shortfalls

Rather than becoming defensive, governors and key policy advisors often view this period as an opportunity to implement efficiency and restructuring measures that could not be contemplated during good economic times. These could include:

  • Eliminating or making major reductions in programs of marginal benefit to citizens of the state.
  • Consolidating and reducing funding for duplicate programs.
  • Streamlining internal processes for the purchase and disposal of property, improving personnel management and similar activities to expedite decisions and make processes more efficient.
  • Expanding the use of e-government, implementing performance management improvements and enhancing budgeting transparency.

In addition, governors can take steps that may save money both for state government and the private sector, such as:

  • Streamlining business regulations by eliminating redundant steps or creating a one-stop entry point for small businesses. This also could include consolidating regulatory boards and commissions and eliminating outdated licensing requirements.
  • Consolidating and streamlining fees and revenue systems.
  • Improving the worker's compensation system.

State health-care reform provides an example of how such changes might work. Over the last few years, many states have expanded health-care coverage for low-income individuals. This expansion likely will stop because of revenue reductions; however, states could use this period of slowdown to shift gears and focus more on developing and launching health-care cost controls by establishing quality measures, requiring price transparency and promoting the use of electronic health-care records.

Certainly implementing efficiency measures and making adjustments to existing programs is not as much fun as announcing a new initiative. But such changes may ultimately have a more important long-term impact on the efficiency of state government and the quality of its services. By showing the public that state government is adaptable and capable of creative problem-solving, these changes may also increase the faith of citizens and the business community in government, which in turn will pay dividends to current and future political leaders of the state.

Small changes; lasting rewards

While some of those changes can-and perhaps should-be made during good economic times, an economic downturn offers a much more conducive time for such adjustments because citizens often must become more creative in reducing their own expenditures. Also, legislators are often supportive of these changes because they, too, can take credit for them politically. In addition, citizens are more accepting of budget cuts if they know that there is a parallel track that focuses on efficiency.

Now is the time for governors and their management and policy staff to focus on developing an efficiency agenda so that it can be announced at the same time that the state announces budget cuts. It is early enough in the downturn for states to develop comprehensive plans that not only enhance the productivity and efficiency of state government but that also can reduce the burden of government on the private sector. The result will be more citizen and business support for state government, which may translate into more support for the governor's next priority.

To be sure, making changes to improve the efficiency and functioning of existing programs is not as much fun as pursuing a brand new initiative, such as an early childhood program or expansion of health care, but such adjustments are an opportunity that governors must not neglect. Ultimately, these types of changes can help instill a stronger culture of efficiency throughout state government-which may prove a more lasting legacy for a governor than a new program.

Raymond C. Scheppach, Ph.D., is the executive director of the National Governors Association. The views expressed here are those of the author and do not necessarily represent those of the National Governors Association.

Tags: Economy