States Struggle To Carry Out Governors’ Agendas

Improving schools had top priority on a long list of lofty goals governors laid out in their State-of-the-State speeches in January and February. But when revenues began to fall off, many governors found that their talk of big agendas was cheap compared to the cost of balancing the budget.

Governors don’t normally rely on Post-it notes on a bathroom mirror for guidance. But Bill Graves of Kansas did just that earlier this year when he was pushing a sales tax increase to help pay for new education programs.

The Post-it, quoting poet Maya Angelou, was a nudge from his wife Linda to do the right thing for Kansas school kids. “If you know better, you should do better,” she wrote.

“I tried to do better,” says Graves, explaining that his bid for a tax increase, which failed, was the best way he could see to improve the state’s education system in the face of serious revenue shortfalls.

“We were in a position for three or four years where we were doing a lot of tax cuts and we were spending a lot of money. The good times were rolling,” the Republican added in an interview with Stateline.org. “But I knew when I put my budget together that our (education) proposal was not an adequate package.”

Graves wasn’t the only governor who tried to do better this year on education as well as a host of other issues. Improving schools had a top priority on a long list of lofty goals governors laid out in their State-of-the-State speeches in January and February. But when revenue receipts began to fall off, many governors found that their talk of big agendas was cheap compared to the cost of balancing the budget.

Although most state leaders were able to keep their legislative priorities alive, they did so by horse-trading on various issues, trimming or freezing some programs and using budget gimmicks here and there to put off more difficult decisions until next year. A few raided emergency, or so-called rainy day surplus funds, while others borrowed from tobacco settlement money earmarked for anti-smoking and healthcare programs.Ohio, for instance, took $150 million from its rainy day fund to cover a $148 million gap and authorized the taking of up to $188 million more if needed.

After a decade of budget surpluses tied to a booming economy, it was hard for most lawmakers to accept a slowdown, says Washington, D.C.-based economist Marcia Howard, director of Federal Funds Information for States. So instead of reversing themselves on promised tax cuts or other legislative goals, they borrowed money from wherever they could get it to make ends meet.

If the economy worsens, some may wish they had acted more drastically this year to control spending.

“In the first year of an economic slowdown when you’re sitting on a lot of money, there’s no need to panic. But in the second year things get a little trickier and you have to make appropriate budgets,” says Howard, adding that “the process of realigning spending to fit within revenue restraints can take awhile.”

“States are like people; they don’t really make hard choices until they have to make them,” she says.

So far 31 states have completed their budget work for the year and 19 are still tying up loose ends or holding special sessions in an effort to get the job done. A few are having great difficulty dealing with income shortages. North Carolina and Alabama, for example, are making significant sacrifices due to bigger than expected revenue losses.

In North Carolina, revenue projections were off nearly $900 million, forcing the state to make across the board cuts in everything from education to mental health programs. Now, lawmakers are considering a bevy of tax increases aimed at adding more than $420 million to state coffers over the next year. A statewide lottery is also under consideration.

Even states having a relatively easy time making up budget gaps are considering tax hikes – Arizona, Maine, New Hampshire and Wisconsin to name a few. Tennessee lawmakers, trying to close a projected $868 million gap, are also looking at tax hikes and a possible $104 million draw-down on tobacco settlement money. And even Michigan, which is sitting on a $1.2 billion surplus that could end up being tapped, is considering a delay in tax cuts already in the pipeline to make up a $550 million budget gap.

If tax increases are approved, says Arturo Perez, a senior budget analyst with the National Conference of State Legislatures , it would be the first time in a decade that states have enacted revenue enhancements for the sole purpose of balancing the budget.

“This is the first year states have had to deal with tight budgets in a decade,” says Perez. “We’ve had so-called sin taxes on things like alcohol and tobacco, but not for the specific purpose of balancing the budget.”

In Alabama, meanwhile, state lawmakers have already cut education spending $266 million. Gov. Don Siegelman, whose plea to help fund education with a state lottery was rejected by voters, has drawn the line on more education cuts this year even though tax revenues are continuing to fall and show no sign of leveling off. If revenue receipts don’t improve by August 31, the state budget will likely be cut by another 1 percent across the board. Still, lawmakers have ruled out the possibility of tax increases for now.

“The good times couldn’t last forever,” sighed one Midwest gubernatorial aide when asked about the impact this year of reduced revenues on the budget process.

“The money we thought we’d have is not going to be there,” this aide added. “Were we surprised? Yes…A lot of governors were.”

What happened? In January and February, governors spoke eloquently in their State of the States of new spending programs they intended to pass – of increased funding for education, new job creation, health care, environmental projects and other important endeavors. By mid-April, however, it was clear most states would have to shelve many of their big funding proposals and live with status quo budgets as the slowing economy began to have an impact across the nation. Shaky consumer confidence, job losses and plain old partisan politics took its toll. Many states wound up trimming extra fat off existing programs – especially higher education. Kansas and Iowa were among them. When shortfall estimates started rolling in, their legislatures were in the midst of debating the most ambitious education spending plans in the country.

Like Graves, Iowa Gov. Tom Vilsack had put education first on his legislative agenda along with the hiring of more child protective services personnel. Vilsack got the $40 million he wanted for a landmark teacher pay plan tying salary increases to performance. He also managed to win a small four percent increase in general education spending. But he had to pressure Republican leaders into borrowing money from the state’s tobacco settlement fund to get it. He also had to accept a 19 percent cut in the human services department as part of the deal, which killed his plan to add 95 new employees to the state’s child protective division.

“It was quite the struggle this year,” says Vilsack spokesman Joe Shannahan. “We didn’t want to do that, but we felt (the teacher pay plan) was that high of a priority.”

Graves, meanwhile, came out fairly well on his education proposals despite an initial $181 million budget shortfall. Although he says it’s inadequate, the Kansas Legislature gave him an additional $67 million in K-12 funding. He had asked for $100 million more.

Graves says he will push a tax increase again next year because he figures the state’s revenue base won’t improve much. He doesn’t expect the outcome to be any different, though, since all 138 members of the legislature will be up for re-election in 2002. Tax increases are not likely to be high on the agenda in an election year.

Graves doesn’t have that worry. His second term ends next year. The moderate Republican can’t run for governor again, and he says he harbors no ambitions for any other political office. So, if talk of big agendas is cheap, Graves says he plans to do a lot of it. Maybe, he adds, people will start to listen.

“We expect next year to be a carbon copy repeat (of revenue shortfalls). I have to try again,” the governor says. “I’m in a great position. I only have to worry about doing what I think is right.”