Transcript StateVote 2006 - University of Denver

The State Fiscal Outlook
University of Denver
Strategic Issues Panel on the Future of State Government
November 4, 2010
William T. Pound
Executive Director, NCSL
Overview
 State revenue performance is improving.
 Sizeable budget gaps loom in many states.
 States have reported a total estimated budget gap
of $537.2 billion (FY 2008 through FY 2013 est.).
Year-Over-Year Percent Real Change in Major Taxes
Source: The Nelson A. Rockefeller Institute of Government. State Revenue Report, August 30, 2010.
Projected FY 2010 Revenues
AK
(Compared to FY 2009 Collections)
NH
WA
VT
ND
MT
MN
OR
ID
NY
WI
SD
NE
CA
NV
PA
IA
IL
UT
CO
KS
MO
WV
TX
Source: NCSL survey of state legislative fiscal offices, 2009.
VA
AL
DE
MD
NC
SC
AR
NM
CT
NJ
TN
MS
Lower n = 40
Flat n = 1
Higher n = 9
Unknown n = 1
OH
KY
OK
AZ
IN
MA
RI
MI
WY
HI
ME
GA
LA
FL
Puerto Rico
Projected FY 2011 Revenues
AK
(Compared to Estimated FY 2010 Collections)
WA
NH
VT
ND
MT
MN
OR
ID
NY
WI
SD
CA
NV
PA
IA
NE
OH
IL
UT
CO
KS
OK
AZ
NM
Lower n = 5
Flat n = 4
Higher n = 42
TX
Source: NCSL survey of state legislative fiscal offices, March 2010
VA
WV
KY
DE
MD
NC
TN
SC
AR
MS
CT
NJ
IN
MO
MA
RI
MI
WY
HI
ME
AL
GA
LA
Puerto Rico
FL
FY 2011 Total Tax Forecast
(Compared to FY 2010 Collections)
25
23
Number of States
20
14
15
10
6
5
3
1
0
<0%
Flat
1% to 4.9%
Not available or no response: South Dakota, Utah and West Virginia.
Source: NCSL survey of state legislative fiscal offices, Summer 2010
5.0% to 9.9%
>10.0%
FY 2011 Personal Income Tax Forecast
(Compared to FY 2010 Collections)
25
20
Number of States
20
15
12
10
5
2
2
<0%
Flat
3
0
1% to 4.9%
5.0% to 9.9%
N/A: 7 states do not levy a personal income tax. NH and TN have limited individual income taxes.
No Response: Hawaii and Utah.
Source: NCSL survey of state legislative fiscal offices, Summer 2010
>10.0%
FY 2011 Sales and Use Tax Forecast
(Compared to FY 2010 Collections)
30
24
Number of States
25
20
15
10
5
8
4
5
2
0
<0%
Flat
1% to 4.9%
N/A: 5 states do not levy a sales tax.
No Response: Hawaii and Utah.
Source: NCSL survey of state legislative fiscal offices, Summer 2010
5.0% to 9.9%
>10.0%
FY 2011 Corporate Income Tax Forecast
(Compared to FY 2010 Collections)
20
18
Number of States
15
10
9
7
6
5
2
0
<0%
Flat
1% to 4.9%
N/A: 4 states do not have a corporate income tax
No Response: 4 states.
Source: NCSL survey of state legislative fiscal offices, Summer 2010
5.0% to 9.9%
>10.0%
Long-Term Tax Forecasts
Number of states
(Projected Total Tax Collection Growth Rate)
18
16
14
12
10
8
6
4
2
0
17
13
11
12
10
FY 2012
FY 2013
Fiscal Year
0.1% to 4.9%
5.0% to 9.9%
Forecast Unavailable: FY 2012= 21 states; FY 2013=24 states; FY 2014 =29 states.
No Response: California.
Source: NCSL survey of state legislative fiscal offices, Summer 2010
10
FY 2014
Number of States
45
40
35
30
25
20
15
10
5
0
Peak in General Fund Revenue
Collections
Fiscal Year
Source: NCSL survey of legislative fiscal offices, November 2009.
Number of States
9
8
7
6
5
4
3
2
1
0
Projected Return to Peak
Revenue Collections
FY 2011
FY 2012
FY 2013
FY 2014
Fiscal Year
N/A: North Dakota
Not in the current forecast horizon: 19 states
No Response: 2 states
Source: NCSL survey of state legislative fiscal offices, Summer 2010
FY 2015
FY 2016
State Budget Gaps FY 2002-FY 2013 (projected)
Amount Before Budget Adoption
$180
$174.1
Amount After Fiscal Year Began
$160
Projected Amount
$140
$117.3
Billions of Dollars
$120
$96.2
$100
$79.0 $83.7
$80
$72.1
$64.3
$60
$40
$20
$37.2
$37.0
$26.9
No
$12.8
estimate
$0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Fiscal Year
Source: NCSL survey of state legislative fiscal offices, various years.
State Actions to Close Budget Gaps
 Budget cuts: All programs & services subject to cuts
 Tax increases
 Other revenue increases
 Federal stimulus funds
 Wide array of other actions, many one-time in nature
 Renewed focus on streamlining and efficiency
Digging for Dimes
In Bull Semen and Tacos
IDEAS THAT PREVAILED
• Colorado lawmakers, aiming to recoup $100 million, removed several tax exemptions and credits,
including the exemptions restaurants received for the cost of purchasing condiments and take-out
containers; tax breaks ranchers got when buying pesticides and bull semen; and incentives bulk mailers
enjoyed for printing coupon booklets.
• Wisconsin adopted “Taco Tuesday” at all state prisons, saving 10 cents a meal.
• Missouri clarified that yoga and Pilates classes are recreational rather than spiritual services and subject
to a sales tax.
• The Wisconsin Supreme Court determined symphony tickets are subject to the sales tax since a concert is
more entertainment than education.
• The Oklahoma State Penitentiary cut expenses for its annual prisoner rodeo to save $120,000.
IDEAS THAT STALLED
• Tennessee lawmakers defeated a proposal to tax complimentary breakfasts offered by hotels.
• The Illinois Senate voted against a proposal to eliminate free bus rides for seniors. A proposal to sell the
state’s executive air fleet for $22 million also failed.
• Mississippi defeated a proposal to allow some advertisements on school buses.
• Illinois’ governor backed off on a proposal to collect sales taxes on Internet downloads.
• California considered the sale of digital advertising space on license plates.
Source: State Legislatures, September, 2010.
Net State Tax Changes by Year of Enactment
$30
$28
$26
$24
$22
$20
$18
$16
$14
$12
$10
$8
$6
$4
$2
$0
-$2
-$4
-$6
-$8
-$10
-$12
$28.6
Billions of dollars
$15.4
5.4%
Percent of previous year's collections
3.7%
11%
10%
9%
8%
7%
6%
5%
4%
3%
2%
1%
0%
-1%
-2%
-3%
-4%
-5%
*FY 2010 figures are preliminary
Source: NCSL survey of legislative fiscal offices, various years.
Net Tax Changes by Type of Tax
2009 & 2010
Alcoholic
Motor Beverage
Misc.
6%
1%
5%
Tobacco
7%
Health
Care
9%
Corporate
Income
14%
Alcoholic
Beverage
Motor 1%
Personal
Income
40%
1%
Tobacco
13%
Misc.
8%
Health Care
23%
Sales & Use
25%
2009
Corporate
Income
7%
($28.6 Billion)
Sales & Use
40%
2010*
($4.0 Billion)
Personal Income Tax: a decline of $629 million.
Source: NCSL survey of legislative fiscal offices, 2009 & 2010
*FY 2010 figures are preliminary
The State Budget Landscape is Mixed
 Arizona: The fiscal situation appears to be stabilizing.
 Maine: A small revenue surplus will begin to replenish

reserves depleted during the last two years.
Ohio: In recent months year-over-year comparisons for
major taxes have turned positive.
The State Budget Landscape is Mixed


Montana: The revenue decline projected in February 2010 has
not declined further; however, this does not change the fact
that the next Legislature will have a significant task
developing the biennial budget.
Tennessee: Recent signs indicate revenues are beginning to
stabilize, but state economic news continues to give mixed
signals that recovery is not yet firmly underway.
The State Budget Landscape is Mixed



Colorado: The budget shortfall for FY 2012 could be as high as
$1 billion (14 percent).
California: The state's fiscal situation will depend on whether
the legislature and governor reach agreement on long-term
fiscal reform or restructuring.
Illinois: For many reasons, both financial and political, the
fiscal situation is tenuous at best.
Fiscal Ballot Measures 2010
Initiative
Referendum
Both
A Few Measures to Watch
 Arizona: Propositions 301 & 302
--Transfers Land Conservation Fund to the general fund
--Sweeps First Things First Fund to the general fund

California: Propositions 19, 21, 22, 24, 25 & 26
--Legalizes & taxes marijuana
--Imposes vehicle license surcharges
--Limits states access to transportation funds
--Repeals corporate tax breaks
--Moves from supermajority to simple majority to pass budget
--Requires 2/3 vote for fee increases, etc.
A Few Measures to Watch
 Colorado: Amend. 60 & 61, Prop. 101
--Reduces property taxes
--Prohibits state borrowing
--Reduces the personal income tax rate
 Massachusetts: Question 3
--Cuts sales tax rate

Washington: Initiative 1098 & 1107
--Creates a personal income tax for high earners
--Repeals taxes on soda, bottled water and candy
Key Concerns Looking Ahead
 Replacing federal stimulus funds
 Impact of further budget cuts
 Mounting spending pressures
 Length of time before revenues rebound
 Feasibility of raising more revenues
 New political landscape in states
Impact of ARRA Funds on State
Budgets
Percentage Point Increase
in Spending Attributable to
ARRA Funds
Number of States
FY 2009
FY 2010
0.1 - 2.9
15
9
3.0 - 5.9
15
9
6.0 - 8.9
3
14
> 9.0
1
6
9
12
States Moving from Negative
to Positive Spending Change
N/A or N/R: FY 2009 = 17 states; FY 2010 = 13 states
Source: NCSL survey of state legislative fiscal offices, 2009.
Focus of State Government Reform

The easy to moderate cuts have been made:
-- Real estate sales
-- Vehicle fleet reductions
-- Furloughs/layoffs, across the board cuts, etc.

Further cuts ahead will require tough policy decisions:
-- Corrections (close prisons, release geriatric inmates, reform parole)
-- Public employee benefits must be brought in line with private sector
-- Infrastructure investments will require new user fees
Cost Reduction

Healthcare costs are unsustainable for both public and private
sector.

By 2014, states will oversee 130 million people through
Medicaid and the Exchanges.
 States will be forced to be the "agents of change" in health
reform.

States will need to be much more aggressive in going after
quality and price.
What States Will Need to Do

Focus on the Exchange decision

Create a comprehensive all payers database ("what you don't know
will hurt you")

Convene stakeholders (providers, plans, consumers and business)
around data, quality and costs

Use all existing policy levers and create new ones if necessary to
tackle costs

Communicate with the public
What is Likely to Happen?






More pushback from the states
-- ARRA requirements/mandates
Growing interest in revenue increases in states
More structural deficits in states post ARRA
State government gets smaller?
Federal Action--or inaction will drive state changes
Adjustments driven by change in state economies and
resources
Change is Occurring
 K-12 Education
 Evaluations
 Testing
 Standards
 Charters
 "Race to the Top"
 Higher Education
 Relationships changing
 Decline in state funding
 Emphasis on financial aid
to students, not
institutions
Change is Occurring
 Corrections
 Taxes
-- Elimination of tax breaks
-- Aversion to tax increases
 Transportation and Infrastructure
-- More public-private-partnerships


Health Care
Retirement Systems
-- Increased member contributions
-- Reduced benefits
Conclusion





State revenues are starting to show growth.
Many forecasts offer little room for error.
States face at least two more years of budget gaps.
Few states have concrete plans to address the end of federal
stimulus funding.
The new political landscape will shape state actions to deal
with budget problems.
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