Senior Vice President for State Fiscal Policy
Voters in more than half of the states elected new governors yesterday — the first time that’s happened since 1938, according to Stateline.org. But one thing hasn’t changed: states still face massive revenue problems resulting from the recession. Next year will be states’ worst budget year ever. So what will the new governors do about it?
Many of the new governors promised in their campaigns to “cut spending,” but few specified cuts that would come anywhere near balancing their budgets. Scott Walker in Wisconsin vowed to cut “policy and pork projects,” but he never indicated which programs he considers pork or whether they come anywhere near adding up to the $3.4 billion needed to balance next year’s budget. South Dakota’s Dennis Daugaard, facing a 9 percent budget gap, said on his website, “I’m not afraid to make cuts,” but he did not say what those cuts might be.
The lack of specificity may reflect the fact that in most states, budget shortfalls are so large that a cuts-only approach would come at a big price for local school districts, public universities, and providers of health care and human services. Those areas are where states spend most of their money, so deep spending cuts would hit those hard.
Cutting public services too deeply would also be bad for the economy. States need good schools, roads, and health care in order to attract and retain businesses.
A number of the incoming governors made promises that, if they keep them, will worsen state finances. For example, Wisconsin’s Walker, Michigan’s Rick Snyder, South Carolina’s Nikki Haley, and others have promised large corporate tax cuts, despite clear evidence that those tax cuts would deepen state budget problems without boosting the economy. (My colleague Michael Mazerov will look at this issue later today in a separate post.) Some other rookie governors have handcuffed themselves with no-new-taxes promises.
A reminder of what governors face: state tax revenues remain 13 percent below pre-recession levels, and revenue growth in the coming year will be modest at best. Meanwhile, demographics, inflation, and loss of family income are driving up states’ cost for services.
The result is the largest budget gaps on record, an estimated $140 billion for next fiscal year (which starts July 1 in most states). States’ balanced-budget rules require them to close those gaps, and they’ll have to do so without emergency federal aid, since the funds Congress has already provided mostly expire this coming June.
Fortunately, a few of the newly elected governors have been explicit about some of the budget-balancing measures they will propose, including tax increases. In Rhode Island, for example, Lincoln Chafee said he would broaden the sales tax base and might repeal a costly tax break for the wealthy. Moreover, two sitting governors who raised taxes significantly to help close budget gaps — Deval Patrick in Massachusetts and Martin O’Malley in Maryland — defeated their anti-tax challengers.
Chafee recognizes what O’Malley and Patrick have already demonstrated: solving states’ recession-driven budget gaps requires a balanced approach that includes revenue measures, not just spending cuts. Other new governors would do well to acknowledge that reality — regardless of what they said on the campaign trail.