off the charts
POLICY INSIGHT
BEYOND THE NUMBERS

Many Governors Making Unwise Choices in Budget Proposals

It's not easy being a governor these days.  Revenues remain seriously depressed, human needs are rising, reserve funds are largely exhausted, and Congress plans to let its temporary federal aid expire. The basic problem remains the economy:  With state tax revenues still in a deep slump due to high unemployment and weak consumer spending, states face an estimated $125 billion budget gap for the upcoming year that they have to close. Even so, governors could be making much smarter choices.  We've released an analysis today that shows that many governors are proposing budgets for next year that are unnecessarily damaging.  They rely entirely on program cuts rather than using every tool available, like tapping reserve funds and bolstering revenues.  As a result, they keep spending below pre-recession levels even though they have more kids to educate and more people who need health insurance (see chart below).

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We’ve found the following trends:
  • Most states are proposing deep cuts to core services. Only Alaska and North Dakota, where oil revenues have propped up local economies, are proposing spending growth that comes anywhere near meeting their residents’ needs.  Most other states are proposing cuts in services that undermine children’s education and opportunity, family health and economic stability, and future state economic growth and prosperity.For example, Arizona governor Jan Brewer proposed a budget that slashes funding for public universities, which have already raised tuition significantly; closed eight extended campuses; merged, consolidated, or disestablished 182 colleges, schools, programs, and departments; and brings per-student state funding down to 46 percent below pre-recession levels.  It also cuts health care for 280,000 people.
  • Some states are not using their rainy day fund. Perhaps most surprisingly, eight states still have rainy-day funds — meant to be used exactly in times like these — but most refuse to tap them.  For example, Texas is facing a shortfall of $27 billion for the coming two-year budget period, yet the state’s initial budget proposal ignores $8.2 billion in reserves and imposes very deep cuts to school and health funding.
  • A few governors are taking a more balanced approach. Fortunately, not every governor is being so shortsighted.  Several governors have proposed to raise new revenue to replace a portion of the taxes lost due to the recession.  All of these governors are also cutting services, some deeply.  But by raising new revenue, their proposals reduce the spending cuts needed to close the shortfalls.
As the budget process shifts to legislatures, lawmakers in states where governors are taking a balanced approach that limits the harmful impact of budget shortfalls on the economy and on state residents should follow their lead.  And in states with governors that are not, legislators should address shortfalls using the full range of tools available to them. There’s too much at stake to do otherwise.