The Ghost of Christmas Future: State Budget Deficits in 2010

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State budgets were a mess in FY2009, a debacle in FY2010, and look like impending catastrophes in FY2011.  We’ve been visited by the Ghost of Christmas Present this past holiday season with rampaging budget deficits and corresponding cuts in critical social safety net programs and services.  Knocking at the door is the ghost of Christmas future with warnings of continuing program rescissions and terminations unless governments and voters, like a dumbfounded Scrooge, come to their senses and radically change their revenue-raising and budget-allocating ways.

Looking back at this holiday season, the news about state budget deficits affecting critical nonprofit concerns could have been accompanied by the sounds of the chains dragged by Jacob Marley’s ghost.

? In Nebraska, a survey of state legislators pondering budget cutting strategies revealed some discussing the elimination of entire agencies, not just programs.

? In California, Governor Schwarzenegger has come up with a budget cutting strategy of asking the feds to relieve the state from federally mandated social service and health care delivery mandates.  The result is the same as a budget cut—less services for people in need.  The state’s budget problems reverberate down to other levels of government, with the likelihood that some small California cities may end up going Chapter 9 (the municipal government version of chapter 11 bankruptcy).  Among the state programs potentially on the chopping block if new federal stimulus aid or budget gimmicks don’t work are three “safety net” programs: CalWORKs, Healthy Families, and In-Home Supportive Services.  Securing new federal stimulus moneys and exemption from federal performance standards with those moneys and others will require the Governor to buddy up to his new pals, House Speaker Pelosi and President Obama, though Schwarzenegger is probably not the only governor asking for papal dispensation.

? Minnesota has contributed the term “unallotment” to the nonprofit lexicon, defined as something that a governor can do unilaterally to cut a budget.  Governor Pawlenty this year used his unallotment powers to cut an additional $236 million out of health and social service programs and $300 million out of aid to municipal governments, after the legislature had already eliminated a billion in expenditures.  At some point, the combination of the governor’s unilateral unallotments, dipping into reserves, using stimulus funds, and temporarily pushing planned program expenditures into future fiscal years is simply not going to work in averting fundamental program choices and raising new revenues.

? Recession wracked Ohio looks to the future only to see ever-increasing structural deficits, including beginning negative numbers of $4 billion to $9 billion for 2012-2013.  Figuring out solutions to the impending train wreck has legislators stumped as they depleted the state’s rainy day fund and conjured up a number of one-time budget fixes to get through the past year, eliminating options for the future.  One of the things that the legislature has already done is to push off responses to community needs into the future, for example, saving budget money by delaying the requirement that schools offer full-day everyday kindergarten classes to 2011-2012.  It’s not hard to guess that some future legislature will have to deal with this cost-requirement, and child care and youth service organizations will have to absorb the pre-K and kindergarten service needs in the interim.

? New York continued its long trajectory into fiscal desolation, with the Governor fighting with the legislature over a projected $9 billion starting in 2011.  Sort of replicating Minnesota’s unallotment process, Governor Paterson decided to withhold aid to municipalities and schools in order to create a “necessary” $750 million state cash “cushion” .  There’s no question that strapped county and municipal governments make their cuts out of nonprofit-delivered social safety net programs, in a level of government-nonprofit relations that rarely get national attention but are hugely important for the survival of nonprofits and the communities they serve.  In theory, Paterson has only “delayed” aid to county and municipal governments, but there is no question that delaying state reimbursements for local government service delivery might be a lead-in for making them permanent cuts.  Remember that Paterson called legislative leaders “craven” for their unwillingness to fully close the FY2010 budget deficit.  These delays (10 percent and 19 percent of two required payments) might be the governor’s strategy to force his craven legislative colleagues to act, though unfortunately at the expense of lower levels of government and ultimately nonprofit service deliverers, since technically only the legislature, not the governor, can actually make cuts in the state budget.  In October on the heels of having made multi-million dollar cuts in health and mental hygiene programs, social service programs, and aid to municipalities, Governor Paterson told the Amsterdam News, “I don’t want to minimize the pain in New York, but it’s a lot worse in other places” such as California, Arizona, and Michigan.  Ending the year, those other states are thanking the ghost of Christmas present that they aren’t New York.

? The federal government once sued the South Carolina Department of Juvenile Justice for its incredibly subpar treatment of kids in its care.  Now the state’s budget woes promise cuts in the state’s juvenile jails that will likely reverse the progress that they’ve made in meeting the federal standards.  Additional cuts have been targeted to the Department of Social Services and the Department of Education.  Youth service providers had better anticipate pretty solid caseloads once DJJ endures its share of the budget axe.

? Remember when California was issuing IOUs instead of checks to its nonprofit and for-profit vendors—IOUs that banks proved increasingly reluctant to honor?  California didn’t invent state-issued IOUs, a practice that actually dates back to the Great Depression, but it may not be the last state to resort to this in the Great Recession of 2008-2010 (and beyond).  Word comes that Arizona’s state budget is so messed up, including having spent past a $700 million line of credit from Bank of America only moments after it was booked, that the state may be forced to issue “warrant notes” (read: IOUs) in order to make a requirement payment for schools. Apparently, the state is banking on the famous sale-leaseback of state-owned buildings, but that hoary budget gimmick is losing its cache among investors.

? Pennsylvania grabbed national headlines in 2009 for its 101-day budget impasse.  The chickens are coming home to roost in the form of a variety of reduced services.  Philadelphia is making daily unscheduled, random, and generally unannounced closings of public libraries.  It is not only due to rolling budget cuts, but also because of budget priorities:  Mayor Nutter has apparently shifted library guards to the city jails and shifted administrative staff from the libraries to the “311” city government information system.  Readers may forget how critically important public libraries are to computer users who don’t have their own computers and to students who frequently use libraries as places to study and conduct research for school projects.

? Tiny Rhode Island is another of the nation’s recession epicenters, though rarely mentioned in the national press compared to the multi-billion dollar brouhahas in California and New York.  But several hundred million in cuts in Rhode Island hurts like many billions elsewhere.  Governor Carcieri recently proposed cuts to plug the Ocean State’s budget holes, predicated on major cuts in municipal aid, a third of which goes to public schools, plus the elimination of other state reimbursements to local governments.  One third of the state budget’s general fund goes to counties and municipalities.  When the largely Democratic mayors were informed of the cuts by the Republican governor, one described the meeting as somber as a wake, hardly a surprising characterization from mayors faced with property tax increases or pass-along service cutbacks.

? Louisiana hasn’t been wracked by unemployment like so many other states, but the state budget is still precarious.  Governor Jindal has proposed cuts to the Department of Health and Hospitals and to higher education (the largest areas of government expenditures) to cover three-fourths of the projected FY2010 budget deficit in addition to across-the-board cuts laid on every state department.  Like Pawlenty in Minnesota and Paterson in New York, Jindal apparently didn’t need to seek legislative approval for his unilateral budget rescissions.

? Vermont? Yes, idyllic Vermont has its share of budget challenges.  The Republican governor and the Democratic-controlled legislature agree on the size of the looming deficit, but little else.  Where does the governor appear to want to aim his impending budget cuts?  Human services.

Looking into 2010, like Scrooge addressing the Ghost of the Future, we might say, “I fear you more than any spectre I have seen.”  But our nation can make changes.  Today’s budget deficits need not be the inevitable future.  States can rethink their revenue sources and budget choices—with the help of vigorous advocacy from the nonprofit sector.  Like Scrooge, we will learn a fundamental truth:

“Men’s courses will foreshadow certain ends, to which, if persevered in, they must lead. But if the courses be departed from, the ends will change. Say it is thus with what you show me!”

  • SD

    This information is quite overwhelming and depressing. Would it be possible to write a similar article on those states that are not suffering as much. Perhaps we can learn how to lessen the blow of financial ruin…or at least give us something to aspire to. I recall an article discussin New Hampshire’s strong non-profit sector. How is the non-profit sector reacting to state budget cuts?

  • cohenreport

    There’s a lot of tough stuff going on, but some good stories too. On the NPQ newswire, we’ve been trying to highlight some of the good news as well (look at my newswire posting from today about the community foundation in Charlottesville VA). Even on the budget stuff, I think there are good stories of what nonprofits are doing to mount impressive advocacy campaigns, how some nonprofit state associations have had big impacts on the thinking of their legislators and governors, and creative approaches that nonprofits are taking for weathering the state budget storm.

  • Solona

    I would suggest that the failures of the budget process be laid directly where the blame belongs. That is, at the feet of the State Legislature. THEY are responsible. EACH one of them and in BOTH parties.

    Year after year after year they have played their childish games and focused on THEIR own egos and THEIR own job perks rather than focus on the well being of their voters.

    Personally, I’m against the raising of taxes any more. THEY failed and THEY took more taxes from us in 2009 and now THEY want to take more taxes from me?

    No, I don’t think so.

    I’m voting against every incumbent in government that stupidly expects to keep his/her job.

    And I’m voting “NO” on every tax request that they make to the voters.

    I’m not paying another dime. THEY have ruined our State.

  • cohenreport

    I think you’ll find lots of evidence of a failure of leadership in many states. Some governors and some legislatures have not distinguished themselves in this time period, failing to grapple with the real issues, looking for short-term fixes, and punting on major decisions. However, I don’t agree with you on the tax/revenue side. Some of the problem here is that many states cut their taxes when the economy was booming, assuming that it would boom forever. Now the effects of draconian tax cuts are being seen in big revenue shortfalls. The “fix” that’s needed for states involves both expenditures AND revenues. Working on one side of the budget equation and not the other is going to lead us nowhere.