Huffpost Politics
Nate Willis Headshot

State Budget Crisis Outlined By New Report Draws Response From Government Groups

Posted: Updated:
Richard Ravitch, a former lieutenant governor of New York, has turned his focus to the financial challenges facing all states.
Richard Ravitch, a former lieutenant governor of New York, has turned his focus to the financial challenges facing all states.

WASHINGTON -- A new report has projected a $4 trillion shortfall for states and potentially dire consequences if they do not change their budget practices. Yet the leader of at least one state government group insisted that they are making a comeback.

The report, released Tuesday by former Federal Reserve Chairman Paul Volcker and former New York Lt. Gov. Richard Ravitch, advised states to make drastic changes to financial practices, including increasing transparency, undertaking multiyear fiscal planning and fully funding pensions costs to potentially ward off dramatic cuts in the future. Ravitch and Volcker said the current situation could lead to severe funding cuts in social services and public safety.

While the report urges states to save more money, the head of the National Association of State Budget Officers disagreed, saying he does not know if this can be done. "Some states are at least trying to deal with fiscal management problems," the association's executive director, Scott Pattison, told HuffPost. "Frankly, I'm presently surprised states even have a dollar in a rainy day fund and, according to our current data, it's over 7 percent" of their revenues on average. "You'd think they would want to put every dime into programs or tax cuts."

Pattison also said that he believes states are making a comeback: "I think things are slowly getting better, especially if you compare them to the recessionary years 2009 and 2010. Certainly things are going in the right direction. I think they're slowly going to have to pay down their pensions and liabilities."

"For a couple reasons, it's going to be really difficult," he added. "There are things outside the states' control. The national economy has continued to be tepid," he said. Plus he cited health care and other costs associated with aging populations.

States have struggled to come up with funds to close budget gaps while suffering from rapidly growing health costs and lowered tax revenues. The report indicated that states have laid off 650,000 employees over the last couple years in an attempt to curb ballooning deficits.

But Pattison said these figures could be exaggerated, noting that some positions may have been eliminated. "At the state level, it's a lot of middle management. They attempt to use technology in order to be more efficient."

David Adkin, executive director of Council of State Governments, told HuffPost, "We are almost at the midpoint of a lost decade."

"The traditional increase in revenues coming into a state, which were for decades at five and a half percent every year, has obvously dried up," he said.

States are still trying to tweak their budgets so they come out ahead. "States take money from this pot to this pot to make your ending balance numbers work," Adkin added. "Every dollar that is spent on increasing health care costs is a dollar that can't go into education, can't go into higher education, can't go into transportation, can't go into corrections."

The National Governors Association's new chairman, Democratic Gov. Jack Markell of Delaware, told HuffPost on Tuesday that he welcomed the report and indicated that several of the recommendations are ones that have been beneficial to several states including his own. The report would make more people aware of states' dire fiscal condition.

Kansas' state Senate President Steve Morris (R-Hugoton), the president of the National Conference of State Legislatures, said states could receive some fiscal help for Medicaid costs under provisions of the Affordable Care Act. He also called on Congress to pass legislation to allow states to collect sales tax revenue for online purchases. The Main Street Fairness Act, pending in Congress, has been a top issue for state government leaders around the country.

Pattison likened states' fiscal troubles to the challenges a person faces in trying to lose weight. "You either eat less and exercise more or both. And that's it. But everybody is trying to find some magic. It's like state and local budgets -- you either raise taxes or you cut or both. It's very tight, and I think it's going to continue to be very tight."

Around the Web

State budget crisis seen lasting

State budget crisis seen lasting

States need to act on long-term budget crises: report

Ben Bernanke: Recession likely if Congress doesn't avert budget crisis

The Early Word: Persistent Woes

Volcker, Ravitch warn state budgets under long-term threat

Outlook grim for states' finances

State budgets in fiscal danger, task force reports