Sunday, January 10, 2010

Legislature facing revenue meltdown

How bad is it?

Longtime Senate Appropriations Chairman Jack Hill (R-Reidsville) said the state will be trying to get by on about the same amount of money it had in 2005. Since that time, Hill said, the state has added 600,000 more residents, many of them children who must be educated and poor families that rely on state health care programs.

The bad news was expected. State tax collections — mostly income and sales taxes — started tanking about a year after the U.S. went into a recession. While the economy is showing signs of improvement, significant increases in tax collections typically lag a year or so. So state budgets usually don’t recover until a year or more after a recession ends.

During the first half of this fiscal year — through December — tax collections were down by about $1.1 billion from the same period in 2008 as individual income tax and sales tax revenue took huge hits.

Other states are in the same boat. Nationally, states had to close budget gaps totaling $146 billion this fiscal year, according to the National Conference of State Legislatures. States expect another $28.2 billion will have to be cut of during the winter and spring legislative sessions.

That has led to employee furloughs and pay cuts across the country. California’s governor, Arnold Schwarzenegger, said last week he wants the state’s costly prison system turned over to private operators. Arizona has put state buildings, including Legislative facilities, up for sale to raise money.

And the pain won’t be over when lawmakers end the 2010 session in a few months.

This year’s Georgia state budget is propped up by $1.4 billion in federal stimulus money and hundreds of millions of dollars in reserves.

By fiscal 2011, which starts July 1, most of the reserves will be gone and the federal stimulus money will decline. So state officials will have to hope for a stronger economic recovery than most experts are predicting.

William Pound, executive director of the National Conference of State Legislatures, said last month that the fiscal picture for many states is bleak.

“We’re heading into an era of retro budgeting, where state spending is receding to levels of five to 10 years ago,” he said.

While that makes it tough on Gov. Sonny Perdue and appropriations leaders who have to develop spending plans, it also gives some Republicans the chance to do what they’ve always said they wanted to do — truly shrink the size of government.

“It allows Republicans to analyze programs we maybe have not had the opportunity or discipline to analyze before,” Ralston said.

The incoming speaker said he has ideas about what programs should be eliminated or merged, but he wouldn’t disclose them before consulting other House Republicans.

The problem lawmakers run into is that most of the money the state spends goes for things that are difficult to slash: education, health care and prisons. The state helps fund the education of 2 million students and provides health care to about 1.5 million Georgians. No politician wants to run for re-election on a platform of cutting teacher pay, kicking poor kids off health care rolls or letting felons out of prisons that the state can’t afford to keep open.

Increasing taxes or fees is pretty much out of the question. Every legislative seat and statewide elected office is up for election this year, and neither party wants to be accused of raising taxes. Lawmakers also say with double-digit unemployment, their constituents can’t afford to pay higher taxes.

So, Hill thinks more school districts, some of which get 80 percent of their funding from the state, may consider going to four-day class weeks. With more cuts coming, the Department of Corrections may have to close some prisons, adding bunks to those that remain open.

Like a lot of educators, Fayette County world history teacher Joseph Jarrell worries about the next round of furloughs.

Jarrell saw his pay cut and had to take days off last year to help the state and his local school system save money. With more state spending cuts looming, Jarrell says teachers may be forced to take furloughs in June when they should be posting grades and doing other end-of-the-school-year activity.

“We are all fearful that will happen, and therefore we will just have to do everything we would normally do without any pay,” Jarrell said.

Still, some see the budget-cutting as an “opportunity.”

Kelly McCutchen, president of the conservative Georgia Public Policy Foundation, argues that the fiscal crisis gives state officials the perfect chance to re-evaluate what the government does.

Schools, he said, could increase the use of cheap online education programs to cut costs. More incentives could be given to state employees and teachers, he said, to choose high-deductible health insurance plans which would cost the state less money.

“You’ve got to look at the little things we shouldn’t be doing anymore, but the big dollars will come from changing the systems in the big areas,” McCutchen said.

Alan Essig, executive director of the liberal-leaning Georgia Budget and Policy Institute, agrees that the state will have to make fundamental changes over the next few years if it doesn’t raise enough money to continue funding the budget. His group wants the state to consider eliminating some special-interest tax breaks and review all the fees it charges, many of which haven’t changed for decades.

State auditors recently looked at four agencies — Agriculture, Banking, Human Resources and Natural Resources — and found that they were collecting $174 million from 347 user fees in 2005. About 50 of those fees were set more than 20 years ago; nearly half were more than 10 years old. Six had not been evaluated in more than 50 years.

One tax that may be back is one Perdue proposed last year on hospitals and insurers to raise money for Medicaid, the state-federal health care program for the poor and disabled. Lawmakers, with a strong push from lobbyists in the affected industries, rejected the idea.

But without substantially more money, Essig said lawmakers could be forced to cut eligibility for Medicaid. Teachers will make less money, through either furloughs or shorter school years, he said. Regulatory oversight of everything from banks and insurance to natural resources will be cut.

“These are the types of decisions that are going to have to be made,” he said. “You’re not going to do it by nickel and diming, you’re not going to do it by eliminating $5 million programs. You are going to have to do it by making fundamental policy decisions.”

Posted via email from Jim Nichols for GA State House

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