This group is for members of the GFOA and other folks interested in issues related to government finance to share information.
What Impact Does the State Fiscal Crisis Have?
October 1, 2009 at 10:50 pm #82036
I read in the Wall Street Journal yesterday that states were experiencing revenue declines not seen since the 1960’s. The article, Falling Tax Revenues Slam States, spoke about a 17% decline in tax revenues hurling states deeper into an economic crisis despite the stimulus funds and signs of economic recovery on the horizon. The wsj.com article went on to talk about budget cuts; state government shutdowns like we saw in California, if budget deals can’t be made; and staffing reductions. A pretty dire situation.
This prompted me to start thinking about the states, local government, agencies, and education. How bad is it and where is it the worst? So I started doing some digging.
Just to emphasize how bad it is for the states, according to the Center on Budget and Policy Priorities, the result of the revenue decline is a combined $350 billion projected budget deficit over the next two years. On businessweek.com in their articled entitled States in Worst Budget Trouble, they list each of the 37 states with deficits in their FY 2009 budgets as of 12/07/2008. That is pretty interesting.
I also found a good paper, Schools in Crisis: Making Ends Meet, on K-12 education written by Marguerite Roza, a senior scholar at the Center on Reinventing Public Education, and a research associate professor at the University of Washington College of Education. I have read on the CBPP site that the recovery law is giving states $140 billion over the next two years for Medicaid and education, but I have not seen the breakdown. Cutbacks in staffing of the magnitude predicted here are surely to impact the quality of the public education system and how would the longer days and longer school year being discussed currently be funded? Ms. Roza also brings up the point about the impact of reductions in local funding on education budgets which she has not included in her analysis.
I have two primary questions about how this relates to local government:
1. How are local governments handling their own budget shortfalls? What best practices in cost management do you employ?
2. Are the issues faced at the state level impacting cities, counties, towns, etc. and if so, how?
October 9, 2009 at 6:59 pm #82038
Clark G. CaseParticipant
We just had a meeting of the Big Ten Cities and Counties in North Carolina. Without divulging any names or confidences, typical actions to balance our budgets have been:
Most entities have implemented hiring freezes and eliminated vacant positions and forced reorganizations to cover the lost positions. Most have exempted Public Safety jobs from freezes and downsizing. Many have offered early retirement incentives and mandated freezes on positions thus vacated. Most have implement reductions in controllable/discretionary spending of 5 - 10%. Most have cut capital spending plans for projects not funded by ARRA. Many have implemented involuntary furloughs. Most have increased employee health insurance premiums, co-pays and deductibles by more than the inflation in those plans to reduce the local government's share; some by as much as 20%, but 5 - 15 is more typical. The vast majority have given no pay increases to employees in the current budget and plan no increase for the upcoming budget. Some have eliminated unvested retiree health insurance coverage. Some have eliminated longevity bonus programs. One large local government unit eliminated 302 positions 88 of which were occupied. Another eliminated 81 positions. Winston-Salem eliminated 25 vacant positions. No one unit did all of these things, but all of these actions were taken by many of the units. One interesting statistic I heard cited at a recent conference was that sum total of cost cutting measures taken by the state and local governments in the current budget year was more than the total of all of the federal stimulus money which is to be spread out over three years!. Our City Manage told me recently that he expects the upcoming budget to be even tougher than this year's was.
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