- Several States Predict Deficits for Next Fiscal Year
- January 20, 2017 | Authors: David D. Ebersole; David M. Kall; Susan Millradt McGlone
- Law Firms: McDonald Hopkins LLC - Columbus Office; McDonald Hopkins LLC - Cleveland Office
- Several states have been in the spotlight recently for being in dire financial straits. For example, earlier this month, we addressed the budget gap that the New York Division of Budget anticipates, in the amount of nearly $700 million, for next fiscal year. This stems from a middle-class tax cut, scheduled to be fully implemented in nine years, and the state’s highest-ever schools and education spending package incorporated into this year’s budget. Other states are struggling too, as discussed below.
In Ohio, the Columbus Dispatch relayed Gov. John Kasich’s warning that the state is “on the verge of a recession.” Total tax revenue for November was $99 million, or about 5 percent, below estimates. Income taxes were more than 10 percent under projections. And in October, total revenue was off by $88 million, or 4.7 percent. For all these reasons, state revenue is about 3 percent, or $259 million, below forecasts for the fiscal year, which ends on June 30, 2017.
The main reasons for this performance are “dramatically lower manufacturing employment growth,” and weak retail hiring. In addition, termination of the state’s ability to tax Medicaid managed-care organizations will negatively affect the next budget, by about $1.1 billion in losses to state funding, while another $400 million in losses will befall local counties and transit authorities.
With respect to manufacturing growth, the Dispatch pointed to its use of robots as an underlying cause of that sector’s low employment growth: they are “here and they’re here in greater numbers.” Even so, Gov. Kasich supports more widespread use of automation, most recently in the auto industry. Bizjournals noted that truck driving is the most common job in the Buckeye State, but a November 30, 2016, Ohio Department of Transportation (ODOT) press release announced the governor’s plan for a $15 million investment along a 35 mile corridor in central Ohio, the Smart Mobility Corridor, to test driverless vehicles.
According to ODOT, the idea is to research “smart transportation technologies on a highway that carries up to 50,000 vehicles per day through rural and urban settings in a full range of weather conditions. This data will also provide more frequent and accurate traffic counts, weather and surface condition monitoring, and incident management improvements.” Work to install the necessary sensors and fiber optic network is scheduled to begin in May 2017 and last for several months. It goes without saying that this could not only “change the way people and products are transported in Ohio and across the world,” but also have a significant detrimental impact on Ohio’s employment growth.
As for the coming recession, Cleveland.com quoted the governor as saying that “[t]here's not going to be a lot of growth in any [state] program. It's going to be tight. There's not going to be an ability to give significant percentage increases." However, he also promised that there will be "no net tax increases."
Florida is another state that is expecting financial difficulties. In an interview with the Bradenton Herald Editorial Board, Senator Bill Galvano, declared that there is “the potential of running real deficits over the next four years.” This year’s potential shortfall could be $1 billion, 2018’s could reach $1.3 billion, and between 2018-2020, that figure could grow to $2.8 billion. Senator Galvano thus characterized the Sunshine State’s budget as being “fluid.”
The senator was the Republican majority leader from 2014-2016, and is now set to become Senate president in 2018. He cited rising Medicaid costs, underperforming state investments, and the economic impact of the Zika crisis as key reasons for the shortage.
According to MyNews13, property taxes could go up if the anticipated figures come to fruition. It is expected that Gov. Rick Scott, however, will persist in his pursuit of $85 million in the next budget to entice companies to move to Florida. In a December 7, 2016, press release, the governor proudly announced that “Florida continues to lead the nation’s largest states, including top jobs competitors like Texas and California, in private-sector job growth. With more than 1.2 million jobs created over the past six years, a strong private-sector job growth rate, and a growing housing market, it is clear that our focus on making Florida the best place for businesses and families to succeed is working.”
The press release quoted the Executive Director of Florida’s Department of Economic Opportunity Executive Director, who applauded the results: “Florida continues to prove our economic excellence across the nation and with more than 1,000 people moving into Florida each day, it’s no surprise that our housing market continues to improve. Gov. Scott’s success in cutting taxes and attracting new business to our state has resulted in a brighter future for so many Floridians, and we will continue to take our economy to new heights.”
MyNews13 characterized the dissonance as having “the makings of an intraparty showdown...”
Illinois continues to struggle, to the extent that “$1 billion more of next year’s state budget will have to go toward paying off pension debt instead of essential services,” reported the Illinois News Network. In a Commission on Government Forecasting and Accountability (COGFA) special pension briefing, economists reviewed the state-funded retirement systems’ fiscal year 2016 actuarial details, and revealed that the total unfunded liability amounted to $126.5 billion on June 30, 2016. The Teachers' Retirement System accounted for $71.4 billion of this, or 56 percent. The next greatest share, of $29.9 billion or 23.6 percent, comes from the State Employees’ Retirement System. After these two is the State Universities Retirement System, representing 18.4 percent of the liability, or $23.2 billion.
The Illinois News Network highlighted the COGFA’s director’s opinion that the Prairie State is paying more than twice what a normal state would in pension debt. If it does not reform the current pension system or drastically increase contributions, it will have to pay more than $12 billion per year by 2030, the first year that the COGFA expects unfunded liabilities to begin falling.
The standoff between the legislative and executive branches of government remains hot. On December 2, 2016, several lawmakers sued the state’s comptroller for her refusal to pay “legislators and constitutional officers their Constitutionally protected salaries.” The last month they received paychecks was August 31, 2016, which covered their salaries for the month of May.
The plaintiffs, several democrat representatives, asked the court to “invalidate the Comptroller’s attempts to hold hostage the salaries for members of the General Assembly.” The suit also alleges that “[b]y denying the members of the General Assembly their salary, the Comptroller is attempting to force the General Assembly to forgo representing the interests of their constituents and accede to the policy preferences of an executive office that has no formal role in the legislative process.”
Illinois Policy noted that the base salary of a lawmaker is “nearly $68,000 for what is essentially part-time work. When health care, dental care and pension benefits are included, taxpayers cough up an average of $100,000 per active Illinois lawmaker.”
In response, Republican Gov. Bruce Rauner called the lawsuit “a stunning reminder of why we need change in Springfield. Only in Illinois would politicians who have failed to pass a balanced budget and reforms put their own personal gain before taxpayers and critical human services." The governor reminded his constituents that he does not personally collect a paycheck or accept state benefits.
Gov. Rauner further scolded lawmakers, arguing that “Democrats should end this frivolous lawsuit, put taxpayers and human services ahead of themselves, and pressure their leadership to work with Republicans on passing a balanced budget with reforms that create jobs, lower property taxes and improve our schools.”