Fallout: The Financial Crisis

States struggle to balance budgets

Marketplace Staff Jun 29, 2010


Kai Ryssdal: The California state legislature adjourned yesterday for a July recess. Not that big a deal. Except that tomorrow’s the end of the California fiscal year and there’s no new state budget in sight. Tomorrow’s the deadline for most states to come up with new spending plans. They’re doing all they can to get themselves into the black. Most state constitutions require a balanced budget. But different states have different financial problems. And different solutions to their budget gaps.

From WBEZ in Chicago, Tony Arnold begins our coverage.

Tony Arnold: Illinois’ budget outlook is so weak the state has a budget hole of $13 billion.

Laurence Msall: The State of Illinois is sinking faster, faster than even California.

Laurence Msall heads The Civic Federation, a fiscal watchdog group in Chicago. He says the state’s budget problems can’t be blamed on one governor, not even Rod Blagojevich. Instead, he says it’s been 30 years in the making. And pension benefits for state employees have been a big reason for the budget mess.

Msall: We ignored the fact that you cannot spend more than you take in. We ignored the fact that you cannot have unrealistic pension benefits, especially if you’re not going to fund them.

The state House of Representatives passed a plan to borrow almost $4 billion for pensions. But the votes weren’t there in the Senate and senators ended the session without bringing it up. Msall says that’s going to be devastating down the road, and Illinois’ bond ratings have dropped significantly.

Meantime, the state is behind on paying its bills leaving schools and social service agencies on their own. Even the powerful Speaker of the House, Michael Madigan, makes no bones about the situation.

Michael Madigan: Will there be people who say, “Well, the budget is not balanced?” That’s correct, because we’re in a depression.

If the budget isn’t balanced, technically it’s illegal. But there’s no plan for legislators to return to the state capitol any time soon.

In Chicago, I’m Tony Arnold for Marketplace

Scott Detrow: And I’m Scott Detrow in Pennsylvania. For the second year in a row, education spending is dominating budget negotiations here. Democratic Governor Ed Rendell is in the final months of his final term, and he says a key part of his legacy will be the annual boost to the subsidy Pennsylvania provides local school districts. Rendell’s insistence on a substantial increase last year held up the budget for three and a half months. This year, Pennsylvania faces a $1.2 billion revenue gap. But Rendell wants another education spending increase of $354 million.

Gov. Ed Rendell: Why in God’s name would we stop? We’re doing something really good for the future of our children and the future of our state.

But the top state Senate Republican, Majority Leader Dominic Pileggi, argues the boost Rendell wants is irresponsible and unsustainable, especially if a federal subsidy known as FMAP does not come through.

Pileggi: What happens when we don’t get the $850 million FMAP subsidy? What’s the first thing that should go, or must go?

It looks like Governor Rendell will get his education increase, but in the face of a $1 billion deficit, nearly every other state program will see its funding reduced.

In Harrisburg, Pennsylvania, I’m Scott Detrow for Marketplace.

Janet Babin: I’m Janet Babin in North Carolina. That federal subsidy Pennsylvania’s waiting for? Well, 29 other states need it too. It has to do with Medicaid funding, the health care program for the poor. And without that money, those states have a gaping hole in their budgets. North Carolina has a half-billion dollar shortfall.

Senator Linda Garrou says lawmakers have been left with unappealing options, like cutting services or even cutting doctor’s Medicaid reimbursements.

Sen. Linda Garrou: I had a number of doctors in my office the other day, and they were saying, “You can’t cut us here, and you can’t cut us there.”

But Garrou says those doctors should talk to Congress. She says they’re the ones that cut Medicaid funding, not her. Last year, states received extra federal money for the program as part of the economic stimulus package. And they were counting on Congress to extend that aid. But the measure died in the Senate.

North Carolina’s Governor Beverly Perdue says just as the Feds pulled back, her Medicaid rolls have exploded.

Beverly Perdue: We have never seen Medicaid at this kind of magnitude.

And some say that’s Medicaid’s key flaw. When more people need it, the tax revenues that help pay for it decline.

Nick Johnson’s with the Center on Budget and Policy Priorities.

Nick Johnson: The Medicaid Program is not well designed to respond to recessions.

Long term, Johnson says Medicaid needs a new funding formula. Meantime, states like North Carolina hope Congress comes through with that funding. But Gov. Perdue doesn’t think it will come in time. Hence, the mad dash in many states to increase taxes or slash services.

In Durham, North Carolina, I’m Janet Babin for Marketplace.

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