Recovery cannot save state budgets from politics

The economy is recovering and state tax revenues are growing, giving states greater flexibility in their budget decisions. However, the biggest problem with state budgets appears to be political.

Seth Perlman/AP/File
State Rep. Greg Harris, D-Chicago, speaks to lawmakers while on the House floor during session at the Illinois State Capitol.

During the Great Recession and its aftermath, the economy wreaked havoc on state budget negotiations, forcing tough votes on spending cuts and tax increases. Since then the economy has improved, state tax revenue are growing, and legislatures have more room to maneuver during budget season. Yet havoc still reigns in many statehouses. In fact, it might be getting worse.

Last year only two states (Massachusetts and Pennsylvania) failed to pass a budget by June 30, the end of the fiscal year in all but four states. This year eight states missed their budget deadlines.

Iowa, Maine, Wisconsin, and Massachusetts approved budgets in July, while New Hampshire and North Carolina are currently running on short-term spending bills. Pennsylvania and Illinois have nothing in place and both states might soon be forced to stop spending on some programs.

The problems in these eight states are now more political than economic. Here's a closer look at the recent budget dysfunction, grouped roughly according to the leading cause in each state.

Republican governors vs. Republican legislatures (when party allegiance isn’t enough to stop the fight)

Maine Republican Gov. Paul LePage wants to kill the state's income tax. Republican legislators are sympathetic but lack the votes for full repeal. Instead, they passed a bipartisan budget with a reduced income tax. An unhappy LePage issued 64 line-item vetoes on June 18 and then vetoed the entire budget (in a vividly illustrated memo that accused the legislature of "morally indefensible" tactics) on June 29. The legislature overrode the line-item and budget vetoes—the line-item vetoes mostly by unanimous votes. The 2013 budget was also passed over a LePage veto.

Wisconsin passed a budget shortly after the end of the fiscal year despite conflicts between the governor and legislature (and not necessarily along party lines) over road and school funding, prevailing wage laws, and borrowing. But resolution did not stop the fight. Gov. Scott Walker vetoed 104 items as he signed the Republican-approved budget on July 12—the day before he officially announced his presidential run.

North Carolina missed its budget deadline but the legislature passed a temporary spending bill that gives them until mid-August to find compromise. As the debate drags on, the Republican legislature is losing patience with the Republican governor. The GOP Senate Rules Committee chairman said Gov. Pat McCrory "doesn’t play much of a role in anything" and the Senate majority leader called him "tone-deaf." The House and Senate recently appointed a combined 114-member conference committee (two-thirds of the legislature!) to work out budget differences on income tax cuts, education spending, and state employee pay increases.

Partisan fights (when you refuse to let the other party "win")

Illinois is locked in a budget battle between newly elected Republican Gov. Bruce Rauner and the Democratic legislature. Rauner initially proposed $6 billion in cuts and the legislature responded with a budget that spends $3 billion more than projected revenue. Rauner then said that he is open to negotiations on revenue, but only if the legislature addresses his key reforms: a property tax freeze, term limits, redistricting, tort reform, and compensation for injured workers. In the meantime, the governor vetoed 19 of 20 appropriations bills (education was the lone exception, so schools will open in the fall) and the legislature failed to override them. Some state-funded agencies are closing and the two sides cannot agree on a one-month extension. The governor is airing TV ads against the Democrats and legislative leaders are firing back with attacks of their own.

Pennsylvania pits a Democratic governor against a Republican legislature. Gov. Tom Wolf wants to hike income and sales taxes and levy a new tax on natural gas drillers to pay for more money for schools and property tax cuts. Republicans oppose the new taxes and want pension reform. Wolf vetoed a GOP budget that lacked tax increases and so far Republicans don’t have the votes to override it. The two sides are talking but also lobbing attacks at each other. The budget impasse could soon affect state services.

New Hampshire's Democratic Gov. Maggie Hassan and the state's Republican-majority legislature are mostly fighting over business tax cuts. The legislature had them in their budget, which Hassan called unbalanced and vetoed. She then proposed a new plan that included some tax cuts along with her policy priorities—such as a state employee pay raise and 21-cent cigarette tax hike. Republicans were not impressed, with the House speaker saying, "I am not seeing a path forward with this proposal." Republicans want to override the veto but currently lack the votes. Adding to the partisan fight: Hassan is a possible Senate candidate in 2016.The state is running on a short-term measure that allows them to spend at fiscal 2015 levels until January 2016.

Minor squabbles (when it does not take much to miss deadlines)

Massachusetts' legislature approved a budget on July 10 and Republican Gov. Charlie Baker signed it on July 17 after a prolonged debate on taxes. The final budget spends about 5 percent more than last year and includes an expanded earned income tax credit. Baker agreed to sign the budget only after getting legislative leaders to modify a corporate income tax credit rather than repeal it, as they had originally wanted to. The final skirmish was resolved last week when the legislature voted to override a Baker veto and restore millions of education dollars to the budget.

The Iowa legislature passed a bipartisan budget in early in June but Republican Gov. Terry Branstad waited until July 2 to sign it. The governor also issued a line-item veto against one-time $55.7 million increase in education spending because it came from a temporary surplus, arguing any increase must be sustainable for the long term. Democrats are calling for a special session to override the veto but they will need Republican votes.

The post Recovery cannot save state budgets from politics appeared first on TaxVox.

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