Budget Deficits in the States: Illinois

During FY 2009 and FY 2010, the State of Illinois was faced with significant fiscal challenges. The national recession was adversely impacting the state's economy, while the state had been struggling since the last recession with operating budget deficits and large unfunded pension liabilities. In the spring of 2009, the Governor's Office of Budget and Management estimated that in the absence of any intervention, there would be a $4.3 billion budget deficit in FY 2009 and a $7.3 billion budget shortfall in FY 2010. This paper discusses the magnitude and nature of Illinois' fiscal problems and the factors that have contributed to this situation. It also discusses Governor Quinn's proposed budget for FY 2010, as well as the legislative response. Although the state passed a capital budget and an operating budget, the outlook for the future remains uncertain. The operating budget significantly relies on one-time revenue and funding sources (including $3.4 billion in debt) and the state has approximately $100 billion in unfunded accrued liabilities for pensions and other postemployment benefits.     

Budget Deficits in the States: Virginia

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Budget Deficits in the States: Massachusetts

Massachusetts entered the current recession carrying a structural deficit counterbalanced by a healthy, $2.1 billion stabilization fund, equal to 10 percent of total tax revenue. Like most states, Massachusetts only dimly realized the depth of the current recession in October 2008 when revenue collections began to slip and welfare caseloads began to increase. By May of 2009, a total FY2009 budget gap of $4 billion had been identified, the combined effect of plummeting revenues and increased costs for welfare and medical assistance. The Commonwealth closed the FY2009 budget gap through a combination of budget cuts, stabilization fund transfers, and federal stimulus funds. The Commonwealth faced an even larger $4.8 billion budget gap in FY2010. With the stabilization fund severely depleted, the FY2010 budget gap was closed primarily by budget cuts, federal stimulus money, and a sales and use tax increase. Because of the Commonwealth's reliance on one-time money to close current budget gaps, a significant budget gap of at least $2.8 billion for FY2011 was identified soon after passage of the budget. In this paper we discuss the political and historic context in which the budget gaps occurred, outline the causes of the budget gaps, and evaluate the strategies employed to close them.     

Providing Adequate Educational Funding: A State–by–State Analysis of Expenditure Needs

While school finance research and litigation has traditionally focused on the equity of funding across school districts, courts and policy makers are increasingly addressing the adequacy of educational resources. This article reviews recent developments in adequacy research and estimates the additional expenditures required to achieve adequacy across states. Using the cost–adjusted national median of current per–pupil expenditures as a benchmark for adequacy, the results suggest that additional spending of $15.6–18.5 billion is needed nationally to reach the benchmark in all districts. The additional spending would be concentrated in a small number of states, particularly in urban and urban fringe districts.     

Recent trends in workers' compensation

Workers' compensation provides cash benefits and medical care to employees who are injured on the job and survivor benefits to the dependents of workers whose deaths result from work-related incidents. Workers' compensation programs in the 50 states and the District of Columbia and federal programs together paid $56.0 billion in medical and cash benefits in 2004, an increase of 2.3 percent over 2003 payments. Of the total, $26.1 billion was for medical care and $29.9 billion was for cash benefits. Employers' costs for workers' compensation in 2004 were $87.4 billion, an increase of 7.0 percent over 2003 spending. Workers' compensation programs and spending vary greatly from state to state. As a source of support for disabled workers, workers' compensation is currently surpassed in size only by Social Security Disability Insurance (DI), which covers impairments of any cause that are significant, long-term impediments to work. Although most recipients of workers' compensation recover and return to work, those with lasting impairments may become eligible for DI benefits, subject to an offset to avoid excessive wage replacement from both programs.     

Information Resources Management Expenditures in the States: A Case for Integrating Accounting and Budgeting Systems

A recent national study has found that states may be spending $20 billion on information resources management (IRM) in FY1989. The significant findings of the study regarding financial management are highlighted to show the dimensions of the IRM expenditures in the states. The second part of the paper examines how well the states' accounting systems are able to provide data on IRM expenditures for budgetary decisions. The article expands upon an important issue raised in the study's findings: the need for better integration of accounting and budgeting systems to improve management of information resources. An Information Object Classification Scheme, first suggested by the Commission on Federal Paperwork, is proposed as an important step in helping states improve their information resources management.     

The Budget Enforcement Act in 1991: Isometric Budgeting

The immediate effect of the Budget Enforcement Act (BEA) of 1990 was to cancel a pending $110 billion sequester and to change the Gramm-Rudman-Hollings deficit targets. These and other changes allowed Congress and the administration to escape responsibility for increases in the deficit if discretionary spending was kept within the caps and no new entitlement programs or revenue enhancements were added. This assumption and others relating to the empowerment of the Appropriations Committees and the new authority of the OMB are explored in this article.     

Valuing Massachusetts' Fixed Assets: A Contemporary Solution To An Historical Problem

The "Miracle of Massachusetts" is a slogan of the past. The FY 1992 deficit was projected to be over one billion dollars. In this article the authors describe the efforts of a dedicated group of government employees who created innovative solutions to long-standing problems. Massachusetts' financial statements could not obtain a "clean" audit opinion because the state's fixed asset records were unauditable. The group developed and implemented an acceptable method for valuation of those assets. This required inventorying all the fixed assets of the state, then valuing each of these items in accordance with either an historical cost or an acceptable surrogate.     

European defence spending rises,but well short of NATO target

Although NATO's European member countries have begun to increase defence spending, there is a $100bn deficit between aspirations and actual spending levels. In the context of Russia's aggression against Ukraine, states are seeking to heighten military readiness.     

The Federal Line Item Veto Experiment: After the Supreme Court Ruling,What's Next?

The federal line item veto has ceased to exist, thanks to the Supreme Court's June 1998 ruling invalidating the expansion of the president's rescission authority that was contained in the Line Item Veto Act. This article reviews the application of the Act during 1997, its effect on spending and the deficit, the judicial reaction to its use, and the prospects for the restoration of some version of the power. President Clinton was quite restrained in the use of his new power, with the exception of his cancellations in the Military Construction appropriation bill; these were ultimately restored by the Congress. Because of the president's restraint, the Line Item Veto Act had a miniscule affect on spending and the deficit; total cancellations represented less than .04 percent of FY98 discretionary budget authority. Ultimately, the Supreme Court held that the Act violated Article I, Section 7 because it created a Constituionally impermissable way for the president to change laws. There is no clear fallback position for supporters of the Act; alternatives are either difficult to enact, hard to administer, or too weak to be considered an effective substitute. Given the problems in enacting any alternative, it may be that the federal line item veto will end up only as a historical anomaly.     

The economics of emergency response

Federal first responder funding is estimated to be $98 billion below the minimum required level over the 5 years ending in 2010. A significant portion of that shortfall can be covered by savings attained by eliminating non-public-good services, initiating public–private partnerships for meeting peak time demand in emergency situations, and contracting-out other public services. We concentrate on such savings in the context of response to false calls to police, fire, and ambulance services. Solving the false alarm problem for police, fire, and ambulance services and eliminating some non-public-good police services could release significant service-hours and 23.7–31.4% of the required additional Homeland Security (HLS) annual spending. Reducing false alarms means 88,000 police, fire, and ambulance first responders could be shifted to HLS activities.

A Model of Asymmetries in the Flypaper Effect

In this applied research study we examine the changing fiscalrelationship between state and local governments. Our researchquestion is simple: Do local governments treat state aid duringperiods of stability and instability in a systematic manner?Using data on Wisconsin's unconditional shared revenues programfrom 1990 to 2000, we find evidence of a flypaper effect andthat the relationship tends to be asymmetrical. The manner inwhich local governments treat intergovernmental aid is differentbetween periods of increases and decreases in aid. Specifically,using a model that allows for the identification of structureshifts we find evidence of fiscal replacement. In addition,we find that changes in aid impact types of spending differently.When aid is reduced, policymakers appear to be less inclinedto cut police and fire services than they are to cut servicessuch as parks and recreation.     

Workers' compensation: coverage, benefits, and costs, 1985

The 84.3 million workers protected by workers' compensation laws in 1985 represented 87 percent of all wage and salary workers in that year. Both the amount of benefits paid to workers and the cost of the program to employers rose substantially from 1984 to 1985. Benefit payments totaled $22.5 billion-14.1 percent higher than in 1984 and the largest annual increase since 1978-79. About two-thirds of the payments in 1985 were money payments ($15.1 billion) and the remainder ($7.4 billion) went for medical care for disabled workers. Private insurance companies made nearly three-fifths of these payments and State funds and self-insured employers each paid about one-fifth of the total benefit amount in 1985. For the first time since 1978, the annual growth in employer costs exceeded the growth in workers' benefits, resulting in a slight decrease in the loss ratio for 1984-85. Employer costs were up nearly 17 percent from the previous year, reaching an estimated $29.3 billion. Covered payrolls increased by 7 percent in that same period. Total benefit payments as a percent of payroll also increased noticeably in 1985.     

Budgeting during a Recession Phase of the Business Cycle: The Georgia Experience

This article describes the impact of the nation-wide recession on Georgia revenue and spending decisions in the 2002 and 2003 fiscal years. The state's strong economy and conservative revenue estimating practices historically provided a hedge against revenue shortfalls during a recession phase of the business cycle. However, when state revenue collections for FY 2002 were 5 percent less than collections for the prior fiscal year, several gap-closing measures became necessary, including state agency spending reductions and substitution of bond proceeds for tax revenues. These revenue and expenditure gap-closing measures were intended to enable the governor to achieve his policy initiatives while maintaining a balanced budget. The state's Rainy Day Fund remained full and was held in reserve for budget balancing in FY 2004, if necessary. Budget balancing during the current recession has been made possible by the state's practice of not overcommitting to program increases and tax cuts during the expansion phase of the business cycle, and by effectively framing the issue of fiscal restraint.     

The Impact of Public Officials’ Corruption on the Size and Allocation of U.S. State Spending

This article demonstrates the impact of public officials’ corruption on the size and allocation of U.S. state spending. Extending two theories of “excessive” government expansion, the authors argue that public officials’ corruption should cause state spending to be artificially elevated. Corruption increased state spending over the period 1997–2008. During that time, the 10 most corrupt states could have reduced their total annual expenditure by an average of $1,308 per capita—5.2 percent of the mean per capita state expenditure—if corruption had been at the average level of the states. Moreover, at the expense of social sectors, corruption is likely to distort states’ public resource allocations in favor of higher‐potential “bribe‐generating” spending and items directly beneficial to public officials, such as capital, construction, highways, borrowing, and total salaries and wages. The authors use an objective, concrete, and consistent measurement of corruption, the number of convictions.     

State Debt Management Policy: A National Survey

The amount of outstanding, long-term, tax-exempt state debt has grown precipitously over the last decade, from $87 billion in 1977 to $264 billion in 1987. But there have been few attempts to carry out broad studies of basic state debt management policies, using comparative state data. As a result, policy-makers lack guidance as they attempt to adjust policies and procedures to meet the rapidly evolving requirements associated with public borrowing. This paper reports on a national survey of state debt manage ment policies - policies devoted to the planning, preparation, sale, and repayment of debt for which states consider themselves responsible.     

Congress, the Deficit, and Budget Reconciliation

President Clinton's veto of the 1995 reconciliation bill, the largest and most ambitious such legislation ever passed by Congress, was the first time a reconciliation bill was ever rejected by a president. It was also the first reconciliation bill in two decades to include a tax reduction rather than a tax increase. The fate of this bill, and its scope and contents, suggest the need to assess the evolution of reconciliation within the congressional budget process. In the early 1980s, Congress altered budget reconciliation procedures, putting in place a powerful new capability for deficit reduction. Reconciliation became the primary means within the budget process of restraining entitlement spending and increasing taxes as part of congressional efforts to reduce the deficit. Gramm-Rudman-Hollings magnified certain problems Congress encountered in using reconciliation to control entitlements, producing increased pressure to cut discretionary spending. While the Budget Enforcement Act of 1990 included new authority to use reconciliation to restrain entitlements, congressional spending priorities combined with the Peace Dividend to maintain the relative sanctuary entitlement programs have enjoyed. The limits of reconciliation as a deficit reduction tool, both in terms of increasing revenues and curtailing entitlements, are detailed. The inherent procedural advantages accorded to entitlements are contrasted with the treatment of discretionary programs, explaining in part the widening gulf between these two categories of spending. Congress has attempted, without success, to find alternatives to reconciliation. The failure of the seven-year, deficit-eliminating reconciliation bill of 1995 may indicate that certain Limits on the use of reconciliation may have been reached.     

Book Reviews

Books reviewed:
The Capacity to Govern: A Report to the Club of Rome . Yehzkel Dror. London: Frank Cass Publishers, 2001. 264 pp. $67.00 (hardback).
Government's Greatest Achievements: From Civil Rights to Homeland Security. Paul C. Light. Washington, DC: Brookings Institution Press, 2002. 200 pp. $19.95 (hardcover).
The Transformation of Governance: Public Administration for Twenty-First Century America. Donald F. Kettl. Baltimore, MD: Johns Hopkins University Press, 2002. 240 pp. $17.95 (paperback). Reviewed by MARK CARL ROM, Georgetown University
Politics and the Russian Army: Civil–Military Relations, 1689–2000. Brian D. Taylor. New York: Cambridge University Press, 2003. 355 pp. $25.00 (paperback), $75.00 (hardback). Reviewed by DONALD ABENHEIM, Naval Postgraduate School
Defending Europe: The EU, NATO and the Quest for European Autonomy . Jolyon Howorth and John T. S. Keeler, eds. New York: Palgrave, 2003. 247 pp. $55.00 (hardcover). Reviewed by MICHAEL BAUN, Valdosta State University
Migration and the Externalities of European Integration . Sandra Lavenex and Emek M. Uçarer. Lanham, MD: Rowman & Littlefield, 2003. 240 pp. $24.95 (paperback), $75.00 (hardback). Reviewed by SEBASTIEN GAGNON-MESSIER, University of Maryland
Government: A Public Administration Perspective . Jos C. N. Raadschelders. Armonk, NY: M. E. Sharpe, 2003. 464 pp. $39.95 (paperback), $ 79.95 (hardcover). Reviewed by MARGARET F. REID, University of Arkansas
Pursuing Truth, Exercising Power: Social Science and Public Policy in the 21^st Century. Lisa Anderson. New York: Columbia University Press, 2003. 158 pp. $27.50 (cloth). Reviewed by ROBERT W. RYCROFT, George Washington University     

Surviving a Revenue Collapse: Shortfall and Recovery in California

Substantial revenue shortfalls have to be reckoned with, no matter what their cause or what the cost. California found itself in such a situation late in the 1987–88 fiscal year. On April 22, 1988,' it ascertained that tax receipts were falling behind forecasted revenues. This led to the prediction of a $1 billion shortfall for California in 1987–88 and again in 1988–89. The article reviews the causes of the shortfall and describes the actions taken by the governor and the legislature to balance the budget.