Archive for Wednesday, April 23, 2003

In good company

Like Kansas, area states grapple with budget deficits

April 23, 2003

Kansas isn't alone in its budget mess. Most states are facing large and growing budget gaps.

State revenue has fallen short of projections in most states, causing serious budget problems. Rising Medicaid costs have made the situation worse.

The National Conference of State Legislatures estimated in a January report that 33 states faced a collective $26 billion gap between projected revenues and spending for the current fiscal year that ends June 30. And the predicament looks worse for the next fiscal year, as states face a budget shortfall of at least $68.5 billion.

According to the report, 29 states have imposed across-the-board budget cuts. Medicaid spending was cut in 29 states, higher education in 12, and K-12 education in nine. Nine states have laid off employees.

To deal with the budget crisis, states have used their rainy-day funds, tapped other state funds, delayed construction projects and cut spending.

Some states, including Kansas, raised taxes last year.

And according to the report, at least 24 states were considering tax increases in January.

Kansas and its neighboring states have taken different approaches to the budget crisis.

Kansas

The state's budget gap for the current and next fiscal years was estimated at about $900 million in January.

Last session, lawmakers raised sales, cigarette, motor fuels and business franchise taxes, and reimposed the inheritance tax on distant relatives and nonrelatives. The tax measures were projected to raise about $292 million in the current fiscal year.

This session, though, neither the governor nor the Legislature is interested in raising taxes.

Most state agency budgets were cut last year. Cuts affected social services and higher education. The highway fund was tapped to help out the state's general fund, and the state has spent down its general fund below the statutory ending balance.

K-12 education was exempt from cuts, except for a $27 per pupil reduction ordered by former Gov. Bill Graves in August.

This session, state aid to local governments has been cut, and repayment of a $95 million loan from the highway fund has been delayed. In January, Gov. Kathleen Sebelius recommended a zero ending balance, but now she would like to see the state end the year with some money.

Recent projections add $230 million to the shortfall, so the governor proposed a variety of measures to balance the general fund, including expanded gambling, borrowing money by selling bonds and accelerating payment of taxes due at the start of the next fiscal year to the end of the current fiscal year on June 30.

Republicans rejected those proposals and came back with their own proposed measures, including delaying tax refunds and payments to school districts.

Nebraska

Nebraska is facing a two-year budget shortfall that was estimated at $673 million in January.

Last session, lawmakers raised the tax on cigarettes to 30 cents a pack, raised the sales tax from 5 percent to 5.5 percent, eliminated sales tax exemptions on some goods and services, and enacted a temporary income tax increase.

Deputy Budget Administrator Lyn Heaton said many state agencies were affected by a 10 percent across-the-board cut. The cut affected K-12 and higher education and aid to local governments. Cuts in social services were targeted, but Medicaid and some other public assistance programs were cut.

This session, Gov. Mike Johanns is recommending spending cuts, and another 20- cent increase in the cigarette tax, Heaton said. "The legislature seems to be looking at a mix of tax increases and budget cuts," Heaton said.

Tapping the highway fund is one measure under consideration in committee.

Heaton said Nebraska has not used its tobacco settlement money for the budget crisis and has tried to preserve it for health care.

And the governor is not recommending using the cash reserve fund, the equivalent of Kansas' ending balance requirement. In fact, he recommended adding money to it in 2005.

Nebraska lawmakers haven't been considering the creative accounting measures that are on the table in Kansas, such as delaying school district payments and tax refunds, accelerating taxes, or bonds.

"Cooking the books," Heaton said. "We are creative in Nebraska, but I haven't heard that seriously discussed."

Oklahoma

Oklahoma's budget gap for the current and next fiscal years was estimated at $592 million in January.

Oklahoma did not raise taxes last year. But this year, proposals to raise some taxes, such as the motor fuel and cigarette taxes are under consideration in committee, said Shawn Ashley, spokesman for the Oklahoma State Finance Office. Most of the proposals would earmark revenue earmarked for specific purposes, such as highways and cancer research.

Oklahoma law requires across-the-board cuts. The amount the legislature can spend is set by the Board of Equalization in February, based on revenue estimates, Ashley said. By statute, when revenue falls short of projections, as it has the last two years, every agency that is funded by the state's general fund is cut.

In the 2002 fiscal year, agencies were cut 3.8 percent for the year. But because the cuts fell later in the year, agencies had to cut their budgets by 16.8 percent in the last months of the year, Ashley said. This year, agencies have been cut 7.85 percent, and agencies will have to reduce their spending by 13.74 percent in April, May and June.

The cuts apply to K-12 education, which is 40 percent of the general fund, Ashley said. Oklahoma has less local government revenue sharing than some states, but programs such as regional economic development agencies were affected by cuts.

Oklahoma has been using its rainy-day fund, but has not tried to tap its highway fund to fill the budget gap, Ashley said.

One measure under consideration for the coming fiscal year is refinancing of millions of dollars of state bonds to take advantage of lower interest rates, freeing money now used for debt service for other purposes. It could save Oklahoma as much as $90 million, Ashley said.

As for "budget enhancements" or "revenue enhancing measures," such as delaying payments and tax refunds, or accelerating taxes, "We have not been that extreme," Ashley said.

Colorado

Colorado's budget gap was estimated at $1.2 billion in January.

The state did not raise taxes last session. Nancy McCallin, director of the Office of State Planning and Budgeting, said the governor opposed raising taxes, and any increases would have to be approved by the voters.

Last year, Colorado balanced its general fund by using $1.1 billion of one-time money from other state funds, McCallin said. About half of the total was from the state's reserve fund. Other funds used were the tobacco settlement fund and workers' compensation funds. The state did not use its highway fund because the state constitution requires that it be spent on roads.

The current year's budget was out of whack from the start as revenue continued to fall, McCallin said, so across-the-board cuts were necessary.

K-12 education was not affected because the state constitution requires K-12 funding to increase by 1 percent over the rate of inflation. Some social services were also exempt from the cuts.

Higher education took substantial cuts, which were partially offset by tuition increases. Construction projects were put on hold.

"We made a lot of tough cuts here and were not real popular," McCallin said.

Some "accounting gimmicks" are under consideration, McCallin said. About $90 million of spending would be shifted from the current fiscal year to the next by delaying state employee paychecks one day, from June 30 to July 1. And a change in the method of accounting for Medicaid payments would shift $77 million.

Missouri

Missouri's budget gap was estimated at $1.3 billion in January.

Missouri didn't raise taxes last year. The state constitution requires voter approval of tax increases over $75 million, and voters last year rejected increases in the gasoline and tobacco taxes.

This year Gov. Bob Holden proposed raising about $700 million in higher taxes. Proposals included a 55-cent-a-pack increase in the state's cigarette tax, and higher taxes on gambling casinos, larger corporations and wealthy individuals.

Holden also recommended $280 million of spending cuts, much of them from Medicaid, and reducing the number of state employees

But the legislature is looking instead at deeper cuts, including about $351 million from K-12 education and $100 million from higher education.

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