US States Fiscal Issues

We've been talking a lot on here recently about multiple financial crises that are looming over several states. I find it encouraging that here in Alabama our Republican governor is making one of the best appeals I've seen for increasing taxes as a possible solution rather than more tax or funding cuts. Mind you, I completely disagree with the taxes he's targeting and I disagree with almost all of his other positions but at least he's trying to smack the "No new taxes!" people in the face with reality.

Gov. Robert Bentley, who discussed the crisis facing Alabama's General Fund and his solution to the problem, told north Alabama business and community leaders that serious state cuts are on the way if lawmakers don't pass his proposed $541 million tax package.

...
1) The morgue in Huntsville will close. ...
"It's going to take a long time to get an autopsy done and it may take a year to get a death certificate," he said. "When you delay all of those type things, that affects you personally."

2) The Department of Human Resources will suffer. ...
Bentley said 400 adults in need of day care will have to go to nursing homes and 30,000 children will be without food stamps.
...

3) There will be significant changes to the court system.... Staffing will be cut at all of Alabama's 67 courthouses, resulting in about 600 layoffs.

"I can tell you lines will be longer and waits will be longer for restitution, child support, divorce -- all of those things that courts deal with every day," he said.

He goes on to list how cuts to the Alabama Department of Environmental Management, mental health treatment, veterans services, the department of conservation and the prison system would affect people in their day to day lives. The article ends with this:

Bentley said it's "easy to dig your heels in and say, 'I will not do this. I will not change my mind. I will not look at the facts. I will not look at what's best for this state. I will not because I signed some kind of stupid pledge 10 years ago that said I will not raise taxes.'"

"Well, I signed one when I ran the first time, but I didn't sign it the second time," he said. " ... It's easy to say no, folks. It's harder to be bold and to look at what the real problems are and try to solve problems."

While the governor is making these appeals, which I applaud him for, the lawmakers are completely against it. They've begun talking about a possible solution that they may put forward next year which is another constitutional amendment, to the the nations already largest state constitution, to completely scrap the current tax code and just go to a flat tax which, of course, would also be considered a tax cut.

Hightower's proposal is a model of simplicity. All an Alabama taxpayer would do is to take the "adjusted gross income" from page one of his federal 1040 tax form, multiply by .0275 – and send it in. No complicated assessments of what's taxable. No 15 pages of state tax forms. No payments to accountants to calculate your state taxes. Whatever deductions (for charitable donations, dependent exemptions, etcetera) you've already taken for your federal returns would already be baked into the pie.

Meanwhile, your overall rate would drop. Rather than paying $500 on $10,000 of taxable income, you'd pay just $275. For most taxpayers (ones without large state deductions or exemptions), it would amount to a significant tax cut. For most taxpayers, it would save significant amounts of effort and time, maybe hours.

...

But the state treasury wouldn't lose any revenue. By this system's elimination of some $2.8 billion in deductions and special exemptions, the state would still be able to collect its current $3.6 million in individual income-tax revenue even at the lower rate. In other words, it's "revenue neutral," even without (or before taking into account) any "dynamic" effects from economic growth.

Kansas just discovered that expected tax revenues fell short another $200 million, meaning the state is going to have find a way to either raise taxes or cut spending to fill what has now become a $400 million budget hole for the next two fiscal years.

While the state has dramatically slashed business, income, and property taxes, it has had to offset those revenue decreases with increases to sales, sin, and other taxes.

Lawmakers say they want to protect education, which has already been hit by previous cuts, and they have already made significant changes to Medicaid. Those two items account for about 70% of the state's budget meaning that closing that $400 million hole is going to seriously wreck a lot of state programs and services.

In the case of Kansas, the burden of funding the state has shifted dramatically from businesses and the wealthy to falling almost entirely on the shoulders of the middle class. It's also highly regressive to slash business and income taxes while raising sales taxes because all that does is increase the tax burden on the poor and middle class.

OG_slinger wrote:

In the case of Kansas, the burden of funding the state has shifted dramatically from businesses and the wealthy to falling almost entirely on the shoulders of the middle class. It's also highly regressive to slash business and income taxes while raising sales taxes because all that does is increase the tax burden on the poor and middle class.

If that is your goal to begin with, the plan is working just as hoped.

I thought this thread was going to be about student loans, actually. This is equally depressing.

Louisiana, another supply-side experiment, made the news today.

They're facing a $1.6 billion budget shortfall and are toying with the idea of partially closing that gap by slashing upwards of $370 million from higher education. That triggered Louisiana State University to announce that it might be forced to file for financial exigency, which is basically academic bankruptcy.

Under the proposed budget, LSU and other universities are facing an 82% cut in state funds, from $3,500 per undergraduate student to $660 per undergraduate student next year.

Those deep cuts come on top of already severe cuts to state funding. Since 2008 Louisiana has cut higher education to the tune of $4,700+ per student.

In LSU's defense, maybe if they beat the Crimson Tide once in awhile, they'd earn some of that cash.

At what point are these schools no longer 'public universities'? I mean $600 per student? Just go private and free yourself from all of the regulatory shackles of a state school.

Illinois Governor’s Proposed Cuts Put Children and Families at Risk
(K. Sujata, RH Reality Check, 2015-04-30)

... Gov. Bruce Rauner (R) declared firmly during his budget address earlier this year that “this is our last, best chance to get our house in order.” He did so while introducing a series of cuts to vital services for our region’s most vulnerable, including the elderly, homeless people, women, children, and individuals with disabilities. ...
Hypatian wrote:

Illinois Governor’s Proposed Cuts Put Children and Families at Risk
(K. Sujata, RH Reality Check, 2015-04-30)

... Gov. Bruce Rauner (R) declared firmly during his budget address earlier this year that “this is our last, best chance to get our house in order.” He did so while introducing a series of cuts to vital services for our region’s most vulnerable, including the elderly, homeless people, women, children, and individuals with disabilities. ...

That's what happens when the political machine continues to back incompetent incumbents. Pat Quinn was a miserable governor and had no business running for re-election. Now a pretty blue Illinois is going to get 4 years of being run like Kansas or Wisconsin.

Maybe this is the right thread for this.

Kansas capping ATM withdrawals for welfare benefits. Effectively this either cuts into their benefits to give a cut back to the bank or prevents them from using cash to pay for things like monthly bills.

That goes right along with the popular misconception that everyone on welfare is a drug addict living a lavish lifestyle on taxpayer money and that somehow that's where a big chunk of our government dollars are getting wasted. We Americans love punishing the poor for being lazy enough to allow themselves to become poor. (yes, that was sarcasm but also seemingly true for many people)

Well, the fight that I initially started this thread about, the shortfall in the Alabama budget, has come to a close. Well, kind. The governor argued that taxes had to be raised despite whatever "no new taxes" pledges politicians might have taken. Here's what happened.

They voted to raise the cigarette tax by 25 cents a pack, generating an estimated $70 million a year, and to move $80 million in use tax revenue from the Education Trust Fund to the General Fund.

New taxes on pharmacies and nursing homes would generate a total of about $16 million a year for Medicaid.
...

It would also provide level-funding for the state court system and for prisons, plus additional money needed for reforms intended to reduce prison crowding.

"All those services being level-funded was a great achievement, I think, by the Legislature, to get that done," Orr said.

Other agencies were generally cut by about 5.5 percent, although that varied, Orr said.

Hmm cigarette taxes are basically a tax on the poor, and then you take money from schools so their children stay poor. Win-win!

The budget crisis in Illinois has gotten so bad that the state lottery is now giving IOUs to anyone who wins a prize over $600.

The state lottery is estimated to have not paid out $300 million in winnings since June 30th, which was when its last approved budget ended.

Honestly, if a criminal gang ran a numbers book that way, no one would buy tickets after the first week of non-payment. They should shut down the lottery if they can't pay out.

I stopped in the gas station this morning and sure enough there was one other person in there and she was buying scratch tickets.

Most people probably don't know the state isn't paying out. I didn't until yesterday and I'm probably far more well informed than your average scratch ticket connoisseur.

Eh, as bad as Illinois is, this is a process issue not funding. The money is there but cannot be legally paid out per the article.
I miss living in Illinois sometimes, then I find reminders to get over it.

Exactly. It's a bit misleading to say 'The budget crisis is so bad that state lottery is giving out IOU's'. Sure it's technically accurate, but totally missing the point.

article wrote:

“Payment delays will occur because there currently is no legal authority for the Illinois Comptroller or the Illinois Lottery to issue checks,” the Illinois Lottery said in a statement. “Please note that the funding to pay winners exists, but the legal authority to issue checks does not.”

The lottery said the payments will be made once a state budget is passed.

I don't think it's misleading.

It's the middle of October. Illinois should have had an approved budget more than four months ago. But it doesn't. The piecemeal funding that has been approved to make sure the schools stay open, the cops still patrol, the vulnerable get taken care of, etc. also means that the state is on track to have a deficit this year: anywhere between $4 billion to $9 billion depending on who you talk to.

And on top of that the state still has a wee bit of a problem caused from years of using accounting tricks to balance the budget by underfunding the state pension system. Taxpayers now need to contribute over $110 billion to the state pension fund to make things right. That's nearly equal to two entire years of state tax receipts.

Oh, I'm not trying to downplay the actual fiscal crisis the state is facing. Just pointing out that the clear implication of your statement was that the state is unable to pay lottery winners due to lack of funds as opposed to the truth which is that a legislative crisis will prevent clerks from writing checks.

You may not have intended it that way, but it's definitely the way I first read it and it seems like a normal conclusion to draw from the original statement.

That said, I know Illinois is in the worst shape and a lot of people are looking to see how the state handles it as an indication of whether or not states can default on these obligations or how far they can be restructured and still adhere to the letter of the obligation. It's going to be rough no matter how it happens and a lot of people are going to be upset.

How does a state with a $55B budget possibly have a $9B deficit? That is like a 20% shortfall!

If only they would cut taxes. Then they would have more money.

LeapingGnome wrote:

How does a state with a $55B budget possibly have a $9B deficit? That is like a 20% shortfall!

No new taxes or no raised taxes. Ever. Anywhere. No matter what.

Thanks, Grover.

LeapingGnome wrote:

How does a state with a $55B budget possibly have a $9B deficit? That is like a 20% shortfall!

It passed some rather hefty income and business tax cuts last year so tax revenues are coming up short. Also, in lieu of an actual budget the state legislature is just authorizing spending as it sees fit (and is overspending).

And the Illinois Supreme Court declared a pension reform law (which would have allowed the state to underfund state pensions even more) unconstitutional, which increased the amount of money the state needed to pay by a cool billion.

I know it is Illinois, but man, the mismanagement has to stop sometime.

I'm not sure there's any state that honestly has their fiscal sh*t together.

The current governor is Republican, even with Chicago's reputation. So, once again, we see the results of massive tax cuts as a policy.

I swore illinois passed some business tax increases a couple years ago. And Chicago had a sales tax increase. Not sure how to check? Feel crazy.

All true. But remember despite what it seems (and is often the cause of the fighting), Chicago and Illinois are not completely interchangeable.

But the business tax increase was all illinois...