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Every year we compile a list of issues that Consortium members would like to see addressed in the next legislative session. This year is a short session which means that no new bills can be introduced. We will have to spend most of our effort maintaining current funding levels and seeking some budget adjustments. I have attached a list of recommended agenda items that the advocacy committee compiled. We are asking you as a consortium member to submit any other agenda items you would like to see considered by January 12, 2003. Once we have compiled all the recommendations that can be addressed in a short session we will send the items out to Consortium members to vote for the top 4-6 items they feel are most important. Those items will serve as our primary legislative agenda.
I have attached two articles below that address the financial situation of the state. Please keep this information in mind when you make recommendations as any expansion item that is recommended will be met with great resistance. It is likely that much of our efforts will be spent in just trying to prevent cuts (particularly in Medicaid) to current budget line items. The first article attached discusses the large budget shortfalls for some states. Please note that North Carolina is one of the larger projected shortfalls at $775 Million - the NC Tax and Budget Center has projected that it could possibly be as much as a $1 Billion dollar deficit. The second article specifically address that cuts will be recommended to Medicaid this session.
As always, please feel free to contact with questions or for additional information.
Thanks,
Karen
STATE BUDGET DEFICITS CONTINUE TO THREATEN PUBLIC SERVICES
By Nicholas Johnson
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Many states — including California, Georgia, Illinois, Michigan, New
Jersey, New York, North Carolina, Virginia and others — are facing
potentially large budget shortfalls for state fiscal year 2005, which begins
in most states July 1, 2004. In 21 states where shortfalls have been identified,
the amounts total about $40 billion to $41 billion. This represents about
11 percent of those states’ expenditures. (If California is excluded,
the deficits average eight percent of the other 20 states’ expenditures.)
As more states issue new budget and revenue forecasts over the coming weeks
and months, the aggregate total could increase to $50 billion or more.
The new deficit amounts are on top of the estimated $78 billion in shortfalls
that states faced when they enacted their fiscal year 2004 budgets, as well
as large deficits that were addressed in fiscal years 2002 and 2003. The
National Conference of State Legislatures estimates that over the last three
years, states have had to close a cumulative budget gap approaching $200
billion.
The new shortfall projections suggest that many states will need to raise
taxes or enact additional spending cuts in the coming fiscal year to keep
their budgets in balance. Already, nearly every state has cut spending,
and many have raised taxes. Adjusted for inflation, state general-fund spending
per capita is down some 5 percent since 2001, despite rising costs and demands
for public services. State tax increases implemented since late 2001 in
some 30 states are expected to increase state revenues by roughly $18 billion
by fiscal year 2005. Yet the new shortfall estimates show that those measures
in many states will not be sufficient.
Shortfalls are continuing into FY 2005, despite recent and projected economic
growth, for several key reasons:
Although the decline in state revenue collections seems to have bottomed
out, collections are at best rising slowly in most states. The Rockefeller
Institute of Government reports that in the most recent quarter, state tax
revenue adjusted for inflation and legislative changes was only 0.6 percent
higher than in the same period in 2002. This low rate of growth occurred
despite an 8.2 percent increase in real GDP.
Recent Reports Express Significant Concern about State Budgets in 2005
“Comprehensive information is not yet available on the outlook for
FY 2005 budgets. Anecdotal information suggests, however, that problems
will persist well into the coming fiscal year. One fiscal officer said,
‘We’re okay for FY 2004. Our real problems will hit in FY 2005.’”
— National Conference of State Legislatures, State Budget Update:
November 2003.
“The adopted budgets for 2004 included sharper spending cuts and larger
tax increases than 2003 budgets, but … states will be back at the
negotiating table in just a few months to present their FY 2005 budgets,
and will be facing more gaps and difficult decisions. Even that will not
be the end of it... Continuing policy response to the crisis could take
another two years or more….
“The conclusion we reach, and we would print this in red if we could,
is that despite the welcome economic recovery, this is still crunch time
for state and local finance and public services. Furthermore, states and
their citizens will probably continue feel the crunch for quite some time
to come.”
— Richard P. Nathan et al., It’s Crunch Time for State Budgets,
Nelson A. Rockefeller Institute of Government, November 2003.
Such slow rates of revenue growth are insufficient to keep pace with the
normal growth in the cost of public services stemming from caseload changes,
health-care inflation, and other pressures. Large as the spending cuts over
the last several years have been, the cost of public services in many states
remains higher than the reduced levels of revenues that most states are
receiving.
Many states are meeting their balanced-budget requirements this year (fiscal
2004) in part with reserve-fund transfers or other one-time budget actions
(such as accelerating revenues and deferring spending). The shortfall estimates
reflect in part the fact that those one-time maneuvers will not be available
next year.
The federal government is presently providing $20 billion in fiscal relief
to states spread out over 18 months. Most states are assuming that the relief
will expire at the beginning of fiscal year 2005 and therefore not be available
to help fill budget shortfalls.
Given the magnitude of the deficits, states likely will enact further cuts
to basic services such as health care and education and/or impose new tax
burdens particularly on low- and middle-income families (who have borne
the majority of the tax increases so far). Such actions already are being
taken throughout the country, as states slash health insurance programs,
cut deeply into budgets for elementary and secondary education and child
care, and force double-digit tuition increases at state colleges and universities.
The Budget Gaps for Fiscal Year 2005
In some states, such as California, Maryland, and New York, formal estimates
of fiscal year 2005 budget deficits already have been made. In other states,
this may not occur until governors’ budgets are released in winter
or early spring. Nevertheless, many states have at least working estimates
of the gap that must be closed. The Center has compiled these working estimates
from a variety of sources for 26 states, including public and private statements
of government officials, information from nonprofit organizations that work
on budget issues, and press reports. While these estimates are subject to
change, they provide the best available information on the magnitude of
the problems states are facing for the upcoming fiscal year. In most cases,
the estimates reflect both lagging revenues and the impact of inflation,
population growth, and other factors that increase costs. Out of 26 states
for which some information is available, 21 states anticipate fiscal year
2005 deficits totaling some $40 billion to $41 billion, or about 11 percent
of those states’ general fund spending. (The 26 states include most
major industrial states.) Excluding California, the average shortfall is
roughly 8 percent. If that 8-percent average holds true for the remaining
states, the total state shortfall could equal $50 billion or more.[1]
In addition, a substantial minority of states budget on a biennial basis,
meaning that the budget actions they took in the spring of 2003 had the
effect of balancing their budgets (at least prospectively) through the end
of fiscal year 2005. Some of those states may nonetheless need to cut spending
or raise revenues to keep their budgets in balance if revenues fall short
of projections. Moreover, it is possible that at least some of those states
will again face shortfalls in their next budget cycle — that is, for
the FY2005-07 biennium — because one-time sources of revenue will
no longer be available, because expenditure costs are expected to rise,
and because revenues are not expected to grow at a rate sufficient to cover
the gap. Oregon, Washington and Wisconsin — as well as Florida, which
budgets on an annual basis — are among the states where analysts already
project substantial budget gaps beginning in 2005-06.
Preliminary Projections of FY 2005 State Budget Shortfalls, Selected States
FY 2005 Deficit Projection
Deficit as Percent of General Fund
Alabama
$558 million
11%
Arizona
$800 million - $1 billion
13% - 16%
California
$17.6 billion
25%
Colorado
$200 million - $300 million
4% - 5%
Georgia
$1 billion
6%
Illinois
$3.2 billion
9%
Kansas
$600 million
13%
Louisiana
$300 million
5%
Maryland
$707 million
7%
Massachusetts
$1 billion - $1.5 billion
4% - 7%
Michigan
$1.5 billion
16%
Missouri
$800 million - $1 billion
12% - 15%
New Jersey
$4 billion
17%
New York
$5.745 billion
14%
North Carolina
$775 million
5%
Oklahoma
$300 million
7%
Rhode Island
$154 million
6%
South Carolina
$350 million
7%
Virginia
$605 million - $732 million
5% - 6%
West Virginia
$80 million
3%
District of Columbia
$100 million
3%
TOTAL
$40.3 billion - $41.5 billion
11%
Notes: California figure includes carryover effect of projected 2003-04
deficit.
Source: Center on Budget and Policy Priorities.
--------------------------------------------------------------------------------
End Note:
[1] This estimate takes into account that several states, including Oregon,
Texas, Washington and Wisconsin, resolved their FY 2005 budget gap in the
last budget cycle and therefore are no longer projecting a shortfall for
that year, assuming revenues meet projections.
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N.C. center: $217 million cut in health, human services
By Rob Young, The Greenville Daily Reflector - 12-2-03
The North Carolina Budget and Tax Center said the current state budget reflects
a $217 million cut in health and human services — the largest reduction
in the two-year plan.
Officials from the Raleigh-based nonprofit group visited Greenville on Monday
to explain how the budget affects nonprofit agencies that get state funds
and residents who receive state services. About 30 people attended the session
at East Carolina University's Greenville Centre.
Elaine Mejia, project director for the center, expects an "unprecedented
shortfall," including cuts to transitional Medicaid benefits and Smart
Start, the state's early childhood health and education initiative.
Smart Start funding has been reduced 38 percent from its highest level three
to four years ago, she said.
Mejia also named several underfunded areas, including mental health reform,
the juvenile justice programs, facilities and the community college system.
She said the state allotted about $10 million for building maintenance when
much more is needed and that faculty members in the community college system
make "abysmally low" salaries, ranking 47th or 48th nationally.
About five months into the fiscal year, Gov. Mike Easley has withheld an
additional 2 percent from agency budgets, Mejia said.
But not all is bad. Teachers have received pay increases, the Children's
Health Insurance program remains funded, and the retirement system is strong.
"North Carolina is considered one of the most solvent of retirement
systems," Mejia said.
The cuts stem from a state economy in recovery, Sorien Schmidt, attorney
for the center, said.
The current recovery is the weakest since the Bureau of Labor Statistics
began tracking monthly data in 1939, making it feel more like a recession.
More than 250,000 North Carolinians are unemployed and 121,000 manufacturing
jobs have been lost since the recession began in March 2001.
It lasted until November 2001.
Service jobs largely have replaced manufacturing jobs, marking a decrease
in pay, drawing many families into poverty, Schmidt said.
She said the U.S. economy is at a crossroads with the signals positive,
but not definite. The economy is growing, just not quickly enough to generate
jobs, he said.
"The recovery is still rather jobless for North Carolina," Schmidt
said.
Mejia said future health and human services funding depends on the strength
of the economic recovery.
"How it translates into growth is difficult to say," she said.
The United Way of Pitt County, the Greenville-Pitt County Chamber of Commerce,
East Carolina University Economic Development and Community Engagement and
the United Way of North Carolina co-sponsored the seminar.
Monday's presentation was one of seven talks given by the center this year.
It marked the first discussion "in many years in Pitt County,"
Henry McNeese, Pitt County United Way president, said
