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How the Great Recession is Redefining State Government GOVERNING Outlook February 1, 2011 Washington, DC John Thomasian, National Governors Association,

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Presentation on theme: "How the Great Recession is Redefining State Government GOVERNING Outlook February 1, 2011 Washington, DC John Thomasian, National Governors Association,"— Presentation transcript:

1 How the Great Recession is Redefining State Government GOVERNING Outlook February 1, 2011 Washington, DC John Thomasian, National Governors Association, Center for Best Practices

2 Key Points Economic landscape for states Response to date What the new State of the State addresses tell us Looking Ahead



5 States Already Through Two Years of Budget Cuts Corrections K–12 education Higher education Employee costs Shared services and agency consolidation Privatization and asset sales Tax expenditures

6 Corrections 40 states made program area cuts to corrections Prison Closures (CO, CT, LA, MI, NV, NY, WA) Sentencing Reform, Parole and Probation Reform (AL, AZ, CA, HI, KS, NY, SC) Releasing Nonviolent inmates to community supervision (CO, VA, VT, WA) Graduated Sentencing (HI) Incentives for Local Governments (AZ, CA, IL) Early Release, Geriatric Care (AL, CA, ID, MI, NY, NC, VA, WA)

7 K-12 Education 39 states made broad program area cuts to K-12 Changes to School Aid (FL, RI, TX, VA) School District Consolidation and Shared Services (MA, ME, MI, MS, OR) Teacher and Administrator Compensation (GA, IN, NJ, VT) Changes to K-12 Programs and Policies Virtual Learning, Digital Textbooks (CA, GA, TX, VA) Noncore program cuts, e.g., summer and after-school

8 Higher Education 39 states cut higher education budgets Many Reviewing State Higher Education Systems (KY, LA, ME, VA, WA) and eliminating unproductive programs and Majors States Instituting Salary freezes, furloughs, and layoffs (AZ, CT, NJ, PA) Calls for Increasing Performance (CA, CO, FL, GA, IN, LA, MO, OR, PA, SD, TN) Giving more weight to degrees in the funding formulas Relying more heavily on community college systems

9 State Employee Costs 26 states instituted furlough days during 2009 and 2010 Many states significantly reduced workforces (IA, IN, NY, NJ, CA) 15 states made salary reductions during 2009 and 2010 (NJ, WA,VT) 18 states reformed some aspect of their pension systems during 2009 and 2010

10 Employee Costs

11 Shared Services/ Consolidation At least 17 states consolidated or eliminated agencies identified as duplicative or nonessential Combining services in IT and back-office functions (CA, WA) Consolidating Agencies (IA, MA, MI, WA) Eliminating Nonessential Boards and Commissions (NJ, MI, WA)

12 Privatization and Asset Sales Outsourcing State Services (GA, IL, NJ, VA) Private firm to run state lottery (IL) Private firm to manage rest stops (GA) Privatizing State Functions (AZ, LA, NJ) State Privatization Commissions (AZ, NJ) Liquor sales (NC, VA, WA) Asset Sales (CA, CT, MO) Real Estate Management (DE, GA, LA)

13 Tax Expenditures California is considering a plan to delay corporate tax breaks in 2011 Georgia state legislators did not renew the back-to-school tax break weekend Hawaii may repeal tax exemptions for nonprofit organizations Missouri Governor Jay Nixon formed a commission to review and scale back tax expenditures in 2011 Oregon is considering a temporary reduction of the residential energy tax credit Pennsylvania has proposed eliminating a provision in the state’s tax code that gives large vendors, such as Wal-Mart or Home Depot, a 1 percent discount for remitting their sales tax to the state on time.

14 SoS: General Budget Conditions Governors talking about “staggering” and “historic” budget shortfalls that will require tough choices in 2011. New Mexico Governor Susana Martinez: “We must not sugarcoat it: New Mexico is in a state of financial crisis.” New York Governor Andrew Cuomo: “You can’t make up these kinds of savings over this long of period of time through a budget cutting or trimming exercise. We are going to have to reinvent government.” Oregon Governor John Kitzhaber: “For better or for worse, the Great Recession has leveled the House of Oregon to its foundations and has given us the opportunity to rebuild it for the 21st century. This is the legislative session when we stop kicking the can down the road and start reshaping Oregon's state government.” Connecticut Governor Dan Malloy: “We’re not just cutting for cutting sake, but re-conceiving government so that better decisions are made and implemented faster.”

15 Job Creation Job creation is cited as a priority by virtually every governor but options are limited. Kansas Governor Sam Brownback proposing 3 year, $105 million University Economic Growth initiative and creation of new Governor’s Economic Council with private sector. The governor plans to pay for job creation efforts by eliminating corporate tax subsidies. Nebraska Governor Dave Heineman proposing a $7 million research and innovation initiative to leverage entrepreneurship and a Nebraska Internship Program that would support some of the salary of college seniors interning in Nebraska businesses. Nevada Governor Brian Sandoval proposing to replace the Commission on Economic Development and replace it with a cabinet-level private-public partnership, Nevada Jobs Unlimited. New York Governor Andrew Cuomo will create a new competitive environment among the state’s regional development councils, challenging each to come up with job development plans and then compete against the other councils for up to $200 million in funding. Virginia Governor Bob McDonnell calling for $54 million in new state funding to support job creation through various efforts, including a $25 million for a Virginia Research and Technology Innovation Program.

16 K-12 Goals: Maximize state resources in the classroom; change the way teachers are paid; and expand school choice, with a heavy emphasis on charter schools Washington Governor Chris Gregoire presented a sweeping proposal to create one agency, the Department of Education, to comprise one, seamless education system from pre-school to Ph.D. New York Governor Andrew Cuomo proposes a $250 million competition for administration efficiency to reward districts that can find administrative savings through efficiencies, shared services, etc. Nebraska Governor Dave Heineman proposes an $8.5 million initiative to develop a virtual high school using lottery funds. New Jersey Governor Chris Christie stated, “The time to eliminate teacher tenure is now.” Indiana Governor Mitch Daniels has added that in addition to charter school options, the state should allow families to “apply dollars that the state spends on their child to the non-government school of their choice.”

17 Higher Education Performance-Based Funding Arkansas Governor Mike Beebe proposed tying funding to completion and graduation rates instead of enrollment. North Dakota Governor Jack Dalrymple will ask the board of higher education to develop a funding methodology that is based on the outcomes that education leaders and citizens would like to see from their college campuses. Other Investments in Higher Ed Virginia Governor Bob McDonnell called for a new $50 million investment in higher education. The new dollars will be targeted to undergraduate financial aid and funding incentives for efficiency and economic development, technology, increased four-year graduation rates, year round use of facilities and degree attainment. Nebraska Governor Dave Heineman proposed a one-time $25 million investment in the University of Nebraska’s Innovation Campus. The governor is not proposing any reduction in higher education funding for the University of Nebraska, the state colleges, and Nebraska’s community colleges.

18 Medicaid Arkansas Governor Mike Beebe is looking at ways to move from an unsustainable fee-for- service model toward one that rewards results and not just treatment in Medicaid services. Delaware Governor Jack Markell called for common-sense reforms to make Medicaid more efficient and to better control its costs. Georgia Governor Nathan Deal said addressing Medicaid is a top priority of this administration. Kansas Governor Sam Brownback: “Next year, Medicaid will command over 18% of the state general fund, and the program is growing faster than the economy.” Mississippi Governor Haley Barbour announced plans to place 7,800 Medicaid beneficiaries into community care. New York Governor Andrew Cuomo has created a Medicaid Redesign team to find efficiencies in the program to provide a better service for less money. Virginia Governor Bob McDonnell proposed managed care and other new incentives to control costs for the Commonwealth’s entire Medicaid population.

19 Employee and Pension Costs State Workforce Georgia Governor Nathan Deal is reducing the state workforce by 10 percent by adjusting the authorized position count downward and eliminating about 14,000 positions. Kansas Governor Sam Brownback’s budget proposal will eliminate over 2,000 unfilled employee positions. Nevada Governor Brian Sandoval announced that state employee salaries will be reduced by 5 percent this year to avoid layoffs and furloughs. Virginia Governor Bob McDonnell calls for making the state’s current hiring freeze permanent. Pensions and Benefits- Governors are raising the retirement age, reducing benefits, and increasing employee contributions. Hawaii Governor Neal Abercrombie is proposing to end reimbursement of Medicare Part B benefits. Virginia Governor Bob McDonnell proposes to increase employee contributions to 5 percent. Indiana Governor Mitch Daniels said, “The conflict of interest when double-dipping government workers simultaneously sit on city or county councils, interrogating their own supervisors and deciding their own salaries, must end.”

20 Redesign Consolidation and Elimination New York Governor Andrew Cuomo created a Commission on Spending and Government Efficiency (SAGE) to reduce the number of agencies, authorities, and commissions by 20 percent. Nevada Governor Brian Sandoval’s budget recommends the consolidation, elimination, or centralization of 20 departments and agencies. The governor also announced plans to introduce legislation that sunsets every existing licensing and advisory board. Virginia Governor Bob McDonnell proposed to consolidate or eliminate dozens more boards this session. Downsizing the Governor’s Office California Governor Jerry Brown is cutting staff in the governor's office by 25 percent, closing three of the governor's regional offices and reducing staff in the Washington, D.C., office. New Mexico Governor Susana Martinez cut costs at the governor’s residence by 55 percent, cut her own salary by 15 percent, and every member of her cabinet has agreed to cut his or her salary by at least 10 percent. South Dakota Governor Dennis Daugaard cut the governor’s office budget by ten percent overall. Streamlining Processes Kansas Governor Sam Brownback will establish an Office of the Repealer to identify regulations or statutes for repeal. New Mexico Governor Susana Martinez proposed the Red Tape Reduction Act. New York Governor Andrew Cuomo will establish the Mandate Relief Task Force to eliminate any unnecessary state mandates by April 1, 2011.

21 Opportunities from Crisis Budget pain bringing needed overhaul to corrections policies K-12 system needs wake-up call: more online learning, digital textbooks, back-office consolidation; lower administration; collective purchasing Governors putting needed pressure on higher education to increase degree productivity, performance, relevance to state economy Political will bringing state pension policies in line with private sector Elimination/consolidation of agencies, boards, commissions overdue in many states Many tax expenditures not effective as economic development tool; need to be reviewed in many states

22 Casualties Infrastructure investments deferred; most new projects relying on private investment and user fees K-12 but particularly higher education funding beginning to be crowded out by health care costs; this will get worse Quality of life cutbacks—parks, art, revitalization suffering

23 In the Long Run Revenues will grow, but slower than in recent decades The big pivot has occurred: federal stimulus is over and traditional programs under pressure to reduce States will continue trimming for next several years because health care costs will exceed growth Health care cost containment is future battleground to achieve sustainable economy

24 How You Can Help Expect less in all program areas Expect some programs to go away Help identify priorities Join battle for health care cost containment

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