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Political Memo: States’ Money Woes Show No Favorites

The governors who gathered here over the weekend for the summer meeting of the National Governors Association have all been scathed by the unpopular things they have had to do to keep their budgets in balance. For the veterans, it was just the latest in a series of tough years. For the rookies — 29 new governors took office this year — it was their first taste of state budget battle.

“It’s funny, here I am, I’m six months into it and I don’t think of myself as a new governor anymore,” said Gov. Dannel P. Malloy of Connecticut, a Democrat who took office this year and closed a gaping deficit with a blend of tax increases, service cuts and union concessions.

Since the unions have failed to ratify the agreement he made with their leaders, he now faces the prospect of having to lay off more than 5,000 state workers. “It’s been that kind of six months,” he said.

Now, more than a dozen governors of both parties said in interviews here, states are going to have to adjust to what some are calling the “new normal”: the strong likelihood that they will be asked to make do with less federal aid. It is not just the end of the stimulus money, which has helped keep many states afloat but is now mostly gone. Governors are closely watching from their statehouses as the debate in Washington increasingly centers on what further cuts to make.

“It’s like falling off a cliff,” said Gov. Christine Gregoire of Washington, a Democrat. “And we’re going to be at the bottom of that cliff for a long time in our relationship with the federal government. And whatever they’re going to decide in the way of cuts, I hope they understand the implications to the states and what it’s going to mean on the ground out here.”

Gov. Terry E. Branstad of Iowa, a Republican, said, “I think we’ve got to recognize that the federal government is never going to be able to deliver what they promised.”

The uncertainty over federal cuts — both Democrats and Republicans in Washington have called for cutting $100 billion from Medicaid over the next decade — is clouding the outlook for states even as their tax collections are slowly climbing back toward their pre-recession levels.

There was a partisan divide here over how to react to the expected new austerity. Democrats, for the most part, called for the federal government to balance cuts with taxes, so services could be preserved. Republicans, on the other hand, opposed higher taxes, and said that they would be able to manage with less federal money as long as the federal government also gave them the flexibility to spend less money on required programs.

Some Republicans — including Gov. Gary R. Herbert of Utah, who surprised his guest governors when a stunt double posing as him did a ski jump — say they support amending the Constitution to require the federal government to balance its budget. That would almost certainly result in a steep decline in aid to states.

But Mr. Herbert said that he still worried about the potential impact of some federal cuts.

“In order to get our fiscal house in order, the federal government is going to have to do what they need to do,” he said. “And if they’re going to have us administer federal programs, it helps if they don’t balance their budget on our backs. That would not be fair, either. But everyone needs to tighten their belts.”

Many governors rattled off the cuts they had reluctantly made, or the taxes they had reluctantly raised, to keep their states going after a downturn that included the deepest and longest declines in state tax collections on record. Ms. Gregoire lamented that she had put a big hole into her safety net by ending a program that sent checks to unemployable adults. “These are folks who, without anything, will probably go homeless on the streets,” she said.

Cutting access to Medicaid was a tough decision, said Gov. Jan Brewer of Arizona, a Republican. The state had expanded access in flusher times, but now, after selling off state office buildings, winning passage of a temporary sales tax increase to help finance education and making cuts elsewhere, she said that there were few options open to her.

“That was, of course, very, very difficult, but we had no other choice but to address that issue,” Ms. Brewer said of the Medicaid cuts, which are being challenged in court. “We were kind of caught in a situation where, although people felt it was a good thing that we were able to do that, we weren’t financially able to continue that. So we had to go in and remove it.”

For Gov. Martin O’Malley of Maryland, a Democrat, one of the hardest cuts he made was closing a mental health center on the state’s Eastern Shore that he said had helped many vulnerable people.

“Not easy,” he said. “I still remember one of the letters I was given by a guy who went through that center. It said we all face a fundamental choice in life. We can either be bitter about what we’ve lost, or focused on what we have.”

Article source: http://feeds.nytimes.com/click.phdo?i=921e16f18d576b0a4ab685a3f364f8cd

Beneath Connecticut’s Image of Affluence, Deep Fiscal Pain

The reality is different. For the past two decades, the state has finished dead last nationally in creating new jobs. A recent forecast by an industrial consulting firm, IHS Global Insight, projected it would also finish last in job creation over the next five years.

Connecticut’s finances are among the most troubled in the nation: it is last or close to last in financing pension obligations and retaining reserves for emergencies, and near the top in per-capita debt. And on Tuesday, Moody’s lowered its outlook for the state’s bond rating to negative from stable.

Despite already passing the largest package of tax increases in state history, legislators must return to Hartford on Thursday after an agreement with the state employee unions imploded. But the unbalanced budget is hardly the only problem. Connecticut, despite its affluent image and past successes, is facing a startling series of economic and fiscal challenges that it now has no option but to confront.

“No state had more resources and did less with them over the past 20 years,” said William E. Curry Jr., a former Democratic candidate for governor who now writes about state and national politics. “Yeah, we wiped out in finance and real estate, but the real problem was our own poor choices.

“We tried to import jobs you must grow yourself. We tried to save cities with ballparks and convention centers. We borrowed like shopaholics, shortchanged pension funds and barely showed up for collective bargaining.”

Gov. Dannel P. Malloy, a Democrat elected last year, recommended this week that the state eliminate 6,500 jobs — 5,500 through layoffs and the rest by attrition — to help close a projected $700 million deficit in the coming year. The hole was created last week when unions rejected a plan, negotiated by their leaders, that called for wage freezes for two years and a no-layoff guarantee for four years, as well as concessions on pensions and health care. Though 57 percent of union members approved the plan, it failed because collective bargaining rules required that at least 14 of the 15 unions ratify it and that the approving unions represent 80 percent of workers.

The stakes are enormous for Mr. Malloy, who has built a Connecticut-esque image as a rare governor charting a balanced path amid anti-union sentiment; for Democrats who control the legislature and have close ties to the unions; and for the unions themselves, which infuriated many allies by turning down a deal seen as far better than those being offered in other states.

After approving large tax increases this spring, mostly on sales and services, Mr. Malloy has said he would reject any additional ones. And though he was elected with strong union support, he said Wednesday that he now wanted to impose benefit cuts on the unions and would ask the General Assembly to pass legislation changing the way employees’ pensions are calculated, reducing their sick days and freezing longevity payments.

But, according to many experts, the stakes are highest for the state itself. After two decades of stagnation, they say, the state cannot afford the short-term torpedo of mass layoffs at a time of high joblessness; the long-term hit of chaotic, ineffectual state government; or the old option of papering over liabilities with gimmicks and debt.

Fred V. Carstensen, director of the Connecticut Center for Economic Analysis at the University of Connecticut, said the state faced two major, interrelated problems.

The first is fiscal. Due in large part to a 20-year labor agreement negotiated by Gov. John G. Rowland in 1997, Connecticut has been locked into an increasingly untenable relationship with its employees. Under that contract, the state is obligated to pay 10 times as much for employee pension costs as workers do — the second-highest ratio among the 10 largest state pension systems, after Florida. But it has not been paying what it owes into the pension system. A 2010 report said Connecticut had the second-highest unfunded pension liability per capita in the country, after Alaska, at more than $4,500 per resident.

Article source: http://feeds.nytimes.com/click.phdo?i=86f2e333589ea7d89f479c19b03844f4

Political Memo: States’ Money Woes Show No Favorites

Beneath Connecticut’s Image of Affluence, Deep Fiscal Pain

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