State Budgets and Legislative Update

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State debt including pension liabilities could surpass $4 trillion this year according to a report prepared by State Budget Solutions, a not-for-profit group that follows state fiscal matters and advocates for limited taxes and spending. The group combined states’ major debt and future liabilities, primarily for pensions and employee healthcare, unemployment insurance loans, and outstanding bonds. It found that in total, states are in debt $4.2 trillion. California has the highest debt, about $612 billion and Vermont has the lowest, about $6 billion.

State Budget Solutions relied on financial reports and income tax rates provided by the Federation of Tax Administrators in determining its rankings. The debt totals may be lower, though, because the group also used the highest estimates of pension gaps, a major driver of the shortfall. The conservative think tank American Enterprise Institute says public pensions are short $2.8 trillion. Others, including the nonpartisan research group Pew Center on the States, put total unfunded pension liabilities at around $700 billion.

 The wide range is based on different assumptions of the returns of pension fund investments, which provide the bulk of money for benefit payments. Conservative economists say the investments will have annual returns of around four percent, while many funds expect returns in line with the average of the last 20 years -- closer to eight percent.

As we have highlighted in the past on this blog, the housing bust, financial crisis and economic recession caused states’ tax revenue to plunge, and huge holes have emerged in their budgets for the last several years. States have balanced budgets by cutting spending, hiking taxes and using federal grants and loans. State Budget Solutions argued that the states play games with the numbers; their report found the states’ deficit calculations “do not offer a full picture of the states’ liabilities and can rely on budget gimmicks and accounting games to hide the extent of the deficit.”

 The New York Times reported earlier this week that these conditions are so bad that Rhode Island was going broke. Rhode Island General Treasurer Gina M. Raimondo warned if current trends held, the ocean state would soon look like “Athens on the Narragansett: undersized and overextended. Its economy would wither. Jobs would vanish. The state would be hollowed out.”

 She reported that Rhode Island’s $14.8 billion pension system is in crisis. Ten cents of every state tax dollar now goes to retired public workers. Before long, Ms. Raimondo has been cautioning, that figure will climb perilously toward 20 cents. “We’re in the fight of our lives for the future of this state,” Ms. Raimondo told the Times. If the fight is lost she added, “Either the pension fund runs out of money or cities go bankrupt.”

 Rhode Island has moved to safeguard its bond investors, to avoid being locked out of the credit markets. Last week, the General Assembly went into special session and proposed rolling back benefits for public employees, including those who have already retired. Whether the plan will succeed is unclear. Central Falls, a small city north of Providence, did not wait for the state to act; it filed for bankruptcy last August rather than keep its pension promises to its retired firefighters and police officers. Harrisburg, Pennsylvania filed for bankruptcy earlier this month to avoid having to use prized assets to pay off Wall Street creditors.

 Rhode Island Treasurer Raimondo said the state may have to renege on its pension obligations. When challenged publically on this as reneging on a moral obligation, she told the Times the state could pay for schoolbooks, roadwork, care for the elderly, or it could keep every promise to its retirees. She added: “I would ask you, is it morally right to do nothing, and not provide services to the state’s most vulnerable citizens? …Yes, sir, I think this is moral.”

The following states are currently in session: Massachusetts, Michigan, Pennsylvania and Wisconsin. The U.S. House and the District of Columbia Council are also in session.

 California is currently in an interim study recess.

 Illinois convened for a three-day veto session on October 25.

 Wisconsin’s special session regarding jobs that convened on October 18 is still underway.

 Rhode Island’s special session on pension reform is still in session. On Wednesday, lawmakers completed the first of three hearings. A vote on the plan is not expected for a few weeks. Public workers and retirees held rallies at the statehouse Wednesday in opposition of the legislation, which was authored by Treasurer Gina Raimondo and Independent Gov. Lincoln Chafee.

 The Missouri Senate officially adjourned the special session on October 25. According to the Associated Press, House leaders intend to simply let the special session expire automatically on November 5. The legislature failed to pass a business incentives package, which was the main objective of the special session that convened on September 6 and cost taxpayers $280,000.

 South Dakota convened a one-day redistricting special session on October 24. The House and Senate voted mostly along party lines to approve a plan to redraw the state’s 35 voting districts.

 Connecticut convened a one-day special session on October 26. The legislature approved a $626 million bipartisan jobs bill. The jobs package includes funds for business loans and grants, and infrastructure repairs. The legislature also passed a controversial $291 million bill that will bring Jackson Laboratory, a genetics-research nonprofit, to the state. According to the Wall Street Journal, the bill will give the lab a construction loan and close to $100 million in state grants. The lab is expected to add 300 jobs over the next decade. Democratic Gov. Dan Malloy issued a statement following the bills’ passage and signed the legislation Thursday.

 North Dakota and Virginia are expected to convene special sessions to address redistricting on November 7 and on a date yet to be decided, respectively.

 Nebraska Republican Gov. Dave Heineman is expected to call a special session for November 1 regarding the siting of an oil pipeline. Minnesota Democratic Gov. Mark Dayton is expected to call a special session in November to discuss the Minnesota Vikings’ bid for a new, partially taxpayer-funded stadium. Washington Democratic Gov. Christine Gregoire is expected to call a 30-day special session for the end of November to address the state’s $1.3 billion budget shortfall.

 Alabama Republican Gov. Robert Bentley has yet to decide if he will call a special session regarding Jefferson County’s financial situation. The state’s largest county is in debt $3 billion.

 The following states are expected to reconvene on the dates provided: New Hampshire (call of the chair); U.S. Senate (October 31); Wisconsin House (November 1); North Carolina (November 7) and Ohio Senate (November 9).

 Louisiana, Mississippi, New Jersey and Virginia are scheduled to hold legislative elections in November. Iowa is scheduled to hold a special election on November 8 to fill a Senate seat left vacant following Republican Gov. Terry Branstad’s appointment of Sen. Swati Dandekar, D-Marion, to the Iowa Utilities Board.

 West Virginia Democratic Gov. Earl Ray Tomblin is expected to call a special session at noon on November 13 to certify results of the October 4 special gubernatorial election. Governor Tomblin, who defeated Republican businessman Bill Maloney, is expected to take the oath of office following the special session on November 13.


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