States Make Deep Cuts To Balance Budgets

Guests

Arturo Perez, director, Fiscal Affairs Program, National Conference of State Legislatures
Mark Brodie, capital reporter, KJZZ in Tempe, Ariz.
Rick Pluta, state capital bureau chief, Michigan Public Radio Network

In Detroit, the public schools submitted a budget plan to the state that would increase some class sizes to 60 students and close half the city's schools. Arizona has deeply cut programs for organ donations and mental health care. Local police and fire fighters face major layoffs in Camden, N.J.

Copyright © 2011 NPR. For personal, noncommercial use only. See Terms of Use. For other uses, prior permission required.

LYNN NEARY, host:

This is TALK OF THE NATION. I'm Lynn Neary, in Washington. Neal Conan is away.

As lawmakers in Washington veer towards a showdown over the federal budget, many states around the country are grappling with daunting budget problems of their own. And with deficits often running into billions of dollars, state and local lawmakers are finding that almost everything is on the table. In Washington State, lawmakers are trying to close a $5 billion budget hole with big cuts to education, even scaling back how often schools are cleaned.

New Jersey has to find a way to close a $10.5 billion deficit. And in Florida, Governor Rick Scott has proposed cutting more than 1,000 jobs from the Department of Corrections in the hope of closing that state's $4 billion gap.

What are the big debates over budget cuts where you live? If you're involved in balancing the budget, how do you decide where to cut? And if you have to implement those cuts, how are you affected?

Our number here in Washington is 800-989-8255. Our email address is talk@npr.org. And you can join the conversation at our website. Go to npr.org and click on TALK OF THE NATION.

Later in this hour, the next in our series on Oscar nominated documentaries. That's "Exit Through the Gift Shop."

In a few moments, we'll talk about budget cuts in Arizona and Michigan, but joining me now is Arturo Perez. He's director of the Fiscal Affairs Program at the National Conference of State Legislatures, and he joins me from member station KCFR in Centennial, Colorado.

Thanks so much for joining us on TALK OF THE NATION.

Mr. ARTURO PEREZ (National Conference of State Legislatures): Thank you, Lynn.

NEARY: Now, we just heard a few examples of states with big deficits looming. Just how big would you say this problem is, nationwide?

Mr. PEREZ: The latest survey that NCSL did on state budget shortfalls that were projected for the next fiscal year - that is, the fiscal year that starts in July 1 of this year for most states - stood at about $82.1 billion collectively for the states.

NEARY: That is a big - that is a lot of money that has to be made up. Give us some example of the kind of cuts you're seeing in states around the country.

Mr. PEREZ: Well, states have been making cuts now for several years. The problem for states began, actually, back in fiscal year 2008, got worse in 2009. And the worst of it, at least in terms of just the budget shortfalls, was in FY 2010. We are currently - our states are currently in the latter half of fiscal year 2011, and they've been making several types of cuts.

We're talking about K-12 education cuts, higher education cuts, corrections, Medicaid in particular this year, other healthcare cuts. But across the country, we've seen proposals or actions to make cuts in just about everything that is - that everything is on the table as, so to speak, which is a common phrase we hear from the states.

NEARY: Now, on the revenue side, aren't revenues starting to pick up at the state level?

Mr. PEREZ: Revenues are, in fact, starting to pick up. By the middle of 2010, we started to see a reversal from what had happened to state revenues for the previous 18 to 24 months. And that is that state revenues began to grow relative to their performance in the prior month or the prior year, and so the latter half of 2010 saw states gaining traction as far as revenue growth, but it has not been robust.

That's the one thing to indicate or to note on the state revenues, is that personal account, general sales and other taxes are starting to grow, albeit at a - sort of a reduced pace, or a tepid pace.

NEARY: So where are states tending to look first when they're trying to close these gaps?

Mr. PEREZ: Well, they're looking at a number - I mean, as I mentioned earlier, they're looking at all things when it comes to trying to figure out what priorities they want to maintain and where they can make cuts. Higher education has been a program that states have targeted for budget reductions, in part, because it is a large area, or one of the largest areas for discretionary spending as far as states - that is, there's no hard formulas like there is for K-12 education or Medicaid.

So K-12 education has been a target, along with other programs. We are starting to see K-12 education, which accounts for one out of every three state tax dollars being looked at, as well, because it is such a significant part of any state budget.

NEARY: Let's talk about the connection between what's going on in the federal level and the state level. How do budget cuts that are being made and proposed and being voted in by Congress affect what goes on on the state level and the problems they then face in terms of - the states then face in terms of trying to balance their budgets?

Mr. PEREZ: Well, anything that involves an unfunded mandate or a cut in a program that is the state federal share program can have implications for states. That is, the states would have to either make additional cuts to that program or find some ways to make up for the lost funding, or if it's an unfunded mandate, something that they would have to address somehow.

NEARY: Yeah. So that just adds to the problems they're facing, or does it create some of the problems that they're facing?

Mr. PEREZ: It can further complicate the decision-making that the states are trying make about their own budgets.

NEARY: Yeah. And also, a big difference between what's going on with the federal government and the states, is that the states are required to balance their budgets. I'm not sure everybody understands that. Is that correct? All states...

Mr. PEREZ: That is the biggest difference between the state budget process and the process that we see in Washington, D.C. with the regards to the federal government, with the exception of one state: Most states - or all states - need to balance their budgets - that one exception being Vermont.

NEARY: Yeah. And why is that? How did that come into being? I mean, what is the rationale behind that?

Mr. PEREZ: Well, the states - that's just a tradition that goes back quite a ways in regards to the state budget process that has been replicated in state after state in regards to their process for adopting and passing budgets.

NEARY: Yeah. And I understand Vermont is the one exception to that. Is that right?

Mr. PEREZ: Correct.

NEARY: Okay. All right. So is there any reason to think that the fiscal situation might improve next year?

Mr. PEREZ: Well, we know that - if we look at past recessions in terms of their impact on state budgets, that anywhere from 12 to 24 months after the official end of a national recession, state finances tend to finally bottom out, and then we start to see some recovery. The official date for the end of the national recession was June 2009. So we are now well into that period of time in which we start looking for signs of state recovery.

We're starting to see it as far as state revenues are concerned - meaning that state revenues are starting to grow month after month, which is the direction we want to see state revenues grow if we want to see some recovery for state finances. But at the same time, there's been an increase in case loads for state programs such as Medicaid and TANF and SCHIP and other programs that often see an increase in caseloads when there's tough economic times like we're having now.

NEARY: Yeah. Is what we're having - is what we're experiencing right now, is it significantly different in some way from anything that's occurred in the past? Or is this a repeat of other times, as you said, where there has been a bad economy? Or are we in some new sort of level of - bad level that we're in right now?

Mr. PEREZ: Well, you're on top of it. You are correct. We've had recessions in the past, and - but this period that the states went through, that the national economy went through was the worst economic period or recession since the Great Depression, and it was also a very severe recession. So we've seen the outcome in terms of the high unemployment rates. We've also had complicating factors with home foreclosures, consumer confidence.

When it comes to state revenues, you know, two-thirds of all state revenues are derived from personal income taxes and general sales taxes. So when those two went down as much as they did in terms of falling from their peaks in fiscal year 2008 or a couple of years ago, states have had difficulty trying to recover. And as those two sources of revenues for states begin to grow and become healthier, then that's when we start seeing state revenues or state finances improve.

NEARY: All right. We are talking about state budget cuts. If you'd like to join the conversation, the number's 800-989-8255. We want to remind you that we're talking about state budget cuts, not federal budget cuts, because we want to know what's going on around the country in different areas. What's going on where you live, on the state level?

Let's take a call now. And we're going to Adriana(ph) in San Antonio, Texas. Hi, Adriana.

ADRIANA (Caller): Hi.

NEARY: Hi, go ahead.

ADRIANA: Yes, I do work in education. I'm in (unintelligible) administration, and right now, we are very, very worried about the cuts. They're talking about making drastic cuts to our budget that essentially are going to mean we're going to lose teachers, because the bulk of our budgets are in personnel.

We really don't have a lot of extra money. So we use it to pay teachers. And that is something that's very dismaying to us, especially because our governor right now has access - he's able to accept money from the federal government, and he's refusing to accept that money because he doesn't want to comply with what the requirements are to accept that money.

Last year, he accepted it and used it to supplant education. In other words, you know, it's money that was going to come to us, anyway, he used the federal money to give us that same money that the state owed us. So we didn't get any extra. We got the same amount, only they got it from the Fed.

Now, this year, he's saying the Fed says you can do that. It has to be supplemental money. It has to go, you know, in addition to what the state normally gives the schools. He's refusing to do that. So he's refusing the money.

NEARY: I see. Okay, thanks for your call, Adriana.

And I wonder if you can just comment on that for us, Arturo Perez, the situation that she just described in Texas. Are you familiar with that?

Mr. PEREZ: Yes. Texas does have some education monies that Congress approved for use in K-12 education. There was a specific clause that applies only to Texas in terms of restricting that money to K-12 education. So that's what she's referring to.

NEARY: You know, education seems to be particularly vulnerable. You know, why is that? Why go to education?

Mr. PEREZ: Well, K-12 education, again, as I mentioned, represents about one out of every three state dollars in terms of expenditures. So it is a very significant portion of the spending pie for states.

It is a program that is held in a high priority, or is a high-priority program by most lawmakers. But the circumstances are such that states do need to balance their budgets, and they're making the decisions that they feel is most appropriate for their respective states.

NEARY: Yeah. We should mention not all states are in bad shape, financially. Is that right? Are some doing all right and don't have to make these kind of deep cuts?

There are actually some states that actually have - currently have low unemployment rates relative to the national average. States like North Dakota and South Dakota, Nebraska are states that have managed to get by relatively unscathed during this economic downturn. North Dakota, in particular, has continued to show a very strong economy and strong revenues.

NEARY: Arturo Perez is the director of the Fiscal Affairs Program at the National Conference of State Legislatures, and we're talking about some of the services and programs being cut to balance state budgets.

If you're involved in that decision-making process, if you'll implement these cuts, give us a call: 800-989-8255. You can also drop us an email at talk@npr.org.

I'm Lynn Neary. It's TALK OF THE NATION, from NPR News.

(Soundbite of music)

NEARY: This is TALK OF THE NATION, from NPR News. I'm Lynn Neary.

The vast majorities of states face budget shortfalls for the coming year - a combined $85 billion, by one estimate. The result: cuts in programs and services from education to health care to public safety.

What are the big debates over budget cuts where you live? If you're involved in balancing the budget, how do you decide where to cut? And if you have to implement those cuts, how are you affected? Our number here in Washington: 800-989-8255. And the email address is talk@npr.org. My guest, Arturo Perez. He directs the Fiscal Affairs Program at the National Conference of State Legislatures.

And on the phone now from Detroit, Michigan is Amber.

Hi, Amber. Go ahead.

AMBER (Caller): Hi. Actually, I was calling because I'm a teacher in Detroit Public Schools, which is where the Michigan Board of Ed has just said to go ahead and close half of the schools, increase high school class sizes to 62 students per class and implement other draconian cuts. And even the emergency financial manager has said that this is draconian and that education will suffer. But this is what we've been told to do in the face of the budget in our state.

NEARY: How do you think this is going to affect you as a teacher, Amber?

Mr. PEREZ: I'm not going to be teaching. I mean, I'll be in the classroom with the students and the lesson plans, but 62 students - and I am a high school teacher. Sixty-two students is not - it's no longer education. It's a holding pen with adult supervision. I can't even sit 40 desks in my classroom. I don't know how it's going to work.

NEARY: Yeah, how big are your classes right now?

Mr. PEREZ: Right now, I have, on average, 30 students enrolled in each of my classes.

NEARY: And does that feel like the right size, or does that even feel big to you?

Mr. PEREZ: Thirty students is manageable. You know, the smaller the class, the better, the more individual attention you can get, the better quality of education you can provide. And so anything more than 30 is just dramatically reduced quality, I think, because you simply cannot get to each student. It's a 55-minute class period. With 30 students in the class, they're not even getting two minutes each.

NEARY: Yeah. All right, well, thanks so much for your call, Amber.

AMBER: You're welcome.

NEARY: We're going to be discussing Michigan a little bit more in the program. But Arturo Perez, I wonder if you have any response to that. This is - is that at a proposal stage, or is this really happening now?

Mr. PEREZ: We're starting to see a lot of proposals, as well as actions on the part of states to cut programs like K-12 education. One of the reasons we didn't see as much in recent years was the significant role that the federal stimulus dollars played, or ARRA, the American Recovery and Reinvestment Act dollars that were earmarked for states and local governments, in particular for K-12 education and Medicaid, helped maintain a level of funding for these programs. Otherwise, states would have made these cuts, perhaps, in the worst part of the recession, back in fiscal year 2009 and '10, and in the current year.

So - but for states, the situation is that the federal stimulus dollars will be, for the most part, exhausted as they move into the next fiscal year, which begins on July 1. So states are very much on their own in terms of trying to balance their budgets without any assistance from the federal government.

NEARY: Well, Arizona has been struggling with - for several consecutive years now, budget cuts and budget deficits. And the state has looked to cuts in health care, mental health services and education to help fill the gap.

Mark Brodie is the capital reporter for member station KJZZ in Tempe, Arizona, and he joins me now.

Thanks for being on TALK OF THE NATION, Mark.

MARK BRODIE: My pleasure. Thank you.

NEARY: So just how big is Arizona's budget deficit?

BRODIE: Well, the estimated deficit for the current fiscal year - and these numbers are coming from the governor's office - is about $763 million. That's for the fiscal year that's now more than half over.

For the fiscal year that starts on July 1st, the estimated deficit is $1.15 billion. Now, keep in mind, that's in a budget - a total budget that's projected to be less than $9 billion. So it's a pretty significant chunk.

NEARY: So where's Arizona looking first to find savings?

BRODIE: The biggest potential cut that the governor has proposed is reducing the Medicaid population. Arizona's Medicaid program is called AHCCCS. That stands for the Arizona Health Care Cost Containment System. And the governor basically wants to kick 280,000 people off of that program.

In 2000, voters here added a significant population of people to the Medicaid roles, above and beyond what the federal government requires, what the federal Medicaid program requires. The governor's proposal would basically reduce that, reduce that additional population to just get it to what the federal Medicaid program requires.

NEARY: And there's been a lot of attention also on the fact that Arizona is going to cut access to organ transplants for some Medicaid recipients.

BRODIE: Yeah. This has been a significant story here in Arizona. There are nearly 100 people who would be affected by this, Medicaid patients who were basically under the impression all along that when their time came for a transplant, the state would fund it.

They have recently been told, within the last several months to a year, that that is not, in fact, the case. These folks have been pretty active with the press, with trying to raise money. Two folks, unfortunately, have already passed away, one of whom his doctors said wasn't - the fact that he didn't get the transplant didn't really have anything to do with the fact that he had died. But this has led Democrats to refer to death panels here in Arizona with Governor Brewer's name attached to them. So, you know, the transplant issue is a big one here.

NEARY: And what about mental health services? I understand the cuts there would be drastic, as well.

BRODIE: Well, among the 280,000 people that would lose their Medicaid coverage under Governor Brewer's plan are an estimated 5,200 what are classified seriously mentally ill, SMIs. They would basically lose their coverage, as well.

The governor has set aside around $10 million to fund prescription drug coverage for that population, but they would lose other services like case management, other kinds of benefits that they currently get. This is on top of other kinds of cuts that the state has already implemented.

As Arturo mentioned, over the past few years, the state has had to reduce its budget, as well. So, yeah, health care would - basically, if the state is granted permission from the federal government, or if the state is able to cut these 280,000 people off of AHCCCS, Medicaid, it would save about $541 million. That's more than half of the overall deficit. So you see where the state wants to try to get a lot of its savings from.

NEARY: And we just heard from a caller who was talking about the cuts in Michigan to K-12 education, but in Arizona, it's higher education.

BRODIE: Yeah, universities would take the second-biggest cut after Medicaid under the governor's budget proposal, about $170 million, which accounts to about 20 percent of their overall state support.

Now, when you talk to university presidents, they say, you know, we'll have to look at raising tuition and fees. That's just sort of a necessity. But none of the presidents think that they can raise tuition and fees enough to cover that kind of cut.

So what you're looking at is potential furloughs, potential layoffs. We've heard about programs being eliminated or consolidated. So yeah, higher education is certainly bracing for budget cuts.

NEARY: All right, well, thanks so much for joining us.

BRODIE: My pleasure. Thank you.

NEARY: Mark Brodie is the capital reporter for member station KJZZ in Tempe, Arizona.

And we're talking about the budget cuts that are being made all over the country in different state legislatures, and that's what we want to hear about from you. What are you hearing in your neck of the woods, where you live? What are some of the cuts you're hearing being proposed?

If you want to join the conversation, the number is 800-989-8255. And we're going to go to Frank in Oklahoma City.

Hi, Frank.

FRANK (Caller): Hello.

NEARY: Go ahead.

FRANK: Thank you for having me. We hear all of these cuts, about cutting Medicaid and cutting teachers, but we never hear anything about cutting law enforcement and cutting fire protection. Those seem to be sacred cows, when the fact of the matter is, over the last 20 years, police departments and state troopers and sheriff's departments in Oklahoma, as well as fire protection, they have grown exponentially out of control.

There are so many police and fire around, you have a little fender-bender accident, and you have three fire trucks show up and about five police cars, and they're falling all over each other. But no one seems to address that.

NEARY: All right. Thanks for the call, Frank. Arturo Perez, it does seem that police and - well, I don't know if police are sacrosanct. I think I've heard of proposals for police being laid off. What are you hearing from around the country on that subject?

Mr. PEREZ: Well, law enforcement, for the most part, falls into local jurisdictions, as far as funding and providing that. So it's much less - other than state police at the state level, there's - and corrections officers in prisons, law enforcement is very much a local jurisdiction issue.

NEARY: All right. Now, as we've already heard, Michigan is facing a budget deficit of more than one-and-a-half billion dollars, and public workers are protesting at the state Capitol there today against Governor Rick Snyder's proposed budget.

Joining us now by phone from the capitol building in Lansing is Rick Pluta. He is state capitol bureau chief for the Michigan Public Radio Network.

Welcome to TALK OF THE NATION.

RICK PLUTA: Hi, Lynn. First-time caller, long-time listener.

NEARY: Oh, good. Well, of course, you're covering these protests today, and the workers are protesting proposed cuts to their benefits and compensation. Is this very similar to what's going on in Wisconsin?

PLUTA: Well, it's - in some respect it's similar to what's going on in Wisconsin. Certainly we have a lot of public employees here. A lot of them are here because they want to show support for the protesters in Wisconsin. Also the recent one in Columbus, Ohio, where, you know, they're also protesting against some things that a Republican governor and a Republican legislature have proposed. We also have a lot of teachers who are taking advantage of a snow day to be here to talk about the cuts to K-12 schools.

You know, we just heard the capitol reporter from Arizona talking about Medicaid, and our governor, Rick Snyder, has said that he's not going to cut Medicaid. They're not going to cut reimbursements to providers and to nursing homes and places like that, and we're not going to reduce the people who are eligible for Medicaid. And so, you know, we've got to go and look somewhere else. And at the same time, he also wants to provide a big net tax cut to businesses, probably, you know, really in the range of the size of our deficit.

I should also point out that, you know, because Michigan has been down this road many, many, many times before - just as an overall share of the budget, Michigan's deficit isn't as big as the deficit that we're, you know, seeing in California and New York and places like that. It's - even though the numbers themselves are big overall - that is, a share of the budget - they're not as big as some other parts of the country because Michigan has been budget-cutting for years and years and years and years.

NEARY: Rick, I don't know. Did you hear the teacher that called in from Detroit? Did you hear what she had to say? Were you...

PLUTA: I did not.

NEARY: Okay. Well, we had a teacher call from Detroit saying that she's really concerned about what she's hearing, that class size could reach 60. She said I wouldn't be able to even teach with a class size like...

PLUTA: Detroit, a very, very financially troubled school district, a very, very financially troubled city, that the word has just come down from the state that you need to find big cuts that probably would force the city to close - the city school district to close as many as half the schools that it currently has operating. And that's after it's already closed so many before this, to try and, you know, get its budget under control.

NEARY: So presumably, the other school districts around the state will also be affected, though, by these budget cuts?

PLUTA: Yeah. What - like I said, that, you know, the governor and the state have to look to, you know, different places than Medicaid. And so they're looking at local governments, big cut to bit cuts to revenue sharing, a per student cut of about $470 - $470 to every school district for every student that they're getting right now. That's a big number. A year ago, that would have been considered just politically unthinkable.

NEARY: All right. Let's take a call now from Vicky in Tucson, Arizona. Hi, Vicky.

VICKY (Caller): Hi. I am a psychiatric nurse here in Tucson, Arizona, and I am just so upset about the cuts that are being made to our mental health system. We had a girl, just - this is a perfect example of how the budget cuts affect us. They have taken away our budget for the better medications that have fewer side effects for mentally ill people. And we had a girl come into the hospital recently who was taken off her medication without any substitute, and she got -she decompensated, and when she finally came back into our hospital, she had pulled out all her fingernails.

NEARY: Eww.

VICKY: And it's these kinds of cuts - and they're thrown out of the hospital. Some of these people have nowhere else to go. They use our hospital as a revolving door and they have nowhere else to go. And it seems like the budget cuts are always loaded onto the backs of the people who cannot speak for themselves.

NEARY: Vicky, thanks so much for calling in.

VICKY: Okay. Thank you.

NEARY: All right. Arturo Perez or Mark Brodie, I don't know if you want to - I mean, Rick Pluta, I don't know if you want to respond to that. I know, Rick, we're talking about Michigan with you. But you know, this is an example of how deep these cuts are going and how painful they're going to be, I guess.

PLUTA: Oh, it is, and also, I'll say that at least here in Michigan that mental - people needing mental health services are considered a big driver of corrections costs on the other end. And so our governor and some others have proposed that we need to do something to get more help for people at the front end of the mental health - of the mental health spectrum, I guess, because otherwise you're paying for it at the tail end, which is in prisons and corrections costs.

But the challenge, of course, is that at the same time you're trying to finance that front end of the mental health system, that you've still got to pay for the inmates in prisons that you have now.

NEARY: Rick Pluta is the state capital bureau chief for Michigan Public Radio Network. Thanks for joining us, Rick.

PLUTA: Oh, my pleasure.

NEARY: And you're listening to TALK OF THE NATION from NPR News.

We're going to take a call now from John in Portland, Oregon. Hi, John.

JOHN (Caller): Hi, Lynn. I just want to say, you know, one of the things we hear a lot about is we need to raise the tobacco tax in order to bring in more revenue. And long, long ago, particularly in Oregon, we reached the point of diminishing returns on that where the price of tobacco products is so high, some 60 percent of it is taxed.

Look at New York City, that has a pack of 20 cigarettes, 11 or 12 dollars. And what happens is it's been driving people underground either to grow their own tobacco or buy it on Indian reservations or the Internet. Even the mafia has become involved in the cigarette trade now because people can get it cheaper that way.

And what's happened is there's a decline in revenue coming in to the states that have raised their tobacco taxes. There was a miscalculation in it here Oregon, and we're really going the wrong direction trying to pick on people who happen to smoke. People are not stopping smoking. They just go to other sources, and the revenue from that tax declines.

NEARY: All right, John, I want to broaden your question. Now, thanks so much for calling. I want to broaden John's - what John saying about taxes. We're hearing from a lot of people via email - this one, for example, let's end the myth that states are broke. They aren't. They have sovereign taxing power all the way up to total income tax in the state.

I wonder, as we leave, Arturo Perez, what about taxes?

Mr. PEREZ: Taxes are obviously one part of the equation in terms of balancing state budgets. We saw back in 2009 states raised over $24 billion collectively in terms of new taxes to help address their budget situations. That number dropped last year, in 2010, but there are still obviously some considerations in different states for - either raising taxes or fees. The question will be which states and to which degree that will happen this year.

NEARY: Arturo Perez is the director of fiscal affairs at the National Conference of State Legislatures. Thanks so much for joining us, Mr. Perez.

Mr. PEREZ: My pleasure, Lynn. Thank you.

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