Much Like Corporate Sector, State Governments Trim Workforce

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Across the country, many companies have been forced to enforce massive layoffs, reduce employee hours and salaries. But not only private companies are cutting back on labor. Many state Governments have also implemented furloughs (short-term employee layoffs) and salary reductions for their employees in addition to cuts to state-run programs. Reporter Leslie Eaton, of the The Wall Street Journal, and Maryland State treasurer Nancy Kopp discuss the trend. Kopp recently approved statewide budget cuts and furloughs.

KORVA COLEMAN, host:

I'm Korva Coleman, and this is TELL ME MORE from NPR News. Michel Martin is away.

Coming up, a new study looks at why 40 percent of Latinas fail to graduate high school on time. But first, some experts say the recession is bottoming out, but you wouldn't know it from the nonstop announcements of furloughs, layoffs and salary reductions. Announcements are being made not just by private companies, but by many state and local governments, as well. Last week, it was Maryland's turn.

Joining us now from Dallas, Texas, is Wall Street Journal reporter Leslie Eaton, who covers state governments. From California, we have Maryland State Treasurer Nancy Kopp on the phone. She's attending a conference of state treasurers. Ms. Kopp recently voted to support Maryland's state budget cuts. Before we begin our conversation, I want to make a disclosure to our listeners on this subject, which touches me in an indirect way. My spouse works for a local government in Maryland that has been subject to funding cuts, some of which are the result of state-funding reductions. My husband has been furloughed by his employer. However, and I must underscore this, his paycheck is not directly affected by the State of Maryland's funding choices, nor by Ms. Kopp's decisions.

Now, let's turn back to our conversation. Ms. Kopp, Ms. Eaton, thanks so much for joining us.

Ms. NANCY KOPP (Treasurer, Maryland): Well, thank you for having me.

Ms. LESLIE EATON (Journalist, The Wall Street Journal): It's great to be here.

COLEMAN: Leslie Eaton, you follow state government, state budgets. How widespread are these budget cuts throughout the country?

Ms. EATON: Almost every state in the nation is experiencing pretty dire financial problems, and about 20 of them so far have announced furloughs.

COLEMAN: Just 20. So that's about half. So if half are experiencing furloughs, what are the other half doing to make ends meet?

Ms. EATON: They are - some of them are trying to raise taxes. Some of them are trying to lay people off totally. They're scrounging around as best they can to try and fill up these big gaps that are opening up in their budgets.

COLEMAN: Well, why can't state governments, say, just run a deficit until the economy improves? Can't they just get out of it that way?

Ms. EATON: No, every state except Vermont, I think, has to balance its budget, by law. So they can't do what the federal government does and just borrow money to tide them over.

COLEMAN: Can't they just raise bonds? Can't they - is there no other way other than just cutting back?

Ms. EATON: Well, some of them are looking for new sources of revenue, so they're increasing fees on everything, from like fishing licenses to drivers' licenses. A couple of states have done major tax increases, but in a state like California, for example, they have to try everything they can. Their budget gap is so huge that just raising taxes - just cutbacks won't be enough.

COLEMAN: Treasurer Kopp, why cut back-up services in Maryland? What about tax increases in Maryland? Would those work?

Ms. KOPP: That's a very good question. Unfortunately, this recession has been going on for about two years. In Maryland, actually, we did everything that was mentioned earlier. The sales tax was increased by a penny and a new bracket put on the income tax. At the beginning, in 2007 and since then, we have made cuts in a number of state services, just about all state services, except for elementary, secondary education and reduced aid to local governments, as was mentioned, and involve the employees in a limited number of layoffs, but furloughs across the board. As a matter of fact, I'm on a furlough day myself.

COLEMAN: At a conference.

(Soundbite of laughter)

Ms. KOPP: Yeah.

COLEMAN: Well, you just singled out education as something that was not reduced. How do you decide what gets cut? How do you decide what is reduced?

Ms. KOPP: Well, two ways. In Maryland and a number of states, the Constitution actually puts priorities on certain services. In Maryland, elementary, secondary education and the payment of state debt cannot be cut. But apart from that, we can cut up to 25 percent of programs. So some programs have been cut up to the maximum. When I say we, that's the Board of Public Works.

When the legislature comes back in session, they can change priorities, eliminate or add programs. But just in terms of budget cuts, just to make it clear, we have set priorities and we have cut within the priorities, under the governor's leadership, and are attempting to keep the basic core services going, meeting the basic needs of the public, but in the last two years have had to cut a couple of billion dollars from our relatively small budget.

COLEMAN: Ms. Kopp, can you explain how the Board of Public Works works?

Ms. KOPP: Certainly. The Board of Public Works is a body unique to Maryland. It's comprised of the comptroller, the treasurer and the governor. It meets every other week during the year and approves of all state contracts and procurements and sales. But also when the legislature is not in session, the Board of Public Works has the constitutional authority to approve budget cuts in order to keep the budget balanced.

COLEMAN: If you're just joining us, you're listening to TELL ME MORE from NPR News. We're talking about state and budget cuts. With us is Wall Street Journal reporter Leslie Eaton and the Maryland State Treasurer Nancy Kopp. Leslie Eaton, the recession began in December 2007. Why is there kind of a lag time between that and state and local government cutbacks?

Ms. EATON: Well, for one thing, the recession takes a while to translate into lower tax revenues, and that's what states really start noticing, when the sales taxes - people have stopped spending. They're not buying stuff, and so the sales tax starts to go down. But then for states that have an income tax, really, they only get a really good handle on how low their tax receipts are after people start paying their taxes, and most of that is in April.

So since April, states have been struggling to try and figure out what to do next. They had to fill big shortfalls in their budgets. They had new budgets that started mostly in August, and those they had to balance. And already, like Maryland, they're finding that whatever they did, it wasn't enough. Revenues are dropping even more sharply.

COLEMAN: Given California's problems that many of us know about, no matter what they do, they can't win, and something's always happening that they have to spend money for. Are they possibly going to become more efficient as an employer, as a state that offers services by furloughing people, by cutting budgets, by reducing services?

Ms. EATON: I think there are some people out there who believe that ultimately, that can and will happen, that this is an opportunity for states. But right now, they're in crisis mode. It's very hard to focus on what can we do to, you know, make our operations more efficient when you're, you know, struggling just to pay your bills at the end of the week. And, you know, with California, they were using IOUs for a while there.

COLEMAN: Well, Treasurer Kopp, you were mentioning that you have specific things that you can do. Some things are off limits, such as education and state debt. But then there's a limit to how much you can cut. Is it possible that Maryland can restructure its way into better efficiency?

Ms. KOPP: Well, we are seeing greater efficiencies, for instance, mergers of correctional programs or health programs. We have pared away some services, decided they were not core, and therefore were not going to be delivered.

COLEMAN: What's a non-core service?

Ms. KOPP: Well, candidly, Korva, things that we might all like. For instance, we just cut funds for cancer research from the Department of Health on the grounds that the core mission is to deliver health services and the universities and others do research. That's a small example.

COLEMAN: Mm-hmm.

Ms. KOPP: And we are, as you know, asking people to do more with less, asking employees to do more with less. Every time there's a layoff or a furlough, that makes more work for the remaining people. So I think that we are taking advantage of the opportunity to make services more effective, but as you know, demand for public services - whether it's health or welfare or housing - go up when the times get bad. And yet, as was pointed out, there's a lag in revenues so that even when the economy turns around, it will be several months before it shows up in the state treasuries.

COLEMAN: Well, you're attending a conference of state treasurers. What are you hearing from other people?

Ms. KOPP: Well, the same story from just about every state, except perhaps North Dakota, and other states that are dependent on commodities. And those commodities, whether they're oil or gas, have done a little better, especially oil have done a little better for their states until recently.

COLEMAN: What's so great about…

Ms. KOPP: But really, all the states are suffering because all the states depend on income tax and sales tax - or almost all of them do. And the income tax and sales tax receipts, as we all know, are down.

COLEMAN: What's so great about North Dakota?

Ms. KOPP: Well, I think it was the coal.

COLEMAN: Ah. So if they're exporting that, they're getting good money for it, and things may be aren't so bad. But if what Leslie is seeing, they, too, could possibly expect to see some type of lag and for revenue for them to go down as well.

Ms. KOPP: It's unlikely that there's any state in the nation which will be unscathed.

COLEMAN: Nancy Kopp, as treasurer of Maryland, how do you avoid getting into this same fiscal problem again? How was this fended off?

Ms. KOPP: Well, Maryland is actually rather fortunate, because, I think we do, first of all, have a good, basic diverse economy, and we have a very well-trained workforce. And that's one of the reasons that we're trying not to harm the education system. We think it's essential for our future. And beyond that, we have a well-balanced tax system, so that we're not dependent on any one tax. Some local jurisdictions, local cities and towns that were totally dependent on the property tax, for instance, were hit immediately and drastically when the price of housing went down.

COLEMAN: Well, Nancy Kopp is the treasurer of the State of Maryland. Nancy Kopp, I really appreciate that you could be with us and interrupt your attendance at the conference. Thank you so much.

Ms. KOPP: Oh, thank you for having me.

COLEMAN: Leslie Eaton is a reporter with The Wall Street Journal. She joined us from Dallas, Texas. Thank you, Leslie. We appreciate it.

Ms. EATON: My pleasure.

(Soundbite of music)

COLEMAN: Just ahead, the Council on American Islamic Relations is trying to educate Americans about the Quran. We'll hear about why they plan to distribute 100,000 copies of the Quran in coming months. That's coming up on TELL ME MORE from NPR News. I'm Korva Coleman.

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