The Big Reset - States Cope with the "New Normal"

The National Governors Association's Center for Best Practices has just come out with a new study called "The Big Reset," which provides guidance for states...
by | March 18, 2010
 

The National Governors Association's Center for Best Practices has just come out with a new study called "The Big Reset," which provides guidance for states looking to deal with the lingering effect of the economic meltdown.

The financial picture the study paints is grim. There is no expectation that an economic rebound will boost tax revenues anytime soon. Moreover, the sluggish economy is placing greater demands on a number of state services. The initial response has been tax hikes and spending cuts. According to the study: "For fiscal 2010, states enacted tax and fee increases of $23.9 billion yet still needed to cut expenditures by $55.7 billion to balance their budgets. As the cost of government services grows and revenue falls or eventually rises at an anemic pace, the gap will widen."

The study notes:

"[I]ncreasing taxes can only go so far in eliminating current budget gaps before economic growth is hindered. The only other solution, therefore, is to structurally transform government so that it costs less to operate. This is where most policy attention is focused today. As a result, we may see dramatic changes in the size, structure, and responsibilities of state government over the next decade."

Much of the report looks at redesigning state government for the "New Normal," and the study urges states to embark on comprehensive reviews of state operations, including a reexamination of core services.

The current fiscal situation presents an opportunity to propose major changes in state government that might not have been entertained in the past. The dire circumstances can help drive agency restructuring and reorganization, changes to pensions and benefits, redesign of service delivery models, and elimination of certain programs deemed ineffective.

The study looks at corrections, K-12 education, higher education, transportation and other big components of state budgets. Particular noteworthy is the attention paid to the wage and benefits of current employees and the pension and health care obligations to retirees.

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