Economic Development

Top 10 Legislative Issues to Watch 2010

The Great Recession may technically be over, but it continues to have a devastating effect on the ability of state legislators to craft new legislation...
by | December 31, 2009

The Great Recession may technically be over, but it continues to have a devastating effect on the ability of state legislators to craft new legislation or programs. For the most part, legislative sessions in 2010 will be preoccupied with tools to help ease citizens' pain -- ways, for example, to fight foreclosures and deal with unemployment. At the same time, lawmakers will have to consider painful service cuts and tax increases -- even if they acted on such cuts and increases last year. In addition, they will be responding to decisions coming out of Washington, D.C., on health care and education, on new federal regulations for overseas voting and on Supreme Court rulings that could upend criminal prosecutions.

In short, legislators will be making a series of difficult decisions about issues many of them would rather not deal with as November elections draw near.

State Budgets

In 2009, federal stimulus money bolstered state budgets with tens of billions of dollars. The help was critical, but it is about to run out. As legislators write their 2011 budgets this spring, they'll have to take into account that key pots of stimulus cash will be gone before the new fiscal year starts. For example, Congress has been paying a larger share than usual of Medicaid costs, and that arrangement ends in December.

All of that poses a major problem for state budgeters. Even with the national economy starting to recover, their revenue streams haven't begun to stabilize, let alone pick up. The Rockefeller Institute of Government found that state tax revenue dropped by more than $14 billion from the third quarter of 2008 to the third quarter of 2009, a decline of close to 11 percent. Revenue from personal income taxes, corporate income taxes and sales taxes all fell, with more drops expected in the fourth quarter.

With less state money and less federal money, legislators have massive budget gaps to fill. The Center on Budget and Policy Priorities (CBPP) projects state shortfalls at $170 billion for fiscal year 2011. Even worse, there's no relief in sight. CBPP's forecasts for the 2012 fiscal year are for $120 billion in shortfalls.

States already have furloughed workers, cut programs and raised taxes to bring their budgets into balance. They'll be doing it all over again this spring. "You've done just about everything you can possibly do," says Scott Pattison, executive director of the National Association of State Budget Officers (NASBO). "You've drained every reserve. You've cut, you've cut fairly significantly and yet the choices are still hard." In fact, given that states are building on cuts they've already made, it's fair to say this will be the hardest year yet.

Taxes

Normally, raising taxes is something close to an impossibility in many legislatures. Republicans are philosophically opposed to tax increases, while Democrats tend to steer clear of the political consequences. But lately, legislators have been doing the impossible with surprising frequency.

NASBO reports that states raised taxes and fees by $24 billion in the past fiscal year, the first time since 1992 that increases totaled more than $10 billion. Much of the focus was on narrowly targeted taxes: 17 states increased cigarette taxes, for example. But lawmakers also increased the rates on broad-based taxes. Personal income tax rates and sales tax rates rose in a dozen states each.

These increases didn't wholly prevent budget cuts, but they did serve to moderate them. As the CBPP's Scott Johnson puts it, "The goal in a lot of states -- and I think it's the right goal -- is to take the most balanced approach possible."

But, there's still a clear partisan divide on the subject of taxes. In every state that raised personal income taxes last year, Democrats control both houses of the legislature. Resistance from Republican lawmakers remains strong. Resistance from voters remains strong, too. New Jersey Governor Jon Corzine was booted from office in November in large measure because of his inability to combat sky-high property tax rates.

Still, budget shortfalls are deep enough that most states are likely to at least broach the idea of a tax increase. Arizona's conservative, Republican-controlled legislature, for example, has been tied in knots for months over the subject of a sales tax hike. And the desire to raise taxes has surfaced among some legislators in Utah. But Utah Governor Gary Herbert seemed to speak for many Republicans around the country with his skeptical response. "If, at the end of the day, civilization as we knew it would come to an end," he told the Salt Lake Tribune, "I maybe would not veto a tax increase."

Health Care

Even if Congress passes a health care overhaul, the battle won't be over. The action simply will move to the states.

Conservatives in legislatures have sought state constitutional amendments as a way to prevent key provisions that they assumed would be in the federal legislation from being enacted. The amendments establish a right for individuals to decide whether they want health insurance or not. In doing so, they seek to block the idea of an individual mandate -- the requirement that everyone have health insurance or pay a fee. Other language in the proposals would counter a mandatory single-payer system, although that's not something Congress is considering.

With the support of the American Legislative Exchange Council (ALEC), this legislation may be introduced in half the states. Although most aren't likely to revise their constitutions, a few could. The Arizona legislature already voted for the proposal last year, placing the amendment before the state's voters this November. "The eyes of the nation," says Christie Herrera, director of ALEC's Health and Human Services Task Force, "will be watching Arizona."

If Arizona or another state does approve one of the amendments, a legal battle is all but guaranteed. Many legal scholars think that states can't actually block a federal individual mandate. After all, the constitution's Supremacy Clause typically allows federal law to supersede state law. Supporters of the amendments, however, point to recent court rulings that have reaffirmed the powers of states, including a 2006 Supreme Court decision that allowed Oregon to permit physician-assisted suicide.

Even before potential court cases play out, though, the proposals could have a political impact. If the amendments come up for votes, legislators around the country will have to take a stand on Congress' approach to health care. Those votes stand to be every bit as politically contentious as the ones that have been taking place in Washington.

Jobs

Conventional wisdom holds that in a recession the federal government can act to stimulate the economy, but states can't. After all, states, unlike the federal government, are required to keep their operating budgets balanced each year. They can't engage in routine deficit spending that might give businesses a reason to hire. This year, state legislators may prove conventional wisdom wrong. There's strong motivation to do so: If joblessness stays near 10 percent, voters are likely to send legislators to the unemployment line.

Some lawmakers see their state's capacity to issue bonds to pay for capital expenses as a way to authorize miniature stimulus plans. While some of the projects backed by bonds are things states would have borrowed money for even if the economy were thriving, the scope and urgency of the efforts is new.

Some of these plans actually aren't so miniature. Last year, Illinois approved $31 billion over six years for capital construction, with bonds that will be paid off through various tax and fee increases. Minnesota is looking at a $1 billion bonding bill this year for projects such as wastewater plants, college buildings and expansion of passenger rail service. The language of the discussion is similar to the one that took place over the federal economic stimulus, with lawmakers seeking shovel-ready projects. "We have for the last few years been pushing, pushing, pushing," says Alice Hausman, a Minnesota state representative, "so that when the bonding bill is approved, those projects get underway."

Education

States are vying with each other for the role of education-reform star. It's the way to win hundreds of millions in federal grants.

The "Race to the Top" education program is a relatively small part of the stimulus -- only $4.35 billion. Nonetheless, for states it's huge. It's also a new discretionary model of federal education spending. Where most education money is doled out state by state through fixed formulas, Race to the Top will give money to some states but likely not to all. The feds are pledging to reward states that show the strongest commitment to overhauling K-12 education.

As a result, legislatures have spent recent months changing rules to try to position themselves to win the money. Most notably, they're removing caps on charter schools and ending bans on the use of student performance data for teacher evaluations -- two key prerequisites under Race to the Top. California, Massachusetts and Tennessee will consider education overhauls ahead of the January 19 deadline for the first round of applications.

The charter rules and performance evaluation are just the basics, though. The U.S. Department of Education's complex scoring system includes points for everything from flexible teacher certification rules to adoption of common education standards to implementation of longitudinal data systems. "What states haven't done," says Kate Walsh, president of the National Council on Teacher Quality, "is make the legislative or regulatory changes to make their proposals competitive." Walsh believes most states haven't done enough on this broad range of criteria to merit serious consideration from the feds.

The good news for states that lose out is that they will get a second chance. The first group of grants will be awarded in April. A second and final round of applications is due in June. That will give states a small window of time to strengthen their proposals.

Foreclosures

Many lawmakers believe their state economies won't improve until the current epidemic of home foreclosures ends. That's why states are trying a new tool: mandatory loan mediation.

Although foreclosures helped start the downturn, they remain a big problem today. Foreclosure filings peaked in July, but the numbers this past fall were still vastly higher than the previous year. In response, states are buying into a surprisingly simple premise: If lenders and homeowners would talk together about the mortgages, many foreclosures could be prevented. Often, distressed homeowners seeking to modify their mortgages struggle to reach their lenders. Many of those mortgages were securitized, leaving homeowners unsure who actually holds their loans.

Nevada and Connecticut, among other states, have responded by making these discussions between parties mandatory. Under the laws, lenders and the homeowner in default are required to meet in the presence of court-appointed mediators. The lenders aren't required to modify their loans to keep the homeowner out of foreclosure, but they must negotiate in good faith.

The idea is that, just as homeowners would rather remain in their homes, lenders want to continue to receive interest payments on their loans. "When a loan can be modified," says Barbara Buckley, the Nevada House speaker who sponsored her state's mediation program, "it helps the homeowner, it helps the lender, and it helps the economy."

Not everyone approves of this concept. Critics contend mediation unnecessarily delays foreclosures that are inevitable. Or they argue that the programs haven't gone far enough in requiring concessions from lenders and mortgage-loan servicers -- intermediaries hired by the lender to collect mortgage payments. These intermediaries often profit from foreclosures. Nonetheless, the approach is gaining steam. California, Maryland and other states are seriously considering mandatory mediation.

Driving Safety

Almost overnight, texting while driving has become a major safety concern -- not just for nervous parents but also for uneasy state legislators. "It really exploded in 2009," says Jonathan Adkins, spokesman for the Governors Highway Safety Association. Close to 20 states now forbid drivers to send text messages while operating a vehicle, and most of those states approved their laws last year. Many more states will consider the issue this year and, undoubtedly, many more will approve prohibitions. The U.S. Congress also is studying the topic.

Focusing on texting while driving allows states to address a relatively simple piece of the more complicated issue of driver distraction. Driver distraction is at the heart of laws that a few states have passed forbidding all cell-phone use by drivers unless they employ a hands-free device. This year, legislatures in other states surely will consider that idea, too.

But hands-free laws are controversial. Research indicates that hands-free cell-phone calling actually isn't any safer. The distraction of the conversation, not the removal of the hands from the wheel, is the key risk factor.

In spite of that debate, texting bans haven't met much opposition. That's because texting while driving doesn't just involve taking your hands off the wheel but also your eyes off the road. No one thinks that's safe.

Still, states do have some tough decisions to make on texting while driving. Should it be a primary or secondary offense? And if a law is enacted, will it be enough to change behavior? Adkins suggests that states may need to combine enforcement with robust public outreach, as they have with the "Click It or Ticket" seatbelt campaign. That may be the only way for the message to be heard.

Overseas Voting

The management of elections in the United States is unusual compared with most of the world. The federal government doesn't oversee elections for federal office. States do. "The one thing that every state has in common," says Doug Chapin, director of Election Initiatives at the Pew Center on the States, "is that they do everything differently."

Over time, some states have created a combination of complex requirements and tight deadlines that have made it difficult for Americans living overseas -- whether they're civilians or members of the military -- to cast ballots. Last year, a Pew report found that at least one-third of the states don't give active-duty members of the military enough time to vote.

That report helped spur Congress to approve the Military and Overseas Voter Empowerment Act last fall. The act mandated that states send ballots to voters overseas at least 45 days before federal elections and that voting documents, including voter registration forms and absentee voting applications, be made available electronically. Plus, it ended requirements that overseas voters have their ballots notarized.

Some states are already in compliance with these rules, but many aren't. They'll have decisions to make, such as whether overseas voters will be allowed to submit ballots by fax or e-mail. And they'll need to consider protections to ensure that electronic submission doesn't compromise the secret ballot or create an invitation for voter fraud.

The biggest effect of the new law is likely to be in the 10 states that hold their primary elections in September -- Delaware, Hawaii, Maryland, Massachusetts, Minnesota, New Hampshire, New York, Rhode Island, Vermont and Wisconsin. Given the time it takes to certify election results and print ballots, these late primaries likely will make it impossible to abide by the 45-day rule for the general election. Officials in these states are mulling whether to move their primaries to an earlier date or ask for exemptions from the feds.

Testimony Rules

A U.S. Supreme Court ruling from last June has prosecutors fretting, defense attorneys celebrating and state legislators mulling their next move. That's because in many states, it's common practice for lab technicians -- the people analyzing suspected drugs or Breathalyzer test results -- to submit their evidence without showing up in court. But the Constitution's Sixth Amendment gives defendants a right to confront their accusers. Last year, in Melendez-Diaz v. Massachusetts, the Supreme Court ruled that this provision means defendants have a right to call on lab techs to testify in person.

Prosecutors predict that implementing the decision will be a mess. They worry that evidence labs will grind to a halt as technicians are tied up in court. Almost immediately after the decision, defense attorneys started to use it to challenge convictions.

Defenders of the decision, though, note that some states already give defendants the right to confront lab techs and there have been no major logistical hassles. That's because defendants usually waive the right. "In most cases, the defendant doesn't particularly want the technician to testify," says Richard Friedman, a law professor at the University of Michigan. "They don't have anything to gain from it." For instance, a defendant might not want a lab tech to be there in person to say, "Yes, that white powdery substance was cocaine."

Regardless of which side is right, states have to get in compliance with the ruling. One option is for them to seek out a middle ground through what's known as a "notice-and-demand" rule. Under that arrangement, prosecutors inform the defendant that they will rely on lab results and then offer the defense the opportunity to demand that the tech testify in person. Virginia's legislature, for one, rushed into special session after the Melendez-Diaz ruling to approve a notice-and-demand rule.

Even if states change their rules, that won't be the end of the story. Melendez-Diaz was a 5-to-4 decision that didn't break down along the court's normal ideological lines. Justice David Souter was part of the majority, and now he's been replaced by Sonia Sotomayor, who may take a different approach. That's significant because the court has agreed to hear another case this year that covers much of the same ground as Melendez-Diaz. States will be watching to see if the court has a change of heart.

Josh Goodman
Josh Goodman  |  Former Staff Writer
mailbox@governing.com

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