What’s Holding Up So Many State Budgets?

With fiscal year 2015 coming to a close, more than a dozen states have yet to strike a budget deal.
by | June 25, 2015

With just one week left in the 2015 fiscal year, more than a dozen state governments have yet to agree on a spending plan for the coming year. Of the states that have reached an agreement, most of those budgets only came after long, sometimes testy legislative debates. It's a situation that is threatening to become the norm. "This year we've seen a plethora of states where it's been an intractable situation moving forward with their budgets," said Sujit CanagaRetna, a senior fiscal analyst for the Council of State Governments. "It's overall been a bit of a mess, to put it mildly. And I think we're going to see more of this going forward."

A total of 14 states have still not enacted or even agreed upon a budget for the 2016 fiscal year (see table below for a list of states with no budget deal). The underlying problems with budgeting this year can be broken down into three categories. The first involves simple disagreements about policy, in particular cutting taxes and/or restoring services. Maine, for instance, just passed a budget last week that dialed back Gov. Paul LePage's proposed expansion of the sales tax but included cuts to the income tax. Lawmakers in Wisconsin are still arguing over a range of issues including transportation funding, wages for construction workers and public financing for a new Milwaukee Bucks arena in their 2015-2017 budget.

The other two categories of contention are more recent developments. Some states are struggling under the weight of a systemic financial imbalance that prior budgets have papered over with one-time fixes. And other states are simply confronting unforeseen budget deficits.

In some places, politics are making things worse. Last year's midterm elections marked the return of divided government, with more than a third of states now in split-power situations. Illinois, New Jersey and Pennsylvania all have governors who face legislatures controlled by the opposing party and all three states have serious systemic budgetary imbalances. The executive and legislative branches in these states remain far apart ideologically on how to fix an extremely difficult problem. In Pennsylvania, Republicans refuse to consider tax increases proposed by Gov. Tom Wolf to address for an estimated $2 billion deficit. In New Jersey, the Democrat-controlled legislature this week revealed their own plan for a state budget that calls for some tax increases and makes a $3.1 billion payment to the public pension system. Gov. Chris Christie's proposal would make a $1.3 billion pension payment. And the budget proposed by Illinois Gov. Bruce Rauner, a Republican, is different from his legislature's proposal by about $5 billion.

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But politics alone aren't to blame, particularly in states where the issue up for debate is closing a budget gap. Instead, the slow-moving economy is forcing legislators to face hard realities. Kansas lawmakers last week in a special session finally agreed to some tax increases to erase a projected budget deficit of about $800 million. The budget, however, relies upon a successful appeal to reverse a court ruling that forces the state to make huge increases in school funding. The state, which has a Republican-controlled legislature and Republican governor has struggled with revenue problems since lawmakers slashed personal income taxes in 2012 and 2013 at Gov. Sam Brownback's urging. He sold the cuts as a way to stimulate the economy.

In many cases, states have or are making provisions to keep government open if budgets aren't approved by July 1. Massachusetts, for example, has passed an interim budget to keep government running through July as the legislature sorts out its tax debate. But in states where the opposing lawmakers are unlikely to compromise, financial analysts are concerned about stability, particularly with regards to credit ratings. Standard & Poor's warned in a report issued this month that Illinois lawmakers' "inability to agree upon a credible set of fiscal adjustments that move it toward structural alignment while simultaneously beginning to address its pressing long-term liability problems may result in us lowering the state's rating." Illinois already holds the lowest credit rating of the 50 states.

Republican-controlled Louisiana also faced a $1.6 billion projected shortfall, one that CanagaRetna of the Council of State Governments attributes largely to tax cuts and tax credits approved during Louisiana's business and development boom following Hurricane Katrina. This year, lawmakers went into overtime to approve a complicated budget deal that combines tax credits with increases in an effort to keep Gov. Bobby Jindal's promise to not raise taxes. And in Connecticut, where Democrats dominate the legislative and executive branches, lawmakers are reconsidering their budget deal that raises business taxes after some major employers warned they could leave the state.

"We're going to see more of this in the sense that the whole tax issue remains such a challenge," CanagaRetna said. "We do have outliers and some states have been able to increase taxes. But by and large, we're going to be looking at these kind of very polarized systems of government -- even when they're all from the same party."

State of State Budget Deals (as of 6/25/2015)
No deal Alabama, Connecticut, Delaware, Illinois, Massachusetts, New Hampshire, New Jersey, North Carolina, Oregon, Pennsylvania, South Carolina, Washington, Wisconsin
Enacted or agreed to a deal Arizona, Arkansas, Alaska, California, Colorado, Florida, Georgia, Hawaii, Idaho, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Mexico, New York, North Dakota, Ohio, Oklahoma, Rhode Island, South Dakota, Tennessee, Texas, Utah, Vermont, Virginia, West Virginia, Wyoming