Last November’s historic elections mean that this month, an unusually high number of new faces will be roaming legislative halls and gubernatorial offices. The 29 new governors and 1,610 new legislators taking office will face extremely difficult decisions on how to spend the limited money they have -- and how best to handle looming structural imbalances in their budgets for the years ahead. The rosier economic picture nationwide won’t do much to make things easier, as states continue to struggle with unfunded pension systems and new expenses imposed by the federal health-care reform law. Education reform will be a big topic of debate, as will immigration, foreclosures and medical marijuana. In a docket already full of behemoth issues, one more could end up overshadowing all the rest: It’s time for once-a-decade redistricting, as legislators begin redrawing the political lines that will shape state and federal elections for years to come.
While state revenues began recovering in the latter part of 2010, it’s hardly cause for breaking out the champagne. The rebounding national economy will help stabilize state revenues this year, but those gains will largely be undone by disappearing federal stimulus dollars.
Most officials actually anticipate a positive outlook for the remainder of fiscal 2011, with 35 states reporting that they don’t foresee a budget gap this year, according to a recent survey from the National Conference of State Legislatures (NCSL). That’s fueled mostly by healthier revenue growth predicted in income and sales taxes. The National Association of State Budget Officers (NASBO) is forecasting a 4.4 percent revenue increase over fiscal 2010. “It’s a pretty nice, significant switch from the declines we saw in 2009 and 2010,” says NASBO Executive Director Scott Pattison. Governments, he says, are out of the crisis mode of the past couple cycles. “I think we’re really past that.”
But as the stimulus “cliff” approaches -- and as education and health-care costs continue to rise -- states are anticipating major budget gaps for fiscal 2012 and beyond. States will have $37.9 billion less in American Recovery and Reinvestment Act funds for fiscal 2012 than they did for this year. Looking ahead to 2012, 35 states tell NCSL they’re already forecasting budget gaps. Among the 31 states (and Puerto Rico) that have produced actual gap estimates, the sum totals $82.1 billion. With those gaps on the horizon and no real relief in sight, this year still promises to be full of grim budget-balancing decisions.
Education reform occurred at a torrid pace in 2010 as all but a handful of states vied for a share of the $4.35 billion in federal Race to the Top funds. Now that the winners have been announced, the remaining states are wondering what to do with the ambitious reform plans they passed.
While most states are pledging to forge ahead with their reforms, others face battles to amend or repeal them due to a lack of funds. New Jersey, for example, still has several reform proposals up before the Legislature. Without federal money, and looking at a state budget deficit of as much as $10.5 billion next year, observers say Gov. Chris Christie and the Legislature aren’t likely to go forward with the reforms.
Still, many of the new measures spurred by Race to the Top will go ahead as planned. Last year, for example, 15 states lifted their caps on public charter schools. For the upcoming session, expect states to tweak their charter school laws even further, including changes to “charter financing, facilities and accountability issues,” says Yilan Shen, an education policy specialist at NCSL.
And there’s one experiment that education reformers will be watching with particular interest this year: the “parent-trigger” law passed in California last January. In a school deemed “failing,” if 51 percent of parents petition the school board, they can have the school shut down, the faculty replaced or the entire facility converted to a charter school. Connecticut passed a similar law five months later, although that measure gives nearly as much power to the teachers as the parents. This year, Georgia, Indiana, Maryland, Michigan, New Jersey and West Virginia reportedly plan to introduce parent-trigger laws.
For many politicos, one legislative issue will trump all others this spring: redistricting. Thanks to the November elections, the process of redrawing the political map will be firmly in the hands of Republicans, with only a few exceptions. Democrats did remarkably well in Colorado and Illinois. In some states, however, Republicans won perhaps too many seats. In North Carolina, Ohio and Wisconsin, the state flipped from complete Democratic control to complete Republican control. In those three states, Republicans won so many seats that they’ll almost certainly be forced to relinquish control of a district or two to Democrats.
For most states, the redistricting process will proceed as usual: When the U.S. Census Bureau releases new population data in March, state legislatures will use the information to redraw congressional and state legislative districts. But in a few places, the once-a-decade redistricting will undergo a few changes. California, for example, has turned over its process to an independent commission.
Most notable this redistricting season are the new voter-approved mandates in Florida. The Sunshine State has some of the least competitive legislative elections in the country; incumbents retain their seats a whopping 98 percent of the time. Until last Election Day, Florida only required that its districts be contiguous. Under the new mandates, districts must also be compact; equal in population; and make use of existing city, county and geographical boundaries. Legislators now are expressly forbidden from drawing districts to favor or disfavor an incumbent or political party. It remains to be seen how the amendment will be enforced, and critics say it could dilute minorities’ voting power -- a lawsuit is pending.
Pension reform was a hot topic last year, as nearly a dozen states passed laws making changes to their troubled pension systems. Some closed loopholes that had allowed a small number of workers to cash in on lucrative benefits. But most states focused on either cutting the pensions for new workers or increasing the amount of money workers pay into the systems. A handful of states directly challenged pension policy by cutting benefits that had been promised to current workers. In response, retirees have filed lawsuits to protect their benefits; policymakers and unions are watching closely.
The legislative session starting this month is expected to be busy with pension proposals. The biggest topic likely will center around the type of pension system states should run.
For decades that has meant a defined-benefit system, which guarantees each retiree a monthly payment. But the private sector has largely shifted to a defined-contribution pension system, popularly known as a 401(k), which requires workers to take on a greater degree of planning and funding of their pension plans.
Newly elected governors in a number of states, including Alabama, Nevada, Pennsylvania, Rhode Island, Tennessee and Wisconsin, for example, have reportedly expressed interest in changing to a 401(k)-style pension system. Meanwhile, as the underfunded pension problem grows larger -- some experts now talk of a $3 trillion gap -- the easy legislative options for fixing the problem continue to shrink.
The health-care reform law brings many changes, but perhaps none affect states more than the revisions to Medicaid. And they come at a time when the public health system is already strained by increases in caseloads and costs. The universal health-care law expands the number of Americans who have health-care coverage. Individuals with incomes less than 133 percent of the federal poverty level are now eligible for Medicaid.By 2014, Medicaid enrollment is expected to grow significantly. At the same time, states will have to set up insurance exchanges and overhaul their IT systems to carry out the new responsibilities under the law. Twenty states are participating in a lawsuit seeking to repeal the changes while simultaneously preparing their Medicaid programs to deal with new provisions. Meanwhile, a number of governors are fuming about the projected cost increases and increased federal oversight, leading a few to talk about opting out, most notably Texas Gov. Rick Perry.
Most agree that such a move would be fiscally devastating for any state. In numerous state legislatures around the country, the talk will center on finding ways to overhaul Medicaid to give states more flexibility to run the program without so much federal oversight. That’s the thinking in Florida, for example, but others are skeptical that much can happen. “I don’t anticipate that the federal government is going to leave all the decisions up to states, especially when [federal officials] provide such a large portion of the funding,” Florida Senate Minority Leader Nan Rich told Kaiser Health News.
In 2005, state legislatures introduced 300 bills and enacted 38 laws on immigration. By 2009, more than 1,500 bills were introduced, 222 laws were enacted and 131 resolutions adopted. And that dramatic increase shows no signs of slowing: In the first six months of 2010, state legislators introduced 1,374 bills on immigration, including some -- in Michigan, Minnesota, Pennsylvania, Rhode Island, South Carolina and Tennessee -- that were modeled after Arizona’s controversial law requiring law enforcement officers to determine the immigration status of anyone they pull over or arrest, as long as the officer has a reasonable suspicion that the person is an illegal immigrant.
With no signal from Washington, D.C., that the federal government is about to tackle immigration reform in 2011, expect more state-level action this year. Watch for an anti-Arizona backlash in some places. Utah, for example, an unlikely alliance of political, business, law enforcement and religious leaders is pushing for what it calls “reasonable immigration” policies that don’t usurp federal policy, don’t tie up law enforcement with immigration issues and don’t result in breaking up families. Some state legislators are also onboard. “I think we are going to see maybe Utah finding a comprehensive solution,” state Sen. Luz Robles told Utah’s KSL.com. The compact has recently gained national attention as a set of principles that could frame state and national legislation.
In December, the Obama administration made a move to chip away at some of the stricter state laws by urging the U.S. Supreme Court to strike down the part of Arizona’s law penalizing employers who hire illegal workers. The move sets the stage for a high court ruling on the most disputed issue in immigration law: Can states enforce their own laws against illegal immigrants, or must they leave it up to the federal government to take action?
Prepare for another rough year in housing: The number of foreclosures is expected to increase in 2011 as more troubled mortgages work their way through the pipeline.
By the close of 2010, bank repossessions were expected to round out at about 1.2 million, up from 900,000 in 2009. Watch for 2011’s foreclosures to top both those numbers, say experts at Realty-Trac and the Mortgage Bankers Association.
Continued high unemployment and upcoming interest-rate resets on adjustable-rate mortgages are expected to exacerbate the foreclosure problem in the year ahead. But the increase is also being blamed on the temporary halt to foreclosure proceedings this past October. In the so-called robo-signing controversy, Bank of America and other lenders halted proceedings after learning that procedures for signing off on foreclosure documents might be illegal.
Shortly after the discovery, attorneys general in all 50 states announced they were joining forces to probe mortgage loan servicers who are accused of submitting false affidavits. The question is whether banks improperly took away Americans’ homes. As these investigations continue into 2011, state officials will be watching to see what shakes out.
Marijuana -- Real and Synthetic
The mainstreaming of marijuana likely will continue this year as more states take up legislation to legalize pot for medicinal purposes, or in some cases, to decriminalize possession for recreational use. Despite a few high-profile Election Day losses last year -- South Dakota voters rejected a medical marijuana bill; Oregon residents opted not to allow a system of pot dispensaries; and California voters shot down a high-profile proposition to decriminalize possession of small amounts of the drug -- pro-pot advocates point to Arizona, where a medical-marijuana statute passed by razor-thin margins. That makes Arizona one of the 15 states, plus the District of Columbia, that have legalized medical marijuana in the past decade and a half.
That may only be the beginning. According to the Marijuana Policy Project (MPP), a legislative advocacy group, some 20 states this year -- including Alabama, Illinois, Mississippi, New York and Ohio -- will consider medical marijuana laws. Another four -- Connecticut, Rhode Island, Vermont and Virginia -- will “almost definitely” take up bills that would decriminalize possession in small amounts. And as pot grows more prevalent, states and localities will look for ways to profit. According to MPP, this year Maine, Rhode Island, Vermont, Washington and possibly Indiana will consider measures to tax and regulate pot like they do alcohol and cigarettes.
Meanwhile, watch for more state measures to outlaw synthetic pot, a chemically engineered substance that mimics a marijuana high and is sold at convenience stores or on the Internet. Last year, 10 states passed legislation banning the sale or possession of synthetic cannabinoids, known popularly as “Genie,” “K2” or “Spice.” Agencies in another six states took regulatory action to curb availability of these substances. The U.S. Drug Enforcement Administration has temporarily added the substances used to make synthetic pot to its Schedule 1 list of illegal narcotics while it studies the issue. But states will almost certainly take additional action on their own this year.