The nation's political map has turned blue, but state budgets have gone decidedly into the red.

The Democrats enjoy a more than 850-seat edge in state legislatures nationwide, after making incremental gains in November's elections. Their reward: budget shortfalls in state after state, in some cases running into the billions of dollars. The cash crunch will rival the one states endured earlier this decade, and may surpass it. "People said that the last fiscal crisis was the worst in 50 years," says Nick Johnson, director of the State Fiscal Project at the Center on Budget and Policy Priorities. "Now, here we are again."

As a result, money -- or the lack of it -- will color almost every spending decision that legislatures take up this year. Meanwhile, the economic recession will shape many policy and regulatory debates, as lawmakers will hesitate to do anything that might make a dire jobs situation even worse.

The big wildcard for 2009 is Washington, and what sort of relationship states develop with the new administration and a Congress controlled more firmly by the Democrats. If the feds include aid to states in an economic stimulus package, it would change budget calculations in state capitals overnight. Likewise, a more activist government in Washington could alter the leadership role states have been playing on issues such as climate change.

Balancing the Budget

As states get to writing their budgets for next year, many of them also will have to go back and plug holes in last year's. Some 41 states either have a mid-year shortfall for the 2009 fiscal year or will face a shortfall in 2010, according to the Center on Budget and Policy Priorities.

Many states already were enduring fiscal problems last year. But others had managed to avoid that fate: States whose economies rely on agriculture or energy resources generally thrived. This year, however, the pain is much more widely shared. According to the Rockefeller Institute of Government, all three legs of the state-revenue stool -- personal income taxes, sales taxes and corporate income taxes -- are weak.

Unless they can scrounge more money out of reserves, legislators will face many difficult choices between cutting spending and raising taxes.

College Tuition

Higher education is usually the first line-item states cut when they hit budget trouble. That's not because anybody thinks of higher ed as unimportant. But it's not viewed as sacred in the same way that K-12 education is. What's more, colleges and universities can raise tuition rates when state support declines. "Higher ed gets a disproportionate cut in economic bad times," says Joni Finney, vice president of the National Center for Public Policy and Higher Education, "but it gets the money back in economic good times."

This year, the dynamic is a little different. For one thing, funding for higher ed never really recovered from the last recession. As a result, college tuition has been rising far faster than the rate of inflation. And here's the double whammy: The credit crunch is making student loans harder to come by for many families. Lawmakers won't want to make additional cuts to higher ed -- there's a growing understanding that strong colleges and universities are essential to a strong economy.

But they may have no choice. Higher ed has already seen cuts in states such as Maryland, Pennsylvania, South Carolina, Virginia and Washington.


The U.S. Supreme Court's landmark decision on gun control last June established a private right to own firearms. Whether District of Columbia v. Heller will be a boon for the National Rifle Association and its allies isn't clear yet because few places have gun laws as restrictive as the one that the court struck down. But Heller also left some room for gun opponents to make a new case before state legislatures.

Brian Malte, director of state legislation for the Brady Campaign to Prevent Gun Violence, believes Heller will actually help the cause of gun control. The reason: Now that the Court has said guns can't be banned entirely, the NRA can't cast milder restrictions on gun ownership, such as safe-storage laws, as secret steps toward government taking people's guns away. "A lot of times they were able to scare legislators," Malte says. "Now, there is no more slippery slope."

What's more, the NRA may be a victim of its own legislative success. Earlier this decade, the NRA persuaded virtually every legislature in the country to permit gun owners to carry concealed firearms -- only Illinois and Wisconsin still completely forbid concealed guns. Now, the NRA has moved on to other issues that face longer odds, such as allowing guns on college campuses.

Both of those factors explain why, for the first time in years, gun-control advocates feel they're on offense in state legislatures. They're pushing for expanded background checks for gun buyers and for "microstamping" of firearms -- technology that makes it possible to identify the gun that fired a bullet.


The federal government almost certainly will drop billions of dollars on state highway and bridge projects this year. State leaders had better enjoy it. Because short of the feds printing money to try to stimulate the economy through public works spending, states face long-term problems when it comes to financing transportation projects.

The source of their woes isn't just the economy's slide. Ironically, part of the problem is consumers' newfound preference for fuel-efficient vehicles. States depend on gas taxes to fund transportation. As cars burn less fuel, drivers pay less in taxes to pay for roads, bridges and transit. "We want people to be more fuel efficient," says Buffie McFadyen, who chairs the Transportation and Energy Committee in the Colorado House of Representatives. "We want less consumption. But, by encouraging both of those things, it's become detrimental to our funding sources." Compounding the problem, the federal government's Highway Trust Fund is facing its own cash crunch.

The result: States from coast to coast are rethinking the way they pay for transportation projects. Some of the ideas on the table include tolling new and existing roads, leasing toll roads to private companies and shifting roads maintenance to local governments. Meanwhile, some states are studying replacing the gas tax with mileage-based taxes.

One big question this year is whether the political dynamics have changed enough for states to raise gas taxes. When gas prices were north of $4 per gallon, such a move would have been politically suicidal. Now, with gas prices much lower, the idea is likely to receive a look in a few states, including Oregon and Massachusetts.

Global Warming

For the past eight years, a growing group of states has pushed for bolder action against global warming. More often than not, the federal government pushed back. Now, with a more sympathetic administration in Washington, the states will be left with a new challenge: finding their role on climate change as the feds begin to act.

States have set targets for reducing greenhouse-gas emissions, formed interstate partnerships to cap emissions from power plants, and have pledged, pending federal permission, to regulate automobile emissions. "We think things have been moving," says Judi Greenwald, vice president of innovative solutions at the Pew Center on Global Climate Change. "It's really remarkable."

One sign of the movement: Starting this month, a group of Northeastern states will become the first in the nation to enforce caps on power plant emissions, through what's known as the Regional Greenhouse Gas Initiative. Lawmakers in other states will be watching RGGI closely to determine whether the system -- allowing power plants to trade emissions credits -- works. But RGGI and other state cap-and-trade efforts could be short-lived, depending on how Congress chooses to approach the issue in a national context.

States still are expected to take the lead in other areas, such as adaptation -- preparing for the impacts of global warming, even as steps are taken to prevent them from happening. Over the past couple of years, several states have begun developing adaptation plans, and Greenwald expects the trend to continue.

Social Safety Net

The strength of the social safety net that states provide for the poor is about to get its biggest test in at least a generation. Already, it's clear that there are a couple of holes that need patching.

One of them is unemployment benefits. In as many as 19 states, the funds that pay for unemployment benefits have been pushed to the brink of insolvency. Some states likely will ask the federal government for emergency loans, but they also may be forced to raise taxes or make benefits less generous.

At the same time, a lot of states are looking at overhauling their welfare programs. In 2006, Congress tightened some requirements under Temporary Assistance for Needy Families. Now, the implications of those rules are becoming clear. About half of the states probably won't meet federal standards for shifting welfare recipients into work. One trend is for states to provide financial help to the newly employed, to ease the transition from welfare to work.

The reality in 2009, however, is that work won't be easy to find. Some economists expect the national unemployment rate to reach 9 percent. As always, demand for social-safety net services will increase at precisely the moment that states struggle most to pay for them.


Budget crises have a way of making the politically impossible suddenly possible. Case in point: criminal sentencing.

Corrections was becoming a strain on state budgets even before the economy began to dive. Over the past few decades, prison populations have grown at a far faster rate than the population as a whole. Nowhere is the problem more pronounced than in California, where the state faces an $8 billion federal court order to improve health care for prisoners.

Gradually, some states have been stressing alternatives to incarceration, in the belief that rehabilitation programs would prove more effective. But the tenor lately is different: Now, it's about cutting costs, and quickly. Lawmakers in Pennsylvania and Kentucky expanded early release programs last year. Even in conservative South Carolina, the corrections chief is asking legislators to approve early releases.

Brad Williams, a lobbyist with the Detroit Regional Chamber of Commerce, hopes Michigan -- which spends more on corrections than on higher education -- will join the trend. The Chamber is taking the unusual step of getting involved in corrections policy in the hopes that changes can stabilize the state budget and make business tax cuts possible. Williams wants a commission to overhaul sentences. He'd also like to see prison food services privatized, and to remove political appointees from parole boards, because career employees are more likely to grant parole. "The longer we postpone this," Williams says, "the longer we're going to be paying skyrocketing corrections costs."


Even as gas prices have plunged, interest in state energy policy remains as high as ever.

This year, however, the focus won't be on relieving pain at the pump. It will be on the newest buzz phrase in state government: "green jobs." Policy makers see alternative fuels and clean energy not only as a means to heal the environment but also to heal their economies. Minnesota Governor Tim Pawlenty, for example, wants legislators to pass tens of millions of dollars in tax credits for businesses that develop renewable energy.

Still, there's skepticism about some sources of alternative energy. Corn-based ethanol, for example, has taken some blame for raising the price of food. Last year, Texas Governor Rick Perry petitioned, unsuccessfully, for the federal Environmental Protection Agency to drop federal ethanol mandates. A key test this year will occur in Missouri, where some lawmakers want the state to reverse its mandate that all fuel consist of 10 percent ethanol.

A lot of the discussion in legislatures will be about more traditional energy sources. Legislators on the Atlantic seaboard will return to last fall's debate about offshore oil and gas exploration. Coal has been the big issue in Kansas. Governor Kathleen Sebelius spent much of last year battling legislators over two proposed coal plants, which her administration rejected as environmentally harmful. Similar controversies are likely elsewhere, as states ponder the future of coal in an era of concern about global warming.

Controlling Health Costs

Health care costs have been growing faster than the rate of inflation for years. Today, Medicaid represents more than 20 percent of state budgets -- and it's still growing. What's more, demand for Medicaid only increases when the economy turns sour. So as the debate over expanding health coverage moves to Washington, the big health care issue in state capitals will be finding ways to spend less. "Unless we contain the costs," says Therese Murray, president of the Massachusetts Senate, "we're not going to be able to afford the care."

Lawmakers generally aren't willing to concede that cutting health care costs means reducing the quality of care. Quite the opposite: A consensus is emerging around steps that some believe can make health care both cheaper and better at the same time. For example, states are refusing to compensate hospitals for medical errors, as a way to discourage costly mistakes. They're looking at implementing electronic records as a means to better manage health information. And they're buying into the concept of "medical homes" -- linking patients to primary care providers who can improve coordination of care.

Even if these approaches work, they aren't likely to save money in the short term. So lawmakers will have to make other moves to alleviate their immediate budget problems. New York is set to consider cutting reimbursements to hospitals for their Medicaid costs. Georgia is looking at increasing fees on health insurers to plug its shortfall.


Texas state Senator Jeff Wentworth has introduced the same bill every session since he entered the legislature in 1993. The legislation would create a bipartisan process to conduct congressional redistricting. This year, Wentworth says, the bill has the best chance it has ever had.

State legislatures won't begin redrawing electoral maps until 2011 -- after the next census and another round of legislative elections. But now is when the posturing begins. A number of states this year will be debating ways to take partisanship out of the process and make elections more competitive.

Redistricting reformers can point to California for inspiration. Voters there approved a ballot measure in November that creates a citizen commission to draw state legislative districts. Following California's lead, Utah Governor Jon Huntsman Jr. is making changes to the redistricting process a priority. Leading Democrats in Virginia have announced their support for the idea, too. And in Texas, Wentworth's optimism is fueled by support from Governor Rick Perry and the possibility of new leadership in the state House of Representatives.

Reluctant lawmakers won't give up one of their most potent powers without a fight. But if reformers want to try, they'll need to act soon -- or else wait another decade to try again. "That's not funny," Wentworth says. "This is the year that we have to do it."