State Lawmakers in U.S. Race to Close Budget Deficits as Deadlines Loom

Lawmakers from Boston to Sacramento are racing to cobble together spending plans in at least nine U.S. states with just a week left before the fiscal year begins.

Minnesota is bracing for a government shutdown that may idle more than 36,000 workers because Governor Mark Dayton, a Democrat, remains at odds with the Republican-led Legislature over closing a $5 billion deficit. California lawmakers have forfeited their pay after missing a June 15 deadline. New Jersey Democrats and Governor Chris Christie, a Republican, appear headed to an 11th-hour showdown over alternative spending plans.

The last-minute tussles cap a struggle by states to close gaps estimated to have totaled $103 billion this year, according to the Center on Budget and Policy Priorities. It’s the fourth- straight year states have grappled with fiscal fallout from the longest recession since the Great Depression, this time without extra federal aid they’ve received since 2009.

“Revenues aren’t growing fast enough to counteract the drop-off in the stimulus funds,” said Brian Sigritz, who follows fiscal policy for the National Association of State Budget Officers in Washington. “It’s very difficult because of the wind-down in the recovery act dollars.”

Starting in 2009, states received $135 billion of emergency economic-stimulus federal aid, which offset tumbling tax revenue and helped cover the rising costs of Medicaid. The health-care program for the poor swelled as more people lost insurance along with jobs. Only $2.8 billion of that money will remain next year, according to the budget officers group.

Recession Effects Linger

While demands on government funds have grown in the past three years, tax collections have yet to return to 2008 levels, according to the U.S. Census Bureau. The Budget Policy Center in Washington, a nonprofit group that focuses on issues that affect lower-income Americans, said this month that the states that still haven’t completed spending plans initially faced fiscal 2012 deficits totaling about $48 billion.

By yesterday, the legislatures in those nine states had yet to send their governors an acceptable budget. Among them are Iowa, Massachusetts, Ohio, Oregon, Pennsylvania and Rhode Island. All have fiscal years that start next month.

Such delays aren’t uncommon in statehouses, said Jon Shure, who tracks state finances for the Budget Policy Center. He said most will have a plan in place by the end of next week.

“There’s often late-game drama but it doesn’t go into extra innings,” he said. “Most of them are looking like they are not going to have a problem.”

Connecticut Drama

Residents of Connecticut may get a dose of budget drama next week. Governor Dannel Malloy yesterday called the Legislature to a June 30 special session in Hartford to take steps to balance the plan they passed last month if state unions reject $1 billion in concessions. The $40.1 billion two-year spending plan includes about $2.6 billion in new taxes, the biggest increase in state history.

In trying to close deficits, governors have sought to curb employee pay and benefits, slash local aid and school spending, or raise taxes, sparking political battles and union protests.

New Jersey Democrats aim to boost funding for schools in a spending proposal they intend to introduce June 27, Senate President Stephen Sweeney said yesterday. That would come with three days left to enact a budget or risk a government shutdown. Christie has said he won’t sign a plan that raises taxes.

New Jersey’s constitution requires a balanced budget to be in place by the start of the fiscal year July 1, a provision that led to a partial shutdown in 2006 when then-Governor Jon Corzine deadlocked with his own party over proposed sales-tax increases. The impasse lasted about a week.

Pennsylvania Outlook

Pennsylvania Senate Majority Leader Dominic Pileggi, a Republican, is optimistic a budget will be in place before the fiscal year begins, said Erik Arneson, a spokesman.

Republican legislative leaders in Ohio told reporters this week that they plan to vote on a proposed $55.7 billion budget on June 28. Passage would advance it to Governor John Kasich, also a Republican. In Massachusetts, negotiators have been closeted in the State House, working out differences in spending plans passed by the Democrat-controlled Legislature’s two chambers in order to send a final budget to Governor Deval Patrick, also a Democrat, for his signature.

California Governor Jerry Brown, a Democrat whose party also runs the Legislature, is at an impasse with lawmakers over how to erase a $10 billion deficit facing the most populous U.S. state. Controller John Chiang began withholding legislators pay after deciding they hadn’t met a voter-approved mandate to send a balanced budget to the governor by June 15.

No Debt Sales

Without a budget, the biggest issuer of municipal debt in the U.S. is unable to borrow on Wall Street to pay bills when its fiscal year starts July 1. Such an impasse forced California to issue IOUs to pay its bills in 2009.

Government workers in Minnesota may lose their pay because of a budget impasse as well. The state is facing an imminent shutdown of all except crucial functions without an agreement on a spending plan. This month, the governor sent notices to more than 36,000 employees alerting them they might be dismissed, at least temporarily.

Minnesota’s government shut down in 2005 when then-Governor Tim Pawlenty, a Republican, clashed with legislators on the state’s spending. This time, Dayton has proposed raising taxes on the wealthiest residents, a step that has drawn fire from political opponents who control the Legislature.

Lawrence Jacobs, a University of Minnesota professor who directs its Center for the Study of Politics and Governance in Minneapolis, said the clash echoes the partisan gulf in Washington that affects the debate over the national debt. He said Minnesota residents aren’t optimistic the impasse in St. Paul will be resolved next week and are preparing for halted roadwork, job losses and shuttered state parks.

“It’s kind of like being along the Gulf coast and being given a hurricane warning,” he said. “People are putting in the plywood. The entire state is moving toward a shutdown.”

To contact the reporters on this story: William Selway in Washington at Wselway@bloomberg.net;

To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net

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