Celebrate the New Fiscal Year!

By Jim Stergios
July 1st, 2008

The budget’s not done but we are officially in a new fiscal year. Happy fiscal year 2009! We have all kinds of games and rides available: rollercoaster budget negotiations for the select few on the conference committee (long ride, might last a few weeks into the new fiscal year), the house of mirrors used to keep you the citizen from understanding where the money is going, and the house of horrors where the state’s financial analysts finally force themselves to stare at the coming collapse in capital gains revenues. And, yes, there is cotton candy served on paper cones made from bond prospectuses.

Are we ready?

Across the country, we have seen unsustainable increases in general fund spending. In the Commonwealth, budgeted expenditures were almost 7% higher in 2006 than in 2005, and 2007’s were almost 10 percent higher than in 2006. So what are we to do when the economy slows?

Jennifer Steinhauer of the NY Times summarizes the challenge:

State tax revenues, adjusted for inflation and tax cuts, fell 5.3 percent in the first quarter of 2008 compared with the same time a year ago, according to a report to be released Tuesday; it was the third quarter in a row that total adjusted revenue declined. The first quarter revenues were the weakest among states since early 2003.

Sales tax revenues, the beating heart of many budgets, were essentially flat for the first time in six years. Corporate income taxes declined 5.1 percent from January to March compared with the same period the previous year — the third straight quarterly decline. And 12 states showed a falling off in personal income taxes, though revenue from those taxes rose 4.4 percent nationwide.

Steinhauer further reports that

In Nevada, where the Legislature is not officially in session, Gov. Jim Gibbons, a Republican, called last week for state agencies to cut their budgets by 4 percent on top of $914 million in previous cuts in the current two-year budget cycle — all toward closing a $275 million deficit. Layoffs are also expected.

In Rhode Island, WJAR-News10 reports that Governor Donald Carcieri used the coming fiscal crisis as a way to extract benefits reforms and to trim the state workforce.

In October [2007], the governor announced plans to eliminate about 1,200 state jobs through layoffs and attrition. In the end, Carcieri fired about 220 workers, but he used the layoff threat as a bargaining chip to force other changes.

Earlier this year, Democratic lawmakers voted to reduce retirement benefits for state workers, which created a flood of retirees. Hundreds of those positions may remain vacant since Carcieri said he must eliminate 300 to 400 more jobs to balance the budget.

In return for halting the layoffs, union leaders agreed last week to a tentative deal that would force their members to pay more for health insurance and forgo a pay raise next year. As part of the terms, unions leaders supported a bill scaling back restrictions that make it extremely difficult for Carcieri to replace state workers with nonunion private contractors. It passed last week.

Back home, one wonders if we will have enough in the Rainy Day Fund to weather the storm…