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State Tax Revenues Up, Budget Crisis Not Over

With falling revenues and declining tax bases ripping holes in state budgets from California to Rhode Island, it’s been a bad few years for state governments. But a new report from the Nelson A. Rockefeller Institute of Government has some heartening news—state tax revenues have risen to $184 billion, higher than the pre-recession levels of $179 billion in 2007.

Needless to say, this is a good sign. Though the economy is not nearly back to full capacity, the American economy is resilient and is fighting to come back.

Yet there is also a darker side to this report. Tax revenues may have topped pre-recession levels, but these gains have been eaten away by inflation and the rising cost of services—especially healthcare. State budgets are still in trouble, and as long as healthcare costs continue to rise faster than inflation and state employers retain overgenerous, underfunded pension systems, state and local governments are likely to remain in trouble even with substantial increases in tax revenue.

The smart states will continue to reform and change. Increasing revenues are an opportunity to deal with the crisis, not an excuse to ignore it.

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  • Mark Michael

    Here in Ohio, the paper reported that state tax collections should be in the black when fiscal year 2012 ends June 30th by a modest $300 million. Given when Gov. Kasich took office in Jan. 2011, we had an alleged $8 billion 2-year budget deficit, that’s not bad. (He and the R-controlled state legislature balanced it strictly by spending cuts.)

    What it doesn’t tell you is that local governments and various agencies have had to cut their budgets quite a bit. The voters turned down Senate Bill 5 last November which would have required state workers to pay at least 15% of their health insurance premiums. It would also have ended collective bargaining for state workers. So now, local governments have to struggle with those unreformed situations.

    Example: my local school district. The latest newsletter says that 17% of the school staff has been laid off over the last 2 years. The budget for this year is in deficit by $2.3 million (paid for with savings), so it will have to be cut some more next year. As best as I could decipher from the numbers provided in the newsletter plus the district’s “report card” on the state’s dept. of education, the District laid off 77 people (the 17%) – 5 1/2 administrative positions, 53 teaching & certified positions, and 53 “other” positions. The “other” are secretaries, custodian & maintenance, classroom aides.

    I estimated their current compensation at (1) administrative average: $197,623, (2) teaching & certified personnel, $71,122, and (3) “other” $51,670. The one that makes you do a double-take is the near $200K for administrators! The district is small: 8 schools, so it’s not like they’re managing some huge, sprawling entity. (My estimates could be off, since I had to indirectly arrive at them.)

    The newsletter says nothing about health care costs and how much District employees pay. But the paper surveyed 15 local governments and for those, they averaged $12,500 per person/family and 10 of the 15 the employers paid every single penny! For 5, the employees kicked in 5% or maybe even 15%. So there’s not a lot of change, yet, for controlling health care costs.

    Ohio has state-managed retirement funds for their state workers. So employees do not pay into Social Security, but do into Medicare. It’s pretty expensive: 24% of the total compensation that the employer sees (noted above). The employee “sees” 10% come from his headline income; the employer adds 14% to get the 24%. It’s invested and has historically been well-managed: earned good returns. But the crash of the market in 2008 put them in the underfunded category. So cutbacks in retirement ages and amount of the benefits will have to be reduced. They are very rich today. A teacher can retire after 37 years and get 100% of the average of her 3 highest years of pay! Proposals to extend the time in service and reduce the max to 75% of that avg. of 3 highest years of pay by 2025.

    Ohio’s been growing faster than the national average since last fall. We’ve added jobs every month since maybe September. In February, we added 28,000 jobs, the most in the country, beating Texas by maybe 3,000. Our unemployment rate is down to 7.5% from close to 10% at the depth of the recession. That’s why our tax collections have trended up and the budget has a modest surplus at the state level.

  • Mark Michael

    An update on Wisconsin’s school budgets after Gov. Scott Walker’s “Budget Repair” bill was passed last year. The MacIver Institute reports that 3 of the largest school districts were responsible for 42% of the state’s educational staff reductions while employing just 13.3% of the state educational workers. See:’s-educational-staff-reductions/

    This is because they have strong unions and chose not to (or weren’t able to) take advantage of the new flexibility given them in negotiating contracts with their employee unions. Many districts were able to do that and saved lots of jobs by lowering their health care costs.

    The link has a table of staffing in Milwaukee, Kenosha, and Janesville for the school years of 2007-08 through 2011-12. What’s interesting in the table is that those big reductions are from last year (2010-11) to this year. But if you compare from 2007-08, it’s much smaller, since there was a big buildup in 2008-09. Those budgets would have been adopted before the Great Recession hit.

    For instance, Milwaukee’s DPS staff went from 9,639 in 07-08 to 10,860 in ’08-’09, then down to 9,130 for this school year (’11 – ’12). That’s a drop of 5.3% from 2007-08 to 2011-12. A city like Milwaukee is losing students every year, so a slow reduction in staff just keeps pace with the falling student enrollment.

    The table has a ratio of “FTE licensed staff” (full time equivalent staff licensed to teach, presumably) to students provided for each school year:

    2007-08 – 14.7
    2008-09 – 13.4
    2009-10 – 13.8
    2010-11 – 15.1
    2011-12 – 16.1

    The enrollment dropped 8.7% between 2007-08 and 2010-11 according to the MPS data. So you’d think the student-teacher ratio should stay about the same, since staff dropped 5.3%. Instead, it went up 9.5% as can be seen from the above list. That says (to me), that they laid off more teachers than overhead personnel. Or at least failed to consolidate schools enough as enrollment dropped.

    A note about my Comment No. 1 above on Ohio. I should have cited the number of personnel in my Ohio school district in each category: administrators, 16; instructor personnel, 240; and “other,” 120 for a total of 376 employees. They laid 77 employees over the past 2 years, but abolished more “slots” than that. (Probably positions they never filled, or somebody retired & they didn’t replace.) That’s why the numbers don’t add up exactly. (I estimated these from the newsletter writeup + other data I had.)

  • Luke Lea

    If one of our big states goes bankrupt will the federal government bale it out or let the chips fall where they may?

    Take California for example. Millions of native Americans have been fleeing that state for years now. If the welfare system goes bust millions of non-native ones might start fanning out across the U.S. as well.

    Really, our whole mass immigration non-policy has got to stop. This is not about illegals, its about numbers. A pause would be wise. Look at what’s happening in Europe.

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