Even as the economy shows signs of picking up, the outlook for states is grim, according to a task force report by public policy and budget experts.
The report of the State Budget Crisis Task Force examined six states — California, Illinois, New Jersey, New York, Texas and Virginia — with large populations. It warned that the people in those states should expect cuts to education, social services and infrastructure investments as state governments struggle to cover the rising costs of Medicaid, healthcare for public employees and pension benefits.
At the same time state expenditures grow, the report found that tax revenues have gone down because of declines in the stock market, retail sales and corporate profits. In New York, overall adjusted gross income fell by 18 percent, and capital gains subject to income tax fell 75 percent between 2007 and 2009, according to the report.
“[States] must have a budget in which the recurring revenues match the recurring expenditures,” said former New York Lieutenant Governor Richard Ravitch who co-chaired the task force with former Federal Reserve chairman Paul Volcker.
Ravitch said New York has been dealing with funding shortages by borrowing and by selling assets. “They're kicking the can forward in a hundred different ways and ultimately it's going to be a disaster,” he said.
In particular, he criticized the New York Legislature for passing a law that allows cities and states to borrow from the pension fund in order to make its statutorily required contributions.
Morris Peters, a spokesman for the Governor's budget office, says a sweeping pension reform plan is expected to save state and local governments more than $80 billion over the next 30 years and the Governor’s Medicaid Redesign Team would remove billions of dollars of waste and inefficiency. In addition, he said since Andrew Cuomo took office, he's reduced projected deficits by a total of $77 billion and, for the first time since the financial crisis, made a deposit to the state’s rainy day reserve
Still, the report found that New York’s pension fund is better off than those of other states. New Jersey, for instance, has regularly underpaid its pension contributions creating a $14.5 billion shortfall over 6 years, according to the report. But at the same time the state has scaled back benefits.
A spokesman for Governor Chris Christie said that previous governors from both parties regularly underfunded the pension fund. He said Christie was the first governor to speak forthrightly about the nature of the problems, adding that a pension reform package was recently passed that pairs back benefits, increases the retirement age and ratchets up contributions so that the New Jersey will be meeting its obligations in the next seven years.
For more on pension underfunding listen to Amy Eddings interview of The New York Times' Mary Williams Walsh above.