State Budget Battles Show Few Signs of Letting Up

By Jon Kamp Features Dow Jones Newswires

Showdowns over state budgets are coming down to the wire around the U.S. as lawmakers struggle to hash out issues like education funding and taxes while, in some cases, trying to ward off state shutdowns.

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The flurry of 11th-hour negotiating reflects the underlying revenue weakness that has broadly dogged states in the past two years and inflamed debates over how to spend limited resources, according budget experts.

Maine's Gov. Paul LePage has threatened to shutdown the state for the first time since 1991 over disagreements on taxes. In Connecticut, Gov. Dannel Malloy is preparing deep spending cuts as an agreement before Friday night appears elusive.

All but four states start their next fiscal year on Saturday, and legislatures in 11 of those states had yet to finalize a budget as of Wednesday, according to the National Association of State Budget Officers.

"It's not untypical to wait to the end. What's untypical is the degree of crisis that we're seeing in terms of not being able to make the budget balance," said Elizabeth McNichol, senior fellow at the left-leaning Center on Budget and Policy Priorities. She noted this kind of stress in budget negotiations is more common during a downturn.

The lengthy budget processes may be another sign that states are on an unusually rocky fiscal road despite being eight years into an economic recovery. A recent Nasbo analysis of governors' spending proposals for the coming fiscal year showed they were aiming for just a 1% increase in general-fund spending, the smallest rise since fiscal 2010.

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Nowhere are the budget pressures greater than in Illinois, which faces a possible debt downgrade to junk status and hasn't had a budget for two years. The two-year budget stalemate has resulted in a nearly $15 billion backlog in unpaid bills. Gov. Bruce Rauner has told lawmakers he will keep them in session beyond Friday's deadline if they fail to agree on a balanced budget.

Some states are finding a way forward. Washington state lawmakers Wednesday reached the outline of a deal that would avert a partial government shutdown. The sides had been at odds over education funding.

Elsewhere, states like Pennsylvania and Connecticut are struggling to fill large deficits.

"There's still a core number [of states] that are dealing with the fact that revenue is just not growing at the same pace as expenditures," said Marcy Block, lead Fitch Ratings analyst for Connecticut, New Jersey and Delaware.

Budget work in those three states has come down to the wire, most notably in Connecticut, where lawmakers are struggling to deal with a $5.1 billion shortfall in the next two-year budget period.

Gov. Malloy has said if lawmakers can't reach an agreement he will issue an executive order to keep the government running that would close the deficit through spending cuts alone, which would amount to a $2.1 billion reduction for the entire fiscal year beginning Saturday. That plan would sharply reduce education funding, eliminate summer youth employment programs and cut rental-assistance programs.

In New Jersey, lawmakers face a possible government shutdown over the holiday weekend if they can't reach a deal. But all sides remained at odds Thursday with competing priorities between education spending and Republican Gov. Chris Christie's push to give the state more power over its largest insurer.

The consequences for failing to pass a budget on time vary by state. In Wisconsin, where Republican lawmakers are hashing out disagreements over how to raise transportation funding, the state operates at prior-year funding levels until a new budget is enacted.

There are also 22 states where the government shuts down over a blown budget deadline, according to the National Conference of State Legislatures.

Maine is hovering close to its first government shutdown in more than two decades while lawmakers try to fashion a budget that increases education spending while undoing a voter-backed additional tax on the state's high-income earners that was passed in November. Republicans have sought to do away with that tax altogether while Democrats have agreed to lessen it.

A plan from Senate Republicans on Wednesday appeared to bridge the gap on education spending, but Republican Gov. LePage blasted the proposal on a radio show Thursday. The plan included a lodging-tax increase he had supported, but without an offsetting income-tax cut he sought, a spokesman said.

To pass the two-year budget, the state legislature will need a two-thirds majority, enough to also override a potential veto. But the governor can hold the bill for 10 days before issuing that veto, and Mr. LePage said Thursday he is ready to do that.

In a news release, the governor said state police and state parks are among the entities that will continue running during a shutdown.

The disruption could prove harmful to the state's tourism and hospitality industry, said Mark Brewer, a political-science professor at the University of Maine. The timing is bad, with travelers about to hit the road for the long Independent Day weekend.

"If I had hair and I worked in those industries, I would be pulling it out right now," Mr. Brewer said.

--Joseph De Avila and Kate King contributed to this article.

(END) Dow Jones Newswires

June 29, 2017 17:04 ET (21:04 GMT)