innovative strategies: state efforts to stem the tide of red ink (presentation)

8/19/2019 Innovative Strategies: State Efforts to Stem the Tide of Red Ink (Presentation)

1/24

Innovative Strategies:Innovative Strategies:State Efforts to Stem the Tide ofState Efforts to Stem the Tide of

Red Ink Red Ink

Sujit M. CanagaRetnaSujit M. CanagaRetna The Council of State Governments The Council of State GovernmentsSouthern Legislative Conference (SLC)Southern Legislative Conference (SLC)

Presentation Before thePresentation Before theGovernor of AlabamaGovernor of Alabama’’s Commission on Efficiency,s Commission on Efficiency,

Consolidation, and FundingConsolidation, and Funding

Alabama State House Alabama State HouseMontgomery, AlabamaMontgomery, Alabama

November 21, 2003November 21, 2003


2/24

Two Main Parts Two Main Parts

II.. Broad National and State TrendsBroad National and State Trends

II.II. InnovativeInnovative Strategies Adopted by StateStrategies Adopted by State

PolicymakersPolicymakers


3/24

I. Broad Trends:I. Broad Trends:

NationalNational October 2003 Unemployment 6 percentOctober 2003 Unemployment 6 percent

GDP growth in Third Quarter of 2003 =GDP growth in Third Quarter of 2003 =7.2%7.2%

Impressive Productivity Gains; 5% since 2001Impressive Productivity Gains; 5% since 2001

Manufacturing and Construction SectorManufacturing and Construction Sector

GrowthGrowth Rise in Consumer and Business ConfidenceRise in Consumer and Business Confidence


4/24

I.I. Broad Trends:Broad Trends:

NationalNational

Federal Budget Deficits Loom in Upcoming YearsFederal Budget Deficits Loom in Upcoming Years

1992 = $1992 = $--290.4 Billion290.4 Billion 1996 = $1996 = $--107.5 Billion107.5 Billion1998 = $69.2 Billion1998 = $69.2 Billion 1999 = $125.5 Billion1999 = $125.5 Billion

2000 = $125.5 Billion2000 = $125.5 Billion

2001 = $127.1 Billion2001 = $127.1 Billion

2002 = $2002 = $--159 Billion159 Billion 2003 = $2003 = $--374 Billion374 Billion

2004 = $2004 = $--480 Billion480 Billion

In January 2001, CBO predicted a federal budgetIn January 2001, CBO predicted a federal budgetsurplus of $5.6 trillion between 2002 and 2011surplus of $5.6 trillion between 2002 and 2011

In October 2003, CBO announces cumulativeIn October 2003, CBO announces cumulative

deficits totaling $1.4 trillion over the next four yearsdeficits totaling $1.4 trillion over the next four years


5/24

I.I. Broad Trends:Broad Trends:

StateState States have closed a cumulative budget gap ofStates have closed a cumulative budget gap of

$200 billion in last three fiscal years (FY 01$200 billion in last three fiscal years (FY 01through FY 03)through FY 03)

For the current fiscal year, the cumulativeFor the current fiscal year, the cumulative

estimate is a shortfall of $25 billion to $40estimate is a shortfall of $25 billion to $40billionbillion

Florida, Georgia, North Carolina, Virginia in theFlorida, Georgia, North Carolina, Virginia in theSouth have already announced potentially largeSouth have already announced potentially largegapsgaps


6/24

I. Broad Trends:I. Broad Trends:

StateState In prior years, states solved their gaps byIn prior years, states solved their gaps by

Slashing Spending Slashing Spending Tapping Rainy Day Funds Tapping Rainy Day Funds

Deploying Tobacco Settlement MoniesDeploying Tobacco Settlement Monies

Raising Taxes and User FeesRaising Taxes and User Fees

Hiking Cigarette TaxesHiking Cigarette Taxes

Cutting Funds to Local GovernmentsCutting Funds to Local Governments Racking Up DebtRacking Up Debt

Generating Funds via Gaming Generating Funds via Gaming


7/24

II. Innovative StrategiesII. Innovative Strategies

Decoupling From Federal Tax CodeDecoupling From Federal Tax Code Federal tax cuts in 2001, 2003 and 2003 reducedFederal tax cuts in 2001, 2003 and 2003 reduced

state revenues ($10 billion)state revenues ($10 billion) Phasing out the federal estate tax lowered statePhasing out the federal estate tax lowered state

revenues ($4 billion)revenues ($4 billion) Federal bonus depreciation provision reducedFederal bonus depreciation provision reduced

state revenue ($14 billion)state revenue ($14 billion)

Hence, 37 states have already deHence, 37 states have already de--linked the taxlinked the tax

codes from the federal tax codecodes from the federal tax code


8/24


9/24


Introducing Tax Amnesty ProgramsIntroducing Tax Amnesty Programs In 2002 and 2003, 19 states across the countryIn 2002 and 2003, 19 states across the country

including Florida, Kentucky, Missouri,including Florida, Kentucky, Missouri,Oklahoma, South Carolina, VirginiaOklahoma, South Carolina, Virginia

Virginia netted $10 million in amnesty’s first Virginia netted $10 million in amnesty’s firstfour weeksfour weeks

Michigan’s program brought in $30 million inMichigan’s program brought in $30 million in

new revenuenew revenue


10/24


11/24


Raising the Gasoline TaxRaising the Gasoline TaxGasoline Tax in SLC States (As of July 1, 2003)Gasoline Tax in SLC States (As of July 1, 2003)

AL AL – – 16 cents16 cents MOMO – – 17 cents17 cents

AR AR – – 21.5 cents21.5 cents NCNC – – 24.2 cents24.2 cents

FLFL – – 4 cents4 cents OKOK – – 16 cents16 centsGAGA – – 7.5 cents7.5 cents SCSC – – 16 cents16 cents

KYKY – – 15 cents15 cents TN TN – – 21.4 cents21.4 cents

LALA – – 20 cents20 cents TX TX – – 20 cents20 cents

MDMD – – 23.5 cents23.5 cents VA VA – – 17.5 cents17.5 cents

MSMS – – 18 cents18 cents WV WV – – 20.5 cents20.5 cents


12/24


Creative Financing TechniquesCreative Financing Techniques IllinoisIllinois – – unique pension financing plan by increasingunique pension financing plan by increasing

state’s GO bond authority state’s GO bond authority MississippiMississippi – – switching to variable instead of fixedswitching to variable instead of fixed--raterate

bondsbonds

MichiganMichigan – – closing a property tax loophole statewideclosing a property tax loophole statewide

KansasKansas – – Governor authorized to accelerate propertyGovernor authorized to accelerate property

tax payments or delay tax refundstax payments or delay tax refunds South DakotaSouth Dakota – – Accounting for income in the year Accounting for income in the year

earnedearned


13/24


Recouping Costs from the EstatesRecouping Costs from the Estates States seeking to recover some of the moneyStates seeking to recover some of the money

spent on nursing home care by Medicaid fromspent on nursing home care by Medicaid fromthe estates of deceased personsthe estates of deceased persons

-- Texas Texas-- ConnecticutConnecticut

II Innovative StrategiesII Innovative Strategies


14/24


Inventive Steps to Increase FederalInventive Steps to Increase Federal

Funds under MedicaidFunds under Medicaid

States continue to maximize their Federal MedicalStates continue to maximize their Federal Medical

Assistance Percentage (FMAP) Assistance Percentage (FMAP)

-- Use of Upper Payment LimitsUse of Upper Payment Limits

-- Intergovernmental Transfer PaymentsIntergovernmental Transfer Payments

-- Nursing Home Provider TaxNursing Home Provider Tax


15/24


FloridaFlorida Eliminate outmoded trust funds and channelEliminate outmoded trust funds and channel

funds to general fundfunds to general fund Move to activity Move to activity --based budgeting based budgeting

Service level management analysis of state’s ITService level management analysis of state’s ITservicesservices

SUNTAX, the country’s first, truly integratedSUNTAX, the country’s first, truly integrated

revenue administration system (over $70 millionrevenue administration system (over $70 millionin previously unidentified collections in firstin previously unidentified collections in firstyear)year)


16/24


Arkansas Arkansas Closed offices of the Revenue and EmploymentClosed offices of the Revenue and Employment

Security DepartmentSecurity Department Implemented new statewide accounting systemImplemented new statewide accounting system

Merged technical institutes with higherMerged technical institutes with highereducation institutionseducation institutions

Implemented PerformanceImplemented Performance--BasedBased--Budgeting Budgeting Provided state services via the InternetProvided state services via the Internet

Authorized the use of state bonds for toll roads Authorized the use of state bonds for toll roads

II Innovative StrategiesII Innovative Strategies


17/24


North CarolinaNorth Carolina Eliminated IMPACT, a boot camp in favor of communityEliminated IMPACT, a boot camp in favor of community

correction programs (savingscorrection programs (savings -- $4 million)$4 million)

Closed older prisons (savingsClosed older prisons (savings -- $5 million)$5 million)

Disposed of stateDisposed of state--owned surplus real property (revenueowned surplus real property (revenue --$10 million)$10 million)

Consolidated employee death and disability benefit reserveConsolidated employee death and disability benefit reserve

funds (savingsfunds (savings -- $55 million)$55 million) Reduced prison staffing by revising relief formula (savingsReduced prison staffing by revising relief formula (savings --

$4.3 million)$4.3 million)

Implemented “prior approval” and use of generics inImplemented “prior approval” and use of generics in

Medicaid prescription drugs (savingsMedicaid prescription drugs (savings -- $97 million)$97 million) Replaced general funds appropriations for needReplaced general funds appropriations for need--basedbased

scholarships in UNC system with funds from Escheatsscholarships in UNC system with funds from Escheats

(savings $21 million)(savings $21 million) Accelerated the state’s debt collection practices (anticipated Accelerated the state’s debt collection practices (anticipated

collection of $50 million in new revenue)collection of $50 million in new revenue)


18/24


GeorgiaGeorgia Implemented a process called “redirection”Implemented a process called “redirection”

Established the Georgia Technology AuthorityEstablished the Georgia Technology Authorityto better harness technology in bringing aboutto better harness technology in bringing about

efficiencies and cost savingsefficiencies and cost savings Utilized state funds more efficiently to secureUtilized state funds more efficiently to secure

matching federal fundsmatching federal funds


19/24


Tennessee Tennessee $23.4 million in potential savings at the$23.4 million in potential savings at the

Corrections Department with the early release ofCorrections Department with the early release ofsome state prisoners and requiring others tosome state prisoners and requiring others to

serve community serve community --based sanctionsbased sanctions

$12 million in new revenue at the Department$12 million in new revenue at the Department

of Mental Health by increasing fees thatof Mental Health by increasing fees that

behavioral health organizations pay per patientbehavioral health organizations pay per patientin the state’s mental health institutionsin the state’s mental health institutions


20/24


Texas Texas Changed the Permanent School Fund to a totalChanged the Permanent School Fund to a total

return investment strategy (savings $474 million)return investment strategy (savings $474 million)

Closed a loophole in the auto sales tax systemClosed a loophole in the auto sales tax system(savings $176 million)(savings $176 million)

Delayed the Foundation School ProgramDelayed the Foundation School Programpayment without impacting services (savingspayment without impacting services (savings$800 million)$800 million)

Shifted the date by which unclaimed wages andShifted the date by which unclaimed wages andproperty becomes stateproperty becomes state--owned (revenue $13owned (revenue $13million)million)

Sunset provision for every state agency, once inSunset provision for every state agency, once in12 years12 years


21/24


South CarolinaSouth Carolina MAP Commission appointed by Governor inMAP Commission appointed by Governor in

June 2003 to streamline government June 2003 to streamline government Hundreds of recommendationsHundreds of recommendations

$225 million in savings identified in first year$225 million in savings identified in first year

$300 million in savings thereafter$300 million in savings thereafter

Additional $650 million in savings by eliminating the Additional $650 million in savings by eliminating the

Teacher and Employee Retention Incentive Program Teacher and Employee Retention Incentive Program

Regularly review MalcolmRegularly review Malcolm BaldridgeBaldridge Award program Award program

for ideas on enhancing efficiency in South Carolinafor ideas on enhancing efficiency in South Carolina


22/24


IllinoisIllinois Statewide centralized “buying club” to purchaseStatewide centralized “buying club” to purchase

prescription drugs for seniors and disabledprescription drugs for seniors and disabledpersons ($150 million in annual savings to thepersons ($150 million in annual savings to the

state)state)

Move to buying prescription drugs for stateMove to buying prescription drugs for state

workers and retirees from Canada ($91 million workers and retirees from Canada ($91 million

in annual savings to the state)in annual savings to the state)

C l i f C i


23/24

Conclusion: Room for CautiousConclusion: Room for Cautious

OptimismOptimism State revenues increased by 9% at the end of theState revenues increased by 9% at the end of the

two quarters that ended in September 2003two quarters that ended in September 2003 State and local spending increased by only 1%State and local spending increased by only 1%

for the same periodfor the same period States will increasingly look to borrowing toStates will increasingly look to borrowing to

meet budget gapsmeet budget gaps – – huge increase from $48huge increase from $48

billion in 1992 to $127 billion in 2002billion in 1992 to $127 billion in 2002


24/24

Thank You Thank You

Innovative Strategies:Innovative Strategies:State Efforts to Stem the Tide of Red Ink State Efforts to Stem the Tide of Red Ink

For more information, please contactFor more information, please contact

Sujit M. CanagaRetnaSujit M. CanagaRetna

404/633404/633--18661866OrOr

[email protected]@csg.org

www.slcatlanta.org www.slcatlanta.org

innovative strategies: state efforts to stem the tide of red ink (presentation)

Documents