Tax Law

State Net Capitol Journal – September 9, 2013; States Slow To Recover From Recession

Budget & Taxes

STATES SLOW TO RECOVER FROM RECESSION: The worst economic downturn since the Great Depression has forced changes on state governments that could last for decades.

According to a July estimate by the Federal Reserve Bank of Dallas, the nation lost nearly a year's worth of economic activity — roughly $14 trillion — during the Great Recession. The deep and sustained downturn forced state governments to repeatedly scale back spending across the board. According to the National Association of State Budget Officers, after consistent growth of 1.6 percent per year, state spending dropped 3.8 percent in fiscal year 2009 and 5.7 percent in fiscal 2010, the first consecutive annual declines since NASBO began tracking state spending over three decades ago. The cuts included areas NASBO said are "often considered politically sacrosanct" such as education, public assistance and transportation.

Michael Leachman, director of state fiscal research at the left-leaning Center on Budget and Policy Priorities, said the cuts to education in particular could be very costly as states continue their struggle to recover.

"These are very deep and concerning cuts at a time when it's recognized having a more educated workforce is crucial to the country's future," he said.

The recession has also taken a major toll on the public workforce. Since its peak in August 2008, the number of state and local government workers has shrunk by 681,000, the largest drop by far of any recession in the last fifty years, according to the Nelson A. Rockefeller Institute of Government. Many states also scaled back their public employee health and retirement plans and imposed furloughs and pay cuts or freezes. As a result, public sector wages grew by only 1.1 percent in 2012, compared to 1.7 percent in the private sector, according to the Bureau of Labor Statistics.

In addition, jobless claims more than doubled during the recession — growing from an average of 320,000 per week in 2007 to nearly 670,000 a week in March 2009 — decimating state unemployment insurance funds. States had to borrow nearly $50 billion from the federal government to cover the additional expense. And although many states have repaid their debts, 17 still owe Washington almost $20 billion, while others have private debt and still others are just skating by with slender balances, like Rhode Island which has just over $500,000 in its fund.

That states are still facing such fiscal challenges five years after the recession officially ended isn't encouraging.

"In the aftermath of [previous] recessions there were strong recoveries. That is not true this time around," said Gary Burtless, a senior fellow at the Brookings Institution. "This is more like the pace getting out of the Great Depression."

It took over a decade and a world war for the United States to fully recover from that economic cataclysm. (STATELINE, FEDERAL RESERVE BANK OF DALLAS)

BRIDGES ACROSS U.S. NEAR COLLAPSE WITH MONEY TO FIX THEM SCARCE: Many of America's bridges are on the verge of collapse. And due to a variety of factors, including the recession and sequestration, the money to repair them has dried up.

According to various analyses, American commuters take more than 200 million trips across deficient bridges each day, with at least 8,000 of those bridges considered both "structurally deficient" and "fracture critical," meaning they could collapse if even a single component fails.

"These bridges will all eventually fall down," said Barry LePatner, an attorney and construction industry expert based in New York.

The unsafe bridges include some of the most important transportation links in the country, such as New York's Tappan Zee Bridge over the Hudson River, 25 miles north of Manhattan. In Pennsylvania, 1 in 4 bridges are considered structurally deficient.

The Federal Highway Administration estimates the nation's road and bridge repair needs exceed $20 billion per year, but nowhere near that sum is available. The enormous infrastructure backlog is the result of a perfect storm of factors. For one thing, many of the country's roads and bridges were built in the 1950s so they are reaching the end of their useful lives at the same time. The cold weather and freezes in the Northeast have only shortened the timeline there. Meanwhile, the recession ravaged state and local budgets, reducing funding for transportation projects. The federal transportation bill passed by Congress last year cut a bridge maintenance program and eliminated a system of accountability for bridge repair. And sequestration hasn't helped matters either.

"What's happening is that there's a lot of demand for government resources," said Martin Pietrucha, director of the Larson Pennsylvania Transportation Institute at Penn State. "I'm all for Grandma getting her lunch rather than fixing a pothole, but it just gets to be a bigger and bigger problem."

With the federal gas tax failing to provide a sufficient funding source to meet the states' transportation needs, eight states, including Wyoming, which has a Republican-controlled Legislature, have raised their gas taxes.

"We're at something of a fiscal cliff for transportation these days," said David Goldberg, a spokesman for the nonprofit group Transportation for America. "The needs are growing, but the traditional funding source has remained static and is projected to decline."

The collapse of Minnesota's I-35W Mississippi River bridge in 2007, killing 13, suggests what may lie ahead if the fiscal cliff for transportation isn't addressed.

"It is only a matter of time," said LePatner. "Because these bridges are fragile and the public is unsafe driving over them." (LOS ANGELES TIMES)

OK PAYS HIGH PRICE FOR DRUG SCREENING WELFARE APPLICANTS: When former Oklahoma state Rep. Guy Liebmann (R) initially proposed back in January 2012 that adult residents seeking welfare assistance through the Temporary Assistance for Needy Families program should be required to undergo drug testing, his stated goal was to save the state money.

Under the terms of his original bill, the welfare applicants would have paid the costs of the testing. But the bill was amended to make the state cover that tab. Then, after a federal court ruled that a similar law in Florida constituted an "unreasonable search," the bill was amended again so all TANF applicants wouldn't have to submit to a urinalysis. Instead all applicants were required to go through a screening process designed to determine if they were likely drug users. Those identified as likely drug users by the Substance Abuse Subtle Screening Inventory were, in turn, required to go through an additional screening called the Addiction Severity Index and pass a urine test before receiving benefits.

The cost of each SASSI screening is $20. The cost of each Addiction Severity Index screening, which has to be administered by a licensed alcohol and drug counselor is $122. And the cost of each urinalysis is $19. The total for all three screenings in the seven months since Liebmann's bill went into effect: $82,773. And the net result of those screenings was that TANF benefits were denied to 83 individuals — about 4.4 percent of the total number who applied. (OKLAHOMAN [OKLAHOMA CITY])

BUDGETS IN BRIEF: NEW YORK Gov. Andrew Cuomo (D) and state lawmakers appear to be laying the groundwork for some type of tax cut next year. The governor and all of the state's lawmakers are up for re-election in 2014 (NEWSDAY).

- Compiled by KOREY CLARK

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