Home – Economic and Political Uncertainty - The 2016 Outlook for States

Economic and Political Uncertainty - The 2016 Outlook for States

 States have struggled for six years to reach revenue and spending levels they attained before the Great Recession of 2008-09 brought shortfalls and layoffs. They’re still struggling. The recession cut so deeply and recovery has been so slow that states still haven’t matched pre-recession peaks, according to the annual year-end fiscal survey of states by the National Association of State Budget Officers (NASBO). What’s more, states anticipate “a significantly slower growth rate,” in fiscal 2016, the NASBO report said. Revenue collections are expected to increase only 2.5 percent compared to 4.8 percent growth in fiscal 2015.


State Net Capitol Journal at this season peeks into the rearview mirror and then looks ahead. My colleagues Rich Ehisen and Korey Clark have in the past two issues examined the major issues in statehouses throughout the land. This essay focuses on the economies and politics of the states heading into an election year.


States approach 2016 with a mix of optimism and uncertainty. The economy has added thousands of jobs, but wage growth has been slow. “After more than six years of economic recovery from the devastating financial crisis, the labor market is well below its pre-recession levels and pockets of economic weakness remain,” The New York Times reported. In the states, most budgets for fiscal 2016 “remain mostly cautious with limited spending growth,” according to the NASBO report. “Long-term spending pressures in…health care, education, infrastructure and pensions continue to pose challenges for many states that will require difficult budgetary decisions,” the report said.


The biggest challenge for states is the exponential growth of Medicaid, the federal-state program that provides health care for low-income persons and the disabled. Medicaid added 6.3 million people in 2015, bringing enrollment to 15.3 million, about one in 20 Americans. Total Medicaid spending in fiscal 2015 was $512.3 billion, an annual increase of 15 percent, the NASBO report said. Medicaid accounted for 27.4 percent of total state spending in 2015 and 19.3 percent of general fund expenditures.


“Medicaid is crowding out spending for other important programs,” said Scott Pattison, chief operating officer for the National Governors Association. He said this crowding-out is occurring in states that have expanded Medicaid to include those making up to 138 percent above the poverty line, as envisioned by the Affordable Care Act, as well as in states that have chosen not to expand.


Nonetheless, Pattison sees opportunities for the states in the year ahead. Recent transportation and education bills enacted by Congress have given states more latitude in building infrastructure and designing suitable education systems. “These are good challenges to have,” he said.


The challenges facing oil and gas producing states are less good. In these states, the depressed oil economy caused by a global glut have cost jobs and reduced state revenues from severance and other taxes. Texas alone, says economist Karr Ingham, has lost 56,000 jobs in the oil and natural gas industries. The impact on state revenues has been so severe in Alaska that Gov. Bill Walker (I) is proposing that the state adopt a personal income tax for the first time in 35 years.


Overall, 11 states, some energy producers and some not, project negative revenue growth for fiscal 2016. They are Alaska, Arizona, Delaware, Maine, Missouri, New Mexico, North Carolina, Rhode Island, Tennessee, Utah and Wyoming. 


Turning to politics, Republicans in 2016 will try to maintain the momentum that has seen them gain 900 legislative seats in the last three elections on President Obama’s watch. Elections will be held for 88 of the nation’s 99 state legislative chambers and a dozen governorships. Despite a recent loss in Louisiana, the GOP holds a 30-19 edge in governorships with one independent. Republicans control both legislative chambers in 30 states; Democrats in eight. Control is divided in 11 states. (Nebraska, with a non-partisan unicameral legislature, is Republican in all but name.)


Since the GOP controls so many states it will necessarily be playing more defense than offense, said Tim Storey, a political analyst for the National Association of State Legislators. Storey said that Republican legislators are anxious because they don’t know who the party’s presidential nominee will be. He added that there is “anxiety on steroids” among GOP candidates at the thought it might be Donald Trump.


It won’t be a walk in the park for Democrats, however. Republican national groups and GOP donors have focused more attention and spent more money on legislative elections than their Democratic counterparts. Both parties have chambers that are at risk. Storey said that all eight chambers are up for grabs in Colorado, Iowa, Maine and Minnesota, states that now have divided legislatures.


A wild card in the 2016 legislative elections is a Texas lawsuit, Evenwel v. Abbott, on which the U.S. Supreme Court is expected to rule by June. The conservative plaintiffs in this case are seeking to have legislative districts drawn on the basis of eligible voters rather than the total population of the district, the present standard. Voting experts say a decision for the plaintiffs would shift power from urban to rural areas, damaging Democrats in the process.


When it comes to gubernatorial races, it is Democrats who will be playing defense because they hold eight of the 12 governorships for which elections will be held. Political analyst Charles Cook rates Democratic-held governorships in Missouri, New Hampshire and West Virginia as toss-ups. He puts only North Carolina among the four Republican-held governorships in the tossup category.


It’s too early to know what issues will matter most in state elections in 2016, but Storey believes that in a year with no presidential incumbent they will inevitably reflect the national campaign. That’s especially likely in the case of the Affordable Care Act, often called Obamacare, which is under pressure from rising insurance costs and higher deductibles as well as persistent Republican criticism.


As a political issue, Obamacare poses problems for advocates and critics alike. A majority of Americans disapprove of the ACA, according to Gallup surveys, and especially dislike a provision that imposes a tax penalty on those without health insurance.  But a Kaiser Family Foundation survey found that most of those fortunate enough to qualify for subsidized health plans are satisfied with them.  The rub comes among the millions of Americans who have slightly too much income to receive subsidies. A study by three economists at the University of Pennsylvania’s Wharton School found that a typical person who lacks medical insurance and earns about $40,000 a year is worse off by $2,000 to $3,000 under Obamacare.


Immigration is another probable issue. It’s a federal responsibility, but Storey thinks it will be raised in state campaigns, as demonstrated by the recent controversy about the admission of Syrian refugees. Pattison said that security issues, particularly cyber-security, are also likely to figure in state campaigns. Security is also primarily a federal responsibility, but states have a role in protecting on-line data and in assuring that law enforcement agencies share information. A recent Gallup survey found that terrorism had supplanted the economy as the No. 1 concern of Americans.


Justice Louis Brandeis famously observed that states are laboratories of democracy that can “if its citizens choose, try novel social and economic experiments without risk to the rest of the country.” These words were written in 1932 but are relevant now when divided government prevails in Washington while one party or the other exercises unified control in 31 of the 50 states. These unified states – 24 Republican and seven Democratic – where one party holds the governorship and both chambers of the legislature that have done the most experimenting. GOP-run states have reduced regulations, eased gun laws, tightened ballot access and imposed curbs on abortion. Democratic-controlled states have taken steps to deal with climate change and made it easier to vote.


But not every experiment is conducted along party lines. Massachusetts used to be a national leader in multi-state educational testing based on the Common Core standards. Last month the Bay State abandoned the national formula in favor of a new one written just for Massachusetts. Meanwhile, Texas, known for its oil wells, has encouraged alternative energy in the form of wind power. There are now so many vast wind farms in the western part of the state that some utilities are giving power away.


These are scores of other examples in virtually every state. Well below the radar of the national political campaigns, the experimentation will surely continue in 2016 as states continue their long struggle to regain the economic well-being they knew before the Great Recession.