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Opportunities and Challenges for States in 2019

 In the third and final of our annual three-part series looking ahead to the coming legislative year, SNCJ Senior Advisor Lou Cannon takes a look at some of the challenges and opportunities that await lawmakers in 2019.

 

This is also our final issue of 2018, so from all of us to all of you, have a happy and safe holiday season and a wonderful New Year. See you in January! – SNCJ Managing Editor Rich Ehisen

 

States function as laboratories for democracy, as Justice Louis Brandeis famously observed, and they’ll have numerous opportunities for experimenting in the year ahead.

 

For the first time since 1914 a single political party will control both chambers of every legislature except one: Minnesota, where Democrats captured the House in the November midterm elections while Republicans retained control of the Senate.

 

Meanwhile, divided government and probable gridlock will prevail in Washington. Democrats won control of the U.S. House in the midterms while Republicans increased their majority in the U.S. Senate.

 

Opportunities for partisan action will be most available in states in which one party controls both the legislature and the governorship. Going into 2019, there are 23 such states with unified government in Republican hands and 14 states controlled by Democrats. Thirteen states have governors of one party and legislatures of the other.

 

States newly unified by the Democrats in the election are most likely to “push the progressive envelope,” said Tim Storey, an analyst with the National Conference of State Legislatures (NCSL). These states are Colorado, Connecticut, Illinois, Maine, Nevada, New Mexico and New York.

 

As an example, New York Senate Democratic leader Andrea Stewart-Cousins, poised to become Senate majority leader, said she will continue a tax on the wealthy due to expire in 2019 and also support gun control measures. Stewart-Cousins will be the Empire State’s first female and first African-American Senate majority leader.

 

Power in the New York Senate had been wielded by a coalition of Republicans and maverick Democrats. The midterms dispersed the coalition and handed power to regular Democrats.

 

There are fault lines between the two parties in the states on issues of energy, gun control, taxes and voting rights.

 

In state after state Republicans have pushed for photo ID laws at polling places and opposed early voting and same-day registration. Republican-authored legislation in North Carolina this year resulted in many fewer polling places. Democrats say such efforts are intended to dampen voting by minorities.

 

Another partisan issue is global warming, which most Democrats decry and many Republicans deny. California and Hawaii, both Democratic bastions, aim to obtain all of their electrical energy from sources that have no carbon emissions by 2045.

 

“It will not be easy,” said California Gov. Jerry Brown (D) last September in signing legislation aimed at reaching this goal. “It will not be immediate. But it must be done.”

 

Without having such ambitious targets, some Republican-controlled states are making notable progress in using renewable and alternative energy. Four states – Oklahoma, Iowa, Kansas and South Dakota – obtain about a third of their energy from wind power. Texas, a GOP redoubt, has in the past year added more wind capacity than any other state.

 

Criminal justice reform is explicitly bipartisan. The United States has the highest incarceration rate in the world, but a decline in crime and sentencing reform has brought the total number of those incarcerated — about 2.2 million people — to a 20-year low, according to the Pew Research Center.

 

Republican and Democratic states alike have reduced sentences for minor crimes, provided treatment for drug users and reformed bail practices. Since 2007, 35 states have reformed sentencing and corrections policies through the Justice Reinvestment Initiative, a public-private partnership that includes the U.S. Justice Department, the Pew Charitable Trusts, the Council of State Governments and other organizations.

 

Voters in California approved a significant bail reform in the November election although its implementation has been delayed. In Florida voters passed a measure that will allow felons who have served their time to vote. The Florida initiative received 64 percent of the vote in a state otherwise split down the middle between Democratic and Republican candidates. It was endorsed by both the American Civil Liberties Union and Freedom Partners, an organization affiliated with the conservative Koch brothers.

 

Florida’s restoration of voting rights to former felons suggests that voters may be less divided than the parties representing them. This is true on other issues as well. Arkansas and Missouri voters in the November election approved increases in the minimum wage that Republicans had opposed in the legislature, boosting pay for a million workers.

 

Health care is another issue where voters may be ahead of the politicians. Voters in three Republican states — Idaho, Nebraska and Utah — this year overwhelmingly approved ballot measures to broaden Medicaid eligibility to people earning up to 138 percent of the poverty level.

 

States will face fiscal challenges in the year ahead. Unlike the federal government, most states are required to balance their budgets, which 30 states do annually, while 20 states operate on a two-year budget cycle.

 

Many states enter 2019 in their strongest fiscal position since the Great Recession of 2007-08. A fiscal survey of the states just issued by the National Association of State Budget Officials (NASBO) found that after relatively weak revenue growth the past two years, “tax collections accelerated in fiscal 2018 with total general fund revenues growing a robust 6.4 percent, led by a large uptick in personal income tax collections.” Forty states saw revenues come in ahead of budget collections. Only seven states made mid-year budget reductions.

 

A less rosy picture was painted in a 15-year survey of state revenue and spending by the Pew Charitable Trusts. Barb Rosewicz, who heads the state fiscal health project for Pew, found that “total revenue in 10 states fell short, jeopardizing their long-term fiscal flexibility and pushing off to future taxpayers some past costs for operating government and providing services.” New Jersey had the largest deficit, with revenue covering only 91.3 percent of expenses. Illinois, second worst, had revenue covering 93.8 percent of expenses.

 

The eight other states with the “symptom of structural deficits” were Massachusetts, Hawaii, Connecticut, Kentucky, California, Maryland, New York and Delaware. Revenues ranged from covering 96.1 percent of expenses in Connecticut to 99.5 percent in Delaware.

 

Some of these states, most notably California, have shown marked improvement in recent years.

 

California was a budgetary basket case when Gov. Brown took office in 2011, facing a deficit of more than $25 billion. It now enjoys a $2 billion surplus and has put away $14 billion in a rainy day fund for use in the next economic downturn. S&P Global Ratings says California experienced “one of the strongest credit recoveries that we have seen among all the 50 states.”

 

Nonetheless, the Golden State will be vulnerable during any recession because of its dependency on high-end income taxes.  The state has the highest top-tier income tax (13.3 percent) of any state in the nation. 

 

When will that downturn come? That’s what fiscal officials in every state and city would like to know, for states and local government revenues usually lag during recoveries from economic recessions.

 

The United States is now in the 10th year of a boom, with an economic growth rate of 3.5 percent in the third quarter of 2018.

 

State revenues and spending have increased moderately for nine consecutive years, according to NASBO. But a September poll of 51 economists by the National Association for Business Economics found that two-thirds of them expect a recession to begin by the end of 2020. 

 

It could come sooner. Such recent events as a global stock market retreat, prospects of a protracted U.S. trade war with China, a home building slowdown and Britain’s difficulties in exiting the European Union (“Brexit”) have prompted some analysts to forecast a slowing of the economy next year.

 

An economic forecast for 2019 by Jon Hilsenrath of the Wall Street Journal found less growth and more uncertainty over such issues as trade policy, border security, military spending and inflation.

 

States have made progress in providing fiscal cushions for the next recession. According to Pew, the 50-state total of rainy day funds in the states increased for a seventh straight year in fiscal 2017 to $54.7 billion with indications it will be even higher in fiscal 2018.

 

The NASBO survey found that the median balance of state rainy day funds is expected to reach 7.3 percent as a share of general fund spending in 2019 compared to a measly 1.6 percent in 2010.

 

This speaks well of the states, for fiscal rainy days are certainly coming. We just don’t know when they will arrive.