Murray Introduces Amendment to Provide State Fiscal Relief

May 14 2003

Proposal would provide $40 billion in immediate assistance to help states address historic budget crises

(WASHINGTON, D.C.) – In order to help states address the most severe economic crisis since the Second World War, Sen. Patty Murray has offered an amendment (564) to provide $40 billion in immediate assistance to states and localities.

The states are collectively facing $70-$85 billion in deficits, which are having a dramatic impact on education, health care, corrections and other priorities. Sixteen states have cut K-12 education and eighteen states have cut higher education, with ten more states proposing tuition hikes for higher education.

"Our states are facing the most severe economic crisis since World War II," said Murray, "which is forcing cuts to health care, education, and even law enforcement. If Congress does not act, fewer Americans would have health coverage, fewer police would patrol our streets, and fewer teachers would be in our classrooms."

The Murray Amendment provides $40 billion in immediate assistance to the ailing states.

The plan would provide $20 billion in general revenue sharing, allocating $16 billion for state governments (including DC and Puerto Rico) and $4 billion for local governments. Each state shall receive a minimum of $100 million.

The plan would also provide $20 billion to provide state Medicaid relief. This provision would temporarily increase the federal matching rate for Medicaid for 18 months.

Co-sponsors include, Sens. Daschle, Baucus, Corzine, Edwards, Kohl, Rockefeller, Schumer, Wyden.

According to the National Conference of State Legislators:

FY 2003 Highlights:

- Of the 27 states still facing FY 2003 budget holes, 13 have shortfalls in excess of 5 percent of the state budget.

- 39 states and the District of Columbia have faced budget shortfalls at some point during FY 2003.

- With only a few exceptions, state revenue collections have failed to meet budgeted forecasts. Only three states reported that revenues performed above original estimates. Revenues were on target in 10 states and below target in 37 others.

FY 2004 Projections:

States have been cutting spending for several consecutive years, so virtually every program has been affected by budget cuts. Types of budget reductions under consideration include:

K-12 education At least 21 states have proposals that would affect funding for K-12. Proposals include implementing across-the-board cuts in district funding, lowering per pupil state aid, reducing transportation funds, cutting education equalization grants to local governments, chopping teacher salary matching programs and paring class size reduction funds.

Higher education As many as 26 states are examining proposals to reduce funding for higher education. Actions under consideration include administrative cuts, across-the-board reductions, reorganization of higher education for efficiency and wage freezes. Many of the reductions are being accompanied by authority to boost tuition. At least 16 states already have proposals to raise tuition to help offset budget cuts.

State employees At least half the states are considering proposals that would reduce state employee expenses. Some of the most common proposals affect employee compensation and include wage and benefit freezes, retirement program changes, and health care programs adjustments. Although only a few states have imposed layoffs, more than a dozen are looking to eliminate vacant positions. Other states are considering hiring freezes and early retirement programs. At least two states are exploring agency reorganization.

Medicaid At least 27 states have proposals to contain Medicaid costs. These include reducing benefits and eligibility, seeking pharmacy costs savings, reducing provider rates, scaling back various services and freezing certain enrollments.

TANF Only a few states currently are considering proposals to curtail TANF spending. Proposals include reducing overall expenditures and eliminating rate adjustments for child care providers.

Corrections As many as 19 states are exploring savings in corrections budgets. In addition to overall spending cuts, other proposals include closing correctional facilities, changing compensation packages for personnel, delaying construction and modifying sentencing.

Other Proposals A broad range of other proposals are under consideration including across-the-board reductions far all state agencies, securitizing tobacco settlement funds, payroll shifts, information technology cuts, tax amnesty programs and state asset sales. A few states note that everything is on the table as they work to close their budget gaps.

FY 2004 Revenue Actions

On top of spending reductions, many states are considering raising additional revenues. Six states already have boosted cigarette levies, and two have raised their beer taxes. Other actions through late April include delaying previously enacted tax cuts, increasing health premium taxes, imposing corporate surcharges, removing certain exemptions and boosting taxes on cell phones and phone services.

Although tax actions have been limited thus far, many states have proposals under serious consideration. Fourteen are considering higher cigarette and tobacco taxes. Eleven are exploring sales tax changes, either raiding the rate or expanding the base. Two states that currently do not levy sales taxes are looking at narroe ones.

Half a dozen states are examining higher personal income taxes—either through reducing exemptions, increasing rates or adding higher-income brackets. A similar number are looking at business taxes. Other tax proposals under serious consideration include raiding real estate transfer taxes, extending previously enacted increases beyond their scheduled sunset date, decoupling from federal tax provisions and closing tax loopholes. Several states are looking at a broad range of proposals that include most types of taxes.

In addition to tax increases, many states are looking at other revenue possibilities. At least 19 are considering fee increases, with some of the proposals quite extensive. Fifteen are examining fund transfers-shifting balances from earmarked or special funds to the general fund. At least five of these states are eyeing their tobacco settlement money. Eleven states have proposals to boost gambling taxes or expand the type of gambling they allow.

Of historical note, for the first time ever, the Arkansas General Assembly adjourned without passing the budget. The governor is expected to call a special session in May. The Idaho Legislature was scheduled to adjourn on April 11 but missed that date. The Legislature has set a record for the longest session in the state’s history.