One truism of American politics, often touted by governors on the campaign trail, is that state governments have to get stuff done. Thanks to the requirements that they balance their budgets each year, governors and state legislatures are forced to work across the aisle.
Unfortunately, the gridlock that has seized our divided federal government has seeped down to state capitals, which are finding it increasingly difficult to find common ground. Pennsylvania and Illinois are the two most egregious examples of the failure of state lawmakers to reach a deal. Louisiana, facing its own deep fiscal crisis, has been a hopeful counterpoint.
Pennsylvania and Illinois present bizzaro versions of one another with the same frustrating outcome – deadlock. Illinois voters elected Republican businessman Bruce Rauner governor in 2014. They also elected a Democratic majority to both houses of the Illinois General Assembly. Meanwhile, Pennsylvania voters elected Democratic businessman Tom Wolf governor in the same year and returned Republican majorities to both houses of the Pennsylvania General Assembly.
The path to crisis was similar in both states. Years of underfunded pensions and irresponsible tax cuts – including the rollback of a temporary income tax rate increase last year – left Illinois with a $6 billion budget gap at the beginning of 2015. Lawmakers have already cut over $2 billion in state services, but Illinois faces billions more in cuts if it doesn’t raise new revenue. So far, Rauner has refused to consider tax cuts unless legislators consider big-ticket items on his agenda: reforming worker’s compensation, freezing property taxes, term limits, and weakened collective bargaining. The legislature is not biting.
In Pennsylvania, revenue growth has lagged state spending for many years, in part due to unwise business tax cuts over the past five years. The danger for Pennsylvania is somewhat lower than for Illinois, though $2 billion in possible budget cuts still loom. Wolf wants to increase the state’s personal income tax rate or increase and expand the state’s sales tax to make up the shortfall and protect investments in education and human services, while legislators want budget cuts instead of tax increases.
In both states, lawmakers have long used accounting gimmicks, transfers from dedicated funding sources (such as for roads and schools), and other short-term fixes to stave off the day of reckoning. And both states have somehow found a way to bicker for months past the constitutionally prescribed date for a budget agreement. The unprecedented stalemates in Illinois and Pennsylvania over the budgets for FY 2016 have gone on for so long that both governors have already presented budgets for FY 2017. So far, no resolution is in sight for either state.
Louisiana offers hope for the efficacy of divided government. Voters there elected Democrat John Bel Edwards governor in 2015 while the General Assembly remains in Republican control.
Edwards inherited a massive budget shortfall from outgoing Gov. Bobby Jindal, whose mix of big tax cuts and clever accounting measures left the state treasury in ruins. Louisiana faced a $954 million shortfall for FY 2016 and a $2 billion gap for FY 2017. Legislators initially resisted calls for new revenue from the new governor, but they were outmaneuvered when Edwards highlighted what impact their deep cuts would have (the threat to LSU football was too steep a price to pay for many voters).
In the end, lawmakers approved a temporary increase in the state’s sales tax rate, from 4 percent to 5 percent, and removed many sales tax exemptions. They also approved increases in taxes on cigarettes and alcohol, and extended or reinstated taxes on vehicle rentals, cellphones, and landlines. Both chambers of the legislature also approved a measure designed to improve enforcement of sales taxes on online shopping, but the budgetary impact of that measure is yet to be determined.
Ultimately, Edwards and legislators were able to come to an agreement that raised all but $30 million of the revenue needed to cover the gap in FY 2016. Despite this, their effort was neither perfect nor comprehensive. The consumption tax hikes approved by lawmakers will worsen the unfairness of a state tax system that already heavily impacts the poor. And lawmakers will still need to come up with another $800 million to close the FY 2017 shortfall. But compared to the infighting in Pennsylvania and Illinois, the compromise is remarkable.