It's nearly Christmas, but Oklahoma still hasn't passed a budget deal. Utah has already introduced an omnibus tax bill for consideration when the legislature returns in January with significant policy implications. A new lawsuit in Pennsylvania is threatening to blow a $200 million hole in a budget that is already projected to be $1 billion in the red. 2018 is fast approaching, and we are already getting a sense of the fiscal trends that are going to shape state legislative policy over the next several months.
This week we'll be posting two reports on the big state fiscal trends that we are tracking. We begin today with the state of state budgets.
Revenue updates are still trickling in, but we already know that several high-profile states are expecting to face significant fiscal trouble next year. Considering that all of these states experienced tumultuous budget debates in 2017, we should expect further drama next year. Lawmakers will be under pressure to limit the chaos and avoid unpopular positions in an election year so the arguments may be more muted than what we saw this year, but there is still the potential for fireworks.
The Connecticut Department of Revenue released a projection showing that the state is facing a $202.8 million deficit, which would be enough to require a mid-year adjustment. Lawmakers could be short on options if they are forced to rehash the budget arguments that stymied them for months this summer and which the governor agreed to under extreme protest. Making matters worse, Moody's Investor Services is taking a hard look at Connecticut's credit rating, saying that, “We expect economic weakness to be an ongoing challenge for Connecticut that will push against its initiatives to place state finances on sounder footing.”
After an unprecedented legal dispute, Governor Dayton (DFL) has finally agreed to fund the legislature, putting an end to a months long feud over the state budget. While the governor says that he continues to oppose many of the tax cuts enacted this year, he is now prepared to move onto his other legislative priorities, including expanding access to pre-K and pushing infrastructure spending. The last several months of fighting has left his relationship with the legislature's Republican majorities in tatters, meaning that any legislative progress is almost assuredly going to be an uphill slog.
New York Comptroller DiNapoli (D) says that sagging revenues and possible cutbacks to federal programs portend serious fiscal challenges for his state. While he didn't provide a specific deficit figure, E.J. McMahon of the Empire Center has estimated that the state is facing a $6.8 billion shortfall. Governor Cuomo (D) has not challenged these findings to date.
After repeated statements over the past few weeks stating that she would reject any deal that did not establish a long-term solution (including tax increases) to Oklahoma's declining revenues, Governor Fallin (R) vetoed the legislature's so-called “cash and cuts" budget deal, effectively sending the legislature back to square one. She has called on legislators to reconsider taxes on natural resource extraction and tobacco products, which earlier this year failed to meet the super majority required in the House (it was five votes short). Fallin is expected to announce the date of a special session soon.
After the Pennsylvania House stonewalled any attempts to raise new revenues, policymakers reluctantly accepted a budget that closed the state's budget gap primarily through a gaming expansion, borrowing, and a series of fund transfers. The budget is now imperiled by a lawsuit from the Pennsylvania Professional Liability Joint Underwriting Association, which argues that one of these fund transfers is unconstitutional. If they prevail it would pull $200 million away from the budget. While these conditions could mean trouble in the short-term, over the long-run things are looking even worse: The Independent Fiscal Office is now projecting that Pennsylvania is facing a $1 billion deficit in the coming fiscal year and $2.8 billion in the year after that. While not as bad as the $2 billion hole lawmakers faced last January, these shortfalls will bedevil a legislature prone to utilizing one-time fiscal solutions for recurring problems.