Background
What Went Wrong?
The Bubble Bursts. In the 90s, too many states and localities believed the unrealistically rosy predictions of non-stop economic growth and put very little away in "rainy day" funds when revenues were uncharacteristically high. This growth was powered by inflated stock prices and the temporary boom in technology, both of which have since settled into a more sustainable (and slower) rate of growth. With the boom over, growth has slowed way down, taking revenues, jobs, and income down with it. State budgets were projecting a faster rate of growth and therefore they predicted that more revenues and jobs would be available than actually were created. The difference in projections in many states was quite significant, leading to big gaps in income to cover budgeted expenses. It's like basing your household budget on money you think will come. You write checks hoping that more money will come in to cover them, but then it doesn't come, and things go haywire.
REALITY CHECK 1:
Beyond Band-AidsBad Budget Processes. Unfortunately, the budget process that determines the forecast, the amount of money in the budget, as well as how much is put at risk in investments is a fairly closed process. You may have asked yourself: How could this year be so different from last year? Couldn't they have done a better job of forecasting? The process for determining a state budget amount is not simple math. It is a highly political process determined by a small number of people. Key questions like the role of stock market investments and risk in the sudden shortfalls, the basis of current projections, and the formula for calculating reserves and future trends are important, often forgotten aspects of the budget. Even legislators are hesitant to get involved in this area of public finance and ask the hard questions. However, with some prodding, you can find a few champions willing to take it on. But you don't have to take a back seat. Much of these processes can be surfaced with a well-worded Freedom of Information Action (FOIA) request, especially if it includes a request for correspondence and memoranda used in developing the budget. Use the information to push for more access, openness and reform because we can't win this game by playing defense alone. Advocates will have to develop longer-term strategies that go beyond fighting for programs to reforming the process. The following link will take you to a sample request letter: http://splc.org/foiletter.asp.
Income has not kept up with expenses. Tax cuts for top income earners and big business, paired with more regressive taxes for the poor and middle income, have meant that a larger chunk of state budgets are more dependent on taxing individual spending than more progressive income taxes. Most states have cut taxes for their richest constituents and increased regressive sales taxes and other user fees that take a bigger bite out of the pocketbooks of the poor. In fact, all but four states have more regressive taxes than they did in 1990. (Pulling Apart: A State-by-State analysis of Income Trends) Nearly half of all state revenues come from regressive taxes like excise taxes because state legislators would much rather tax the poor than offend the more affluent who vote and make campaign contributions.
What about all those tobacco excise tax increases? Tobacco excise taxes provide the greatest amount of revenues at the beginning of the increase. After a while, the taxes provide less and less revenues because the higher prices cause some people to quit using tobacco or decrease their consumption, (which is why tobacco excise taxes are a good public health policy) and the costs of programs that tobacco tax revenues are used to fund tend to increase due to inflation. Health and social service program costs tend to increase more than usual in periods of economic dislocation. Currently, Medicaid and other healthcare costs are increasing at a rate of about eight percent annually. In short, our programs cannot sustain themselves on tobacco excise taxes alone.
But there's the Master Settlement money, right? One thing that has buoyed health care budgets in many states has been money from tobacco Master Settlement Agreements (MSAs). A portion of these funds are paid to states as part of a settlement of a class action suit brought by states against tobacco companies to recoup tobacco related health care costs. In some states, a portion of MSA funds are specifically earmarked for tobacco programs and other health programs. However, even in states with seemingly strong protections of this earmarking in place, desperate legislatures facing large budget deficits are attempting to reallocate funds away from tobacco control in spite of agreements to the contrary. Our biggest vulnerability in most cases is our lack of a sizeable, passionate and political base (volunteers and others who support our issue and are willing to demonstrate that support in some tangible way) to defend against the cuts. The current crisis offers opportunities for creativity and collaboration that, if we do it right, can strengthen our work for the long term.
Who's bearing the brunt? Although impacts vary from state to state, in many cases, women, seniors, children and communities of color are hardest hit. In doing your budget research, try to identify disparate impacts and unfairness in the process by looking for race, class, gender, or age biases in how cuts are proposed. Do the cuts raise institutional barriers and create disparities in who is uninsured? Given the close connection of employment to health insurance coverage, how will these cuts exacerbate employment discrimination, education inequities and other issues that contextualize health indicators? A recent Institute of Medicine study does an excellent job making the case for how lack of insurance has wide ranging impact on communities, A Shared Destiny: Community Effects of Uninsurance. The Praxis Project has a tool, the Equity Impact Statement, for policymakers to consider legislative impact. The tool includes questions that can help provide a framework for research in this area.
