State Legislatures Magazine: January 2003

Editor's Note: This article appeared in the January 2003 issue of NCSL's magazine, State Legislatures. To order copies or to subscribe, contact the marketing department at (303) 364-7700.

Putting the Squeeze On

The Backdrop
#1--Budgets
#2--Streamlining the Sales Tax
#3--Meeting Federal Education Requirements
#4--Election Reform
#5--Hard Choices on Health Care
#6--Sentencing Laws Get Closer Look
#7--Homeland Security Issues Evolve
#8--The Air That We Breathe
#9--The Next Steps in Welfare Reform
#10--The Internet and E-Mail
Follow the Money

Putting the Squeeze On

The issues are on the table. But is the money? Our annual look at the session's top 10 issues.

By Gene Rose and Ginger Sampson
Blood out of a turnip. Toothpaste from a flattened tube. Water from a stone. Gold from a miser.

Add a new item to the "tough things to squeeze" list: state budgets in 2003.

State legislators around the country have a common problem this year. Declining revenues and growing demands will force each of the 50 states to take a hard look at their budgets. Consequently, every issue before lawmakers in 2003 will be weighed against its financial worth.

Each year at this time, we look over the political and policy landscape in America's legislatures and offer our prediction on what major issues state policymakers will address in the next 12 months. Instead of simply saying "budgets" 10 times really fast, which would be a simple and yet accurate account, here is our forecast of 10 issues we believe will cross state boundaries on a national scale in 2003.

THE BACKDROP
Declining revenues and the 2002 elections provide the backdrop to the start of the 2003 legislative sessions, many of which begin this month.

History tells us that in years of a flagging economy, it's hard to put new issues on the table. Tight budget times, however, provide legislators with a new perspective on state problems and often result in innovative solutions.

The 2002 general elections produced an interesting twist on how issues are addressed this year. Newcomers hold 24 percent of the 6,214 state legislative seats that were up for election in November-the largest turnover in the last 40 years. Term limits, redistricting and a Republican surge at the ballot box combined to produce this. Over the last 20 years, only 18 percent of legislative seats have changed hands in a given year.

Also, there are now more Republican state lawmakers than Democrats for the first time since 1952. The question remains whether legislatures will aggressively seek a party-line agenda or take a more moderate approach and build coalitions to achieve goals.

#1-BUDGETS
For the current fiscal year ending June 30, states will address a collective $17.5 billion budget gap. The list of states with expected deficits is sobering: California, $6.1 billion, Virginia, $950 million, Michigan, $600 million, Maryland, $590 million, Colorado, $558 million, Massachusetts, $547 million, Arizona and Pennsylvania, $500 million.

Thirty-three states report revenue estimates below original targets. Only eight states-Florida, New Mexico, North Dakota, Rhode Island, Tennessee, Utah, Washington, West Virginia-report a stable outlook, and two states-Hawaii and Wyoming-are optimistic about revenue performance.

Last year, many states were able to use rainy day funds and take other measures to address the more than $37 billion shortfall. Also significant for FY 2003, states raised taxes by $9.1 billion in the aggregate-breaking a trend of annual tax cuts that began in 1994. Only Hawaii cut taxes by more than 1 percent while 18 states raised taxes by more than 1 percent.

A recent survey of state fiscal offices indicates that the fiscal news will force states to take painful budget actions in the 2003 sessions. Revenue collections have been sluggish at best during the first four months of the fiscal year, and overruns-particularly in Medicaid programs-are already being reported in at least 24 states. Massachusetts will cut 50,000 people from its Medicaid rolls and still faces a $300 million gap in the program. Georgia reports a $417 million shortfall in Medicaid. States may be looking at raising the standards for Medicaid eligibility, after years of increasing the rolls during the cash-flush '90s.

The budget landscape will be changed dramatically in nearly half the states. Legislators in 24 states will be working with new governors, who often are responsible for drafting working budgets for lawmakers to start with.

States also will be keeping a wary eye on Congress. After years of successfully fighting off most unfunded mandates, a Congress that also is looking at lower revenue projections may be tempted to approve popular programs for states to implement, without adequately funding them.

#2-STREAMLINING THE SALES TAX
States have taken the lead in simplifying a sales tax structure that may provide a fairer balance for consumers and Main Street merchants. A key group of policymakers has endorsed the Streamlined Sales and Use Tax Interstate Agreement, which will help simplify sales tax collections in this country.

"The agreement provides states with a blueprint to create a simplified sales and use tax collection system that removes the burden and costs of collecting the taxes from sellers," says NCSL President Angela Monson, a senator from Oklahoma.

While local businesses pay taxes on goods and services they sell, out-of-state corporations have taken advantage of not charging sales taxes to their on-line customers. Consequently, there is less money for local projects that support schools, roads and other needed programs. The University of Tennessee estimates this contributes to a collective $16.4 billion annually in sales and use tax revenue that is being diverted from states and local communities.

Ratification of the agreement also lays the foundation for Congress to overturn the Bellas Hess and Quill Supreme Court decisions that prohibit states from requiring retailers who do not have a physical presence in a state to collect that state's sales tax. The Court argued that to do so would hinder interstate commerce because the sales and use tax regulation of the more than 7,500 jurisdictions would constitute an "undue burden" on retailers.

"When the federal moratorium on state and local taxes on Internet access expires next November, Congress will have to address the issue of state sales taxes on electronic commerce," says Illinois Senator Steve Rauschenberger, co-chairman of NCSL's Task Force on State and Local Taxation of Telecommunications and Electronic Commerce. "As this agreement moves forward into a fully operational, simplified system, it is going to be pretty tough for members of Congress to say that states have not met a standard by which interstate commerce is not hindered."

#3-MEETING FEDERAL EDUCATION REQUIREMENTS
Last January, President George W. Bush signed into law the No Child Left Behind Act of 2001. The wide-reaching bill comes advertised with more money for states and greater flexibility on how to spend it. It also comes with a huge string attached: States must do more testing and meet minimal requirements. Critics have labeled it the No Child Left Untested Act.

Under the act, states must test children in language arts and mathematics each year in grades three through eight and once at the high school level by the 2005-2006 school year. Science tests must be administered once in grades 3 to 5, 6 to 9 and 10 to 12 by the 2007-2008 school year. In addition, schools started testing students with limited English proficiency this school year.

Schools will be required to show adequate yearly progress on test scores or face sanctions. Additionally, specific subgroups-such as economically disadvantaged students, ethnic and disabled students-also must reach these proficiency levels. Schools failing to make progress for three consecutive years must give their students the choice to attend a different school and provide supplemental services. Failure to meet the requirements for four consecutive years allows the district to replace school staff, implement new curriculum, decrease management authority and other actions. If a school does not meet the standards in five consecutive years, the school could be taken over by private or public groups.

Teacher quality is another heavy emphasis of the act. Starting next fall, all newly hired teachers must meet higher standards. Current teachers must meet them by the 2005-2006 school year.

The challenge of meeting these standards differs for each school district and state. California and Alaska, states with diverse student populations, must find ways to deal with testing students with limited English proficiency. States with extremely rural areas, like Alabama and Kentucky, will need to find ways to recruit quality teachers to outlying areas.

To help meet the federal requirements, Ohio is in the process of upgrading a statewide data collection system originally designed to track student enrollment for funding purposes. "The system, known as the Educational Management Information System, will soon act as a clearinghouse for best practices and map reporting and curriculum standards by school district and by grade with the goal that teachers can adjust the way they are teaching to hit weak areas," says Senator Robert Gardner, chair of Ohio's Senate Education Committee.

No Child Left Behind gives states greater flexibility in how they meet goals and the standards they set. But legislators and educators are concerned that the requirements will cost states more money than the federal government provides and that it will be difficult for schools to meet the goals set for student subgroups and teacher hiring. Meeting those requirements in a time of serious budget shortfalls results in additional challenges for state lawmakers.

Legislators and teachers must focus on the goals, says Senator Gardner, "We have a lot of challenges ahead of us. But the benefit is that students will have a better chance at success in school and later in life."

#4-ELECTION REFORM
A collective sigh of relief from the nation's election officials could be heard after the November balloting. In the first national test of voting systems since the 2000 general elections that put phrases like hanging chads, butterfly ballots and provisional ballots into the national lexicon, there was overwhelming agreement that things were better.

The sigh was heard nowhere more clearly than in Florida, which had to endure weeks of national publicity following the 2000 elections. Florida lawmakers passed comprehensive legislation to address voting issues soon after that election. Those efforts helped to restore public confidence.

Georgia also passed one of the nation's most comprehensive elections laws soon after the 2000 elections, resulting in the purchase of new voting machines and money for poll worker training.

President Bush and Congress followed up the efforts of Florida, Georgia and other states by approving late last year the Help America Vote Act, a bill that requires states to meet minimal standards by 2006. States will be required to maintain a database of registered voters, provide voting systems with minimum error rates, set voter identification requirements, provide access to those with disabilities and draft procedures for resolving voter complaints.

Congress, however, has failed to come up with the key ingredient for states to meet these new requirements: the money.

#5-HARD CHOICES ON HEALTH CARE
When the economy goes down, state health care costs go up. That is the proverbial threat legislatures must confront in 2003. Medicaid accounts for about 15 percent of the average state's general fund budget. Increases in health care costs combined with flattening revenue projections-the scenario for 2003-will force state legislatures to make tough decisions, especially when it comes to Medicaid spending.

Medicaid helps pay for health care for one in eight Americans, including one in five children. In recent years, budget surpluses have allowed legislatures to provide supplemental funding for Medicaid when actual spending exceeded the original authorized funding. Now-at a time of budget gaps instead of surpluses-24 states report that Medicaid or health care programs are over budget for the early months of FY 2003.

"One of the difficulties states face with revenue shortfalls is how to make cuts without destroying the health services infrastructure, and if possible find ways to expand coverage, particularly for the uninsured," says Connecticut Senator Toni Harp, vice chair of NCSL's Health Committee. "We're in the unfortunate situation where we may be faced with limiting access and health services instead of making headway in reducing the number of uninsured. The most difficult task will be holding the line."

Officials in 44 states list prescription drug costs as the top reason for rising Medicaid spending. Also at the top are expanded eligibility, which has brought more people into state health care programs, and the push to get more low-income children enrolled in SCHIP (State Children's Health Insurance Program). Factors such as the cost of health services including long-term care, place states in the predicament of searching for ways to cut costs.

Forty-five states implemented cost containment measures to control spending growth in FY 2002. States trying to control Medicaid spending will look to similar measures this year, including provider rate reductions and freezes, cuts in eligibility and benefits, pharmacy cost containment actions, and streamlining Medicaid administrative spending. States may be forced to limit outreach efforts to expand enrollment in SCHIP-which provides health insurance for children who are not eligible for Medicaid or covered by private insurance-and look at caps to curtail enrollment growth. Or in order to provide and continue health care coverage for those who need it, states may be forced to postpone the problem to the future.

While states struggle to meet people's needs and deal with pressure to cut budgets, other health concerns will be in the forefront including the debate over controlling prescription drug costs, the fight to reduce obesity in America-which alone accounts for 10 percent of total health care costs nationwide-and the debate over how to manage costs, access and quality of health care. For the private sector, double-digit increases in health premiums for the second year in a row may cause some employers to drop insurance coverage for their workers. An increased number of uninsured people affects state budgets, as well.

"One solution could be federal assistance," adds Senator Harp. "The federal government could recognize the tight fiscal situation of the states and address some outstanding issues, such as prescription drug costs and Medicaid reimbursement rates. Otherwise, it will indeed be a session of tough choices."

#6-SENTENCING LAWS GET CLOSER LOOK
State lawmakers may be forced to rethink their approach to crime and punishment due to two recent U.S. Supreme Court decisions and diminishing revenues. The high court stated in Ring vs. Arizona that a death sentence imposed by a judge, rather than a jury, was unconstitutional. Atkins vs. Virginia closed the debate on the fairness of executing the mentally retarded, also declaring it unconstitutional.

"I am sure that the Supreme Court's ruling on these issues will cause many states to revisit their rules regarding the death penalty and executions of those with mental retardation," says Texas Senator Rodney Ellis.

Although the exact number of inmates and pending cases affected by these rulings is not certain, the 38 states that allow the death penalty must now decide how this changes appeals and sentencing in capital cases as well as legislative options. Legislatures in Colorado Arizona and Nebraska hastened into special session in 2002 to revise their laws, approving legislation requiring a unanimous jury to determine whether a defendant will be sentenced to death. The 19 states that allow execution of the mentally retarded must also re-examine their sentencing laws.

Additionally, states will expand upon last year's efforts to create new crimes and penalties for acts of terrorism. At least 33 states have passed legislation amending criminal codes to include terrorism. Hoaxes and terrorist threats will be addressed in many states this year.

Shrinking state budgets, combined with the mood to rethink drug policy, is likely to bring corrections costs under closer scrutiny in 2003. Policies in some states are moving to divert drug offenders from incarceration to treatment and rehabilitation. Arizona reported that $6.7 million in prison costs were avoided in FY 1999 when qualified offenders received probation, including substance abuse treatment, instead of prison time. Voter initiatives such as those in Arizona and California that impose treatment rather than imprisonment for first- and some second-time drug offenders may be new sentencing options that legislators consider, especially in a session of tight budgets.

#7-HOMELAND SECURITY ISSUES EVOLVE
States provide the first line of defense against disaster and the backbone of homeland security. In 2003, state efforts to respond to threats of domestic terrorism continue, but without the luxury of the budget surpluses of previous years. Legislators must decide whether or not to sacrifice other programs in order to pay for terrorism defense efforts.

"The first thing legislatures must do is educate our private citizens and our legislative colleagues on the issue of homeland security," says former Arizona Representative Wes Marsh, who co-chaired NCSL's Task Force on Protecting Democracy. "Under the pressure of tight budgets, it will be our job to keep the issue on the forefront of the public agenda."

Before Sept. 11, states typically addressed funding for response and recovery efforts on an ad hoc basis. Now, emergency management in the states is a continuous, full-time effort, encompassing primarily mitigation and preparedness and, when necessary, response and recovery. Due to restructuring of emergency infrastructures, each state will need to re-evaluate and close any loopholes in its public health infrastructure, emergency management and preparedness, and capitol security.

Now that all 50 states have offices or commissions for homeland security, the biggest challenge for legislators will be how to design a way to manage emergencies between departments at the federal, state and local levels.

"You're going to see relationships change among federal, state and local departments," says Marsh. "We have never seen any restructuring like this since the consolidations of the National Security Act more than 50 years ago. States may consider statutory modifications as federal funding becomes available. Changes will improve communication about our vulnerabilities, clarify emergency management lines of communication and ensure a safer public through inter-departmental cooperation."

In Delaware, for example, the legislature has recently designated the governor as the ultimate authority to disseminate information between state and local public health groups. Other states have given authority to the state health officer or presiding physician.

Public health is much better prepared to respond to a bioterrorist threat than a year ago, but additional work must occur to prepare for and prevent future acts of terrorism and consequent health problems. To assist, Congress authorized significant funding last June to help states improve their ability to respond to public health emergencies. The secretary of Health and Human Services has been authorized to give $1.08 billion for states and local governments to improve their public health infrastructure and prepare for a potential bioterrorist attack. The secretary is also authorized to give an additional $520 million to states for hospital preparedness training. Until the 2003 appropriations are completed, however, it remains unclear whether the grants will be fully funded and when those funds might be available.

The dispute for legislatures that receive funding from federal agencies such as the Centers for Disease Control and Health and Human Services, will revolve around whether they should reallocate their funding for public health, in lieu of the federal supplements.

Strengthening the security of the state-issued driver's license and identity card emerged as a public safety issue after terrorists obtained and used fraudulent driver's licenses while carrying out the acts of Sept. 11, 2001. States have since worked expeditiously to close loopholes and strengthen the security of their licensing systems. This year, legislatures are expected to further strengthen the integrity of the driver's licensing system and initiate efforts to enhance a national exchange of information among states.

"State security is certainly a paramount issue that states are not likely to ignore," says California Chief Sergeant-at-Arms Tony Beard, a member of NCSL's Task Force on Protecting Democracy. "But legislators will have to prioritize security efforts to meet the other needs within their state."

#8-THE AIR THAT WE BREATHE
With the administration and Congress wrangling over changes in the Clean Air Act, states will assume the leadership in developing new policies to avoid federal preemption and address local environmental concerns.

"As air quality in many states reaches levels poorer than at any time in the last decade, legislators have become more aware of the pressures to move ahead and reduce emission of pollutants," says New Hampshire Senator Clifton Below.

With many state legislatures splitting partisan control or holding control by slim majorities, we can expect continued debate over ways to balance regulation with market incentives. Last year, New Hampshire and North Carolina passed bipartisan multi-pollutant plans, which attempt to reduce more than one pollutant simultaneously. Other states will consider similar clean air initiatives in 2003.

The debate for legislators vying for clean air legislation will center on which pollutants to reduce. Sulfur dioxide and nitrogen oxides, which contribute to smog and acid rain, traditionally are more common legislative targets than carbon dioxide, a "greenhouse gas" that contributes to climate change. Legislators considering state policies to improve the environment must weigh the potential costs and benefits of short- vs. long-term consequences.

Additionally, legislators are becoming more aware of increasing water demands, particularly as a result of severe droughts in the Rocky Mountain, High Plains and New England states. "Recent droughts in the Northeast have made legislators more aware of the need to upgrade water pipelines and old delivery infrastructures," says Below. "States will need to balance needs to supply public water with industry and agricultural needs without neglecting the ecosystem."

Lawmakers fighting for other important environmental health issues-including asthma, lead poisoning, border health and air quality-will continue to scrap for resources as state health officers struggle to meet these challenges.

#9-THE NEXT STEPS IN WELFARE REFORM
States, long the leader in implementing meaningful welfare reform, now find themselves in a new era as they continue to move families from welfare to work.

Congress created the Temporary Assistance for Needy Families block grant in 1996 as part of the welfare reform initiative. The historic agreement entrusted legislatures with the authority to appropriate the federal funds. Congress is now working on the next phase of welfare reform since the current agreement expired in October.

While states wait for Congress, they know the economic climate will require them to look for savings in state welfare programs. The worsening economy has the potential to increase the number of welfare participants as well as increasing expenditures in such areas as child care, which is necessary to keep some recipients in the work-force.

States still are struggling to resolve the issue of long-term clients who have severe barriers that prevent them from leaving the welfare rolls. Those people often need help with substance abuse, mental health, domestic violence and learning disabilities.

States may not be able to continue all of the innovative programs that they established in recent years. With welfare funds largely spent and tight budgets, lawmakers will evaluate after-school, early childhood and teen pregnancy programs. Only the best programs will escape cuts.

#10-THE INTERNET AND E-MAIL
As more and more Americans use the Internet and e-mail, information privacy is a growing worry. This is intensified by technology's role in making information quickly and easily accessible on the Web and allowing information to be collected, distributed, analyzed and manipulated in ways never before possible.

Most major business and commercial Web sites are taking steps to inform consumers about on-line privacy. Privacy notices are more prevalent, more prominent and more complete, and sites provide consumers with more opportunities to choose how their personal information will be used. And there are benefits to information sharing-data collected are used to better understand customer needs and improve services and products to meet those needs.

Many Internet users find it difficult to read every Web site's policies, however, and may not be aware of the technological tools and circumstances through which their on-line activities can be tracked. Legislatures in 2002 introduced more than 400 bills related to Internet privacy, and more are expected this session.

There also is growing concern over whether employers have a right to monitor employees' e-mail. Connecticut and Delaware have passed laws that require employers to give notice to employees before monitoring e-mail communications or Internet access.

Lawmakers also are hearing from their constituents about spam-unsolicited commercial or bulk e-mail advertisements. The two most prevalent types are get-rich-quick schemes and adult-oriented or pornographic materials, which together amount to almost two-thirds of all spam. Twenty-six states now have laws regulating unsolicited commercial or bulk electronic mail advertising, and at least 30 introduced anti-spam legislation in 2002. Enforcement of anti-spam laws, though, remains difficult. The anonymity of the Internet can make prosecuting spammers time consuming and expensive for law enforcement.

Legislators are also considering legislation aimed at telemarketers. As of October 2002, just less than half the states required some form of licensing or registration by telemarketing firms. At least 29 states currently have "do-not-call" lists.

FOLLOW THE MONEY
Keeping track of how legislatures address key issues will be easy this year-just follow the money. The 50 states will consider a wide variety of ways to address budget shortfalls, including cutting programs, implementing short- or long-term tax increases, reducing Medicaid eligibility, making changes in personnel policies and delaying capital projects.

Administration officials will be answering tough questions from legislators on the effectiveness and efficiency of their programs. By the time the legislative sessions end in 2003, state budgets will still be balanced, and analysts will be keeping a close eye on where the economy is headed in the next 18 months.

NCSL will again provide a resource page for those interested in learning more about these and other issues legislatures will consider in 2003. Beginning in January, our Web site: www.ncsl.org/2003issues.htm will provide links to key information on all the major topics.

Gene Rose directs NCSL's Public Affairs department. Ginger Sampson is a media specialist at NCSL. For more information on these issues, visit NCSL's Web site:
http://www.ncsl.org/2003issues.htm

Return to Publications Home Page

Visitor counts for this page.