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December 17, 2009

NCSL Annual Forecast: Construction Continues on Repairing State Budgets

Top 10 issues of 2010: Third year that fiscal conditions will dominate legislative sessions.

DENVER - Fiscal year (FY) 2010 is expected to still be a difficult year for state budgets. The fiscal challenges are enormous, appalling and, unfortunately, at least two years away from being over.

Even though budget gaps vary across the United States, each state has something in common. Lawmakers have made repairing state budgets a top priority for legislatures across the country during the 2010 legislative session, according to the National Conference of State Legislatures' (NCSL) annual forecast of top policy issues. Forty-five states and Puerto Rico will hold regular sessions in 2010, most convening in January.

Lawmakers are lowering themselves into the trenches to find out which pipes could rush economic success into their state and which valves to shut off. Economic conditions have forced many states to continue looking at cutting or scaling back programs, increasing taxes and implementing hiring freezes and furloughs. But these actions may not be enough for some state budgets. NCSL's recently released State Budget Update: November 2009 shows states were compelled to close a cumulative budget gap of $145.9 billion in the process of crafting their FY 2010 budgets. But their actions were not enough to cover continued lackluster revenues. Thirty-six states already report another round of gaps since FY 2010 began. The total now hit $28.2 billion, and the fiscal year for most states doesn't end until June.

"This is one of the most complex projects that state legislators have tackled," says William Pound, NCSL executive director. "Everyone is going to have to get their hands dirty while trying to find successful solutions to closing state budget gaps.”

NCSL's Top 10 of 2010 is an annual list that examines the pressing and important topics on state legislative agendas. State budgets top the list for a third year in a row, followed by health care costs, unemployment and higher education. Legislatures will also have their work cut out for them dealing with distracted driving, juvenile justice and military voting. 2010 will also be a big election year with 83 percent of legislative seats up for re-election. This election will set up the power grid for who controls the 2011 redistricting process, making it arguably the most important year for legislative elections in the decade.

Following is the list of expected top issues in 2010. The issues are ranked from one to 10, with number one being the most pressing issue state lawmakers will tackle.

Issue #1 - Balancing State Budgets and Creating Revenue
Money is the starting and stopping point for virtually every state program and service. Budget cuts will again be deep, controversial and painful. States are heading into an era of retro budgeting, where state spending is receding to levels of five to 10 years ago. New spending pressures also are starting to pinch state budgets. Eighteen states and Puerto Rico reported that Medicaid or other health care programs were over budget. And California, Maryland, Ohio and Washington reported that education costs were exceeding budgeted levels. Correction spending also is exceeding budgeted levels in many states. Thirty-five states and Puerto Rico currently project a cumulative budget gap of $55.5 billion in FY 2011. At least five states report that an official gap estimate is unknown, but indicated that a gap in FY 2011 is expected. Sixteen states do not currently project a gap for FY 2011. Twenty-three states and Puerto Rico currently project a $68.8 billion budget gap for FY 2012, compared to the $55.5 billion in FY 2011. Anything and everything is on the table when it comes to ways states can save money and states will look at all possible solutions during the 2010 session. Tax increases will be politically difficult since 2010 is an election year. Lawmakers may look to other forms of economic development to bring in additional revenue. 
Issue #2 - Managing Health Costs and Coverage
States have a major stake in health reform even outside of the Beltway. Broadening access to health care for more Americans is a goal for many legislators. But expansion of care must be balanced by finding the funds to run key state programs, including Medicaid, state children's and workers’ health coverage, and public health. State legislatures again will face difficult competing demands. Containing rising costs will be critical to achieving real reform. Because treating chronic diseases—such as heart disease and stroke, cancer, diabetes and mental disorders—accounts for about 75 percent of health costs, a renewed focus on preventing them and treating them appropriately could play important roles in health reform efforts. As legislators grapple with tight budgets, they are also mindful that promoting healthy habits such as eating well, exercising regularly and quitting smoking can help reduce costs and improve economic productivity. States lawmakers will also likely promote health information technology to improve efficiency and reduce costs. In addition, the recent H1N1 influenza pandemic raised public awareness about the need for maintaining a strong public health presence to protect people in times of disease outbreaks, emergencies and natural disasters.

Issue #3 – Lowering Unemployment Rates
The national unemployment rate continues to rise and some experts expect it to increase through the end of 2010. Job losses continue in every state and almost every business sector. Sixteen states have unemployment rates at or above the national average. To meet the increasing demands for unemployment benefits, states have borrowed from the Federal Unemployment Trust Fund, raised unemployment tax rates and increased the wage base upon which taxes are calculated. According to the U.S. Department of Labor, Employment and Training Administration, 24 states and the U.S. Virgin Islands are currently borrowing to cover unemployment benefits.  Michigan began borrowing in 2006. Some states have considered cutting benefits and restricting eligibility. States will continue to feel the crunch through all of 2010 and will again look at all of those options to increase funding for unemployment benefits.

Issue #4 - Affording Higher Education
At a time when most jobs require some kind of post-secondary education, fewer students are able to afford it. Higher education is often one of the first areas to be cut during tough fiscal times, which results in corresponding increases in tuition. The states are putting in less and students are putting in more. In some states, cuts have been so severe that some question what has become of the "public" in public higher education.  Some states and universities are beginning to explore what a "privatized" system of higher education would look like. At the same time, there is a push by the current administration to double the numbers of college graduates by 2020, so the United States is once again first in the world. To accomplish that, the focus for states can't be just on traditional college students. To double the numbers, states will need to target minorities and first-generation learners (the fastest growing population) and adults (many of whom have accumulated credits toward a degree, but never finished). Federal money is also in play for states who promise to innovate education. Race to the Top and other competitions are looking for states to break the mold in this legislative session with ideas for innovative charter schools, teacher compensation reform, a redesigned school day and use of new technology.

Issue #5 – Analyzing Sentencing and Corrections Costs
With prisons putting a costly strain on state budgets, legislators are exploring policies that better manage correctional populations while maintaining public safety and reducing recidivism. In 2009, at least 12 states eliminated or decreased prison sentences for theft or drug offenses. Community-based treatment and diversion programs were expanded or created in at least 18 states. Many of these approaches are tailored around "justice reinvestment," a data-driven strategy being discussed in states and at the federal level to analyze and avert costs to criminal justice systems. As states dig deep to deal with budget gaps in 2010, corrections and sentencing policy options are sure to be on legislative agendas.

Issue #6 – Maintaining Transportation and Infrastructure
Although federal stimulus money was helpful to states in paying for thousands of smaller transportation projects in 2009, a large gap still exists between available revenue and actual money needed for infrastructure maintenance and new transportation projects. About one-third of the states raised various transportation funding sources like vehicle registration fees and the gas tax this past year, but because the number of miles driven continue to drop, the decline in revenue persists. At least a dozen states are completing revenue studies that highlight the needs and possible sources of new transportation income, including the general fund. In addition, states are awaiting a sweeping new federal transportation authorization that will supply new money and potentially change the way federal funds are distributed.

Issue #7 - Balancing and Managing State Government
The 2010 legislative session is expected to bring a push in legislatures to streamline state government. A few states cut public employment significantly in 2009, but furloughs were the means of choice in several states as a way to reduce spending. In 2010, lawmakers will look at ways to consolidate agencies, reduce staff levels and privatize services. In addition to streamlining, several states, including California, are looking at how pensions and benefits for public employees and teachers are designed in order to reduce their long-term costs.

Issue #8 – Developing Clean Energy Alternatives
Developing and using alternative energy will be a top issue for legislators across the country.  Financing and integrating renewable energy (generated by wind, solar, geothermal and biomass resources) with existing energy resources will be at the top of their agenda. Twenty-nine states now have requirements for renewable electricity, while six more have renewable energy targets. Some state leaders see renewable energy as having many benefits, such as encouraging local job growth and economic development; reducing the volatility of energy prices; and meeting growing energy needs without increasing greenhouse gas emissions. Climate change also has been a top policy issue for several states. Eight states have instituted enforceable targets for greenhouse gas reductions: 20 other states have set greenhouse gas reduction goals.

Issue #9 – Examining Sex Offender Registration
A blanket extension from the U.S. Office of Justice Programs gives states until July 27, 2010, to comply with the Sex Offender Registration and Notification Act (SORNA), which are the provisions of the federal Adam Walsh Child Protection and Safety Act of 2006. If states do not comply, they face a 10 percent reduction to federal law enforcement assistance grants. The act mandates what information must be collected, sets timelines, describes processes, defines tiers of sex offenders for the purpose of registration duration, and makes other requirements. While the U.S. Supreme Court considers retroactivity applied to the Act, only one state to date has complied totally. Study and actions are under way in many states to address some or all of these complex requirements. Considerable state legislative attention to this will no doubt continue in 2010 with the compliance deadline looming.

Issue #10 – Expanding Broadband Access
Starting in 2010, $7.2 billion in broadband stimulus money will be targeted at helping communities get either hard wired or wireless Internet access on a level with or even better than the rest of the country. All 50 states have applied for stimulus funds and will be looking at the best ways to use those funds to expand broadband adoption nationwide, which is vital to job creation and economic recovery. Industry experts emphasize broadband is an essential vehicle for enhanced learning and distance medicine; a critical element of the entertainment and news industries; and vital to rural communities for economic development, public health and safety, and improved quality of life. Many states have already created innovative programs and successful funding approaches to implement high-speed Internet services; at least 14 states enacted broadband legislation in 2009. Many more states are likely to consider legislation in 2010.

Other issues that states will be keeping an eye on during the 2010 legislative session include:

Distracted Driving. As talking and texting on cell phones become more common, the dangers of performing these tasks while operating a motor vehicle become more apparent. In 2008, 5,870 people lost their lives and an estimated 515,000 people were injured in police-reported crashes involving at least one form of distraction, according to the National Highway Traffic Safety Administration. Studies have shown that text messaging while driving can increase a driver’s risk of a crash or near-crash by 23 times. Nineteen states and the District of Columbia prohibit drivers from text messaging while driving; 12 of those laws passed in 2009. Florida and Kentucky have already pre-filed texting ban bills for the 2010 legislative session.

Military and Overseas Voting. Pursuant to the newly enacted Military and Overseas Voter Empowerment Act, a component of the National Defense Authorization Act for FY 2010 (Public Law No. 111-84), states must comply with new mandates covering voter registration and absentee voting for military and overseas citizens.  The new mandates start to apply with the November 2010 federal elections.  Beginning with the November 2010 federal mid-term elections, states must send out validly requested absentee ballots no later than 45 days before any federal election (primary, general, special or runoff).   In 2010, 45 days before the Nov. 2 election is Saturday, Sept. 18.   States must also designate at least one means of electronic communication (fax or e-mail) to handle voter registration and absentee ballot requests and to transmit blank ballots to military and overseas citizens. “Hardship waivers” may be requested from the Federal Voting Assistance Program if the state will be unable to comply with the new law in time for the 2010 elections due to a late primary election, a contested election, or conflict with the state’s constitution.

DNA Technology. This type of technology continues to transform criminal justice systems. All states today collect DNA from convicted offenders, often all felons, while 21 states have expanded that policy to include arrestees—seven of those enacted just this year. Proponents say it will help prevent crime contribute to determining guilt, while detractors express concern that civil liberty and privacy protections should prevent compelling DNA samples from people who have not yet been convicted. As states continue to gain experience with arrestee testing, we expect more state discussions on this in 2010.

Home Ownership. Delinquent payments and homeowners entering foreclosure continue to rise, impacting even prime and FHA loans. Job losses and continued unemployment are now driving the delinquency and foreclosure increases. As the employment recovery is not anticipated until sometime in 2010, state legislators and other policymakers will be watching to see if foreclosure mediation and other programs designed to help homeowners are actually working to keep people in their homes or if the programs need to be adjusted to help more homeowners.

Opportunities for Working Families. The economic downturn has compromised the financial security of millions of working families. On top of rising costs and diminished savings, a job loss or health emergency can spell financial ruin for a family already scrambling to keep up. Lawmakers are looking for more efficient ways to help families help themselves. Asset building is a relatively new policy approach that focuses on helping families accumulate and preserve their assets so they do not fall into financial ruin. Strategies include matching savings accounts for education, homeownership and retirement, shoring up small business development, and giving tax credits.

Juvenile Justice. While the U.S. Supreme court is set to review life-without-parole sentences given to juveniles in 2010, states also will be looking at juvenile sentencing and culpability, their mental health needs, and competency to stand trial. Expect the research spotlight on adolescent brain development to contribute to these discussions in the high court and in state capitols. 

NCSL policy experts will be available to speak about each of the Top 10 issues. To schedule a time, please contact NCSL's press room.

In addition, we recommend you take this list to your own state legislature and see if they agree, or use this list to explore what the Top 10 issues might be in your state during the 2010 legislative session.

NCSL's Top 10 of 2010 list was compiled through discussions with its executive committee, standing committees and policy experts. This list is not reflective of every issue legislatures will grapple with during the upcoming year, but rather an overview of some of the top issues expected to cross state lines and be dominant themes next year in state legislative sessions.

NCSL is a bipartisan organization that serves the legislators and staffs of the states, commonwealths and territories. It provides research, technical assistance and opportunities for policymakers to exchange ideas on the most pressing state issues and is an effective and respected advocate for the interests of the states in the American federal system.