California Journal of Politics and Policy

This issue of the California Journal of Politics and Policy is produced in collaboration with the Kem C. Gardner Policy Institute at the David Eccles School of Business at the University of Utah.Drawing on the expertise of political scientists, economists, and practitioners from 13 west-ern states, the reports summarize each state’s budget for the 2017‒2018 fiscal year. These reports delve into how the states’ financial well-being affected legislation and just as importantly how legislation affected the states’ financial well-being.While most states seem to be financially sound, if not thriving, each report highlights possi-ble threats in the coming years, whether they be political, economic, or natural concerns. One theme across this year’s budget reports is how the 2016 election of President Donald Trump has affected legislation and fiscal health of the states. A second theme in the budget papers is the need to plan for the next recession.

In the wake of 2014’s global collapse in oil prices, Alaska continues to struggle with a hugedeficit. Fortunately, the state has over $60 billion in savings to finance its fiscal gap, but Alaskanscontinue to fight over the need for spending cuts and new taxes. Outside of state governmentrevenue, Alaska’s economy remains relatively unaffected by low oil prices, and the state’sreserve funds are growing. So far, though, Alaska’s legislature has not generated a coherent solutionto the state’s unbalanced budget for the long term.

The FY2018 Arizona budget had the most discretionary dollars in years with the bulk of it directedtoward K-12 education. “Structural balance” was maintained, demonstrating a new normalin Arizona budgeting. Expenditure growth was less than inflation and population growth. Anotherlawsuit was filed with respect to inadequate state investment in school facilities. A more carefulanalysis finds the state will expend only $3 for every $4 it spent in FY2007 adjusted forpopulation growth and inflation. Rollovers continue to take 10 percent of the budget, eventhough the expansion is in its eighth year. Consequently, structural balance hides a great manyfundamental weaknesses.

California passed a fairly uncontentious 2017‒2018 budget as the state focused more onPresident Donald Trump, and on Governor Jerry Brown’s ultimately successful attempt to corralthe state legislature into passing a new gas tax. Legislative Democrats specifically targetedTrump’s immigration policies, focusing on a bill that would make California a “sanctuary state.”Meanwhile, Brown worked diligently to marshal support for the new tax, which required a twothirdssupermajority vote. Even with a largely unified Republican opposition, Democrats heldtogether their legislative supermajority won in 2016 and approved a rare tax increase in theGolden State. They followed it by passing the budget, as well as an extension of California’scap-and-trade system designed to reduce greenhouse gas emissions. Collectively, DemocraticCalifornia has positioned itself in diametric opposition to a Republican Trump Administration.

Restrictions on revenue and spending imposed by the Taxpayer’s Bill of Rights (TABOR) challenge Colorado legislators annually. Despite a generally positive economic environment and increasing population growth providing greater tax revenue, the state is prohibited from spending revenue collected in excess of prior year’s spending after accounting for inflation and population growth. This legislative session witnessed the collapse of a referendum to increase transportation funding, but also the success of a major reform to state revenue collection in the form of the hos-pital provider fees.

Hawai’i adopted a state budget that authorizes $14.1 billion in spending for the 2018 fiscalyear. Although the state economy has benefited from a robust tourism industry and increasedfederal defense spending, the state’s roads and bridges are in poor repair, and its public employeepension system is underfunded by more than $14 billion. Additionally, the high-speed rail systemthat is currently being built to serve Honolulu—which state taxes support—faces a fundingshortfall of $1.3 billion. Overall, the state’s fiscal condition is reasonably good, but Hawai’i remainsvulnerable to declines in the tourism industry and reduced federal spending.

In Idaho, the FY18 budget drew upon the usual agency requests, executive recommendation,and legislative appropriation activities. However, less business-as-usual was the judicial branchinvolvement due to the post-sine die transmittal, and subsequent veto, of a bill to eliminate thesales tax on food. Citing the implications for General Fund revenue and fiscal challenges fromextreme weather conditions in early 2017, Governor Otter vetoed the sales tax repeal sparking alegal challenge from legislators. The Idaho Supreme Court upheld the executive veto in a 4‒1decision.The robust individual income and sales tax collections reported at close of FY17 exceededthe projections used to develop the FY18 budget, prompting automatic transfers to Idaho’s “savingsaccounts.” This outcome has great significance for the FY18 budget and will almost certainlyflavor anticipated FY19 budget discussions in the 2018 legislative session due to residual frustrationover tax reforms passed, not passed, and vetoed from the 2017 session.In terms of FY18, the budget balanced without infusion from Idaho’s savings funds, basicservices continued, and modest progress continued in education, economic development, andphysical and technology infrastructure. However, the FY18 budget did not reflect important issuesincluding needed regulatory action, tax, and rate reforms intended to catalyze economic development,tax repeals advocated by certain constituencies, medical care access and affordability,and sustainable state capacity. As most of these have long-term budget implications, state government(elected and appointed) will not be able to avoid action indefinitely.

The 65th Montana Legislature ended its constitutionally mandated 90-day biennium sessionwith a $10.3 billion, two-year all funds budget in late April 2017. The Republican-controlled legislaturereturned to its contentious tradition. There were several “big issues,” but due to budgetshortfalls, few policy issues were resolved. Infrastructure bills generally failed although the firstgas tax in decades passed to help with infrastructure. Campaign finance (raising the spendinglimits) was an issue, which seems to be a tradition in the state (Grant 2017). Montana’s collegesand universities took significant cuts in their budgets, and tuition increased roughly 13 percent.Except for K-12 programs, most state agencies’ budgets were cut. Overall, it was a grim legislativesession that produced very few results and resolved few problems. The balanced budget lastedless than two months when revenue projections turned out to be wrong and the governor hadto use his authority to further cut expenses, which included layoffs and additional cuts to stateagencies and services. The governor has limitations on how much he or she can cut, which ledobservers to suggest that a special session may be needed to fix the budget. Due to a historic fireseason, the state’s firefighting budget was drained, and the state’s fragile economy was adverselyaffected. Tourists either left early or cancelled their plans due to the fires and smoke. Overall,there were not many winners in this legislative session. It was a session marked by lack of fundsand budget across most agencies. Unfortunately, as the fall season began, the state budget appearedto be in shambles only months after the session adjourned.

Nevada has experienced steady economic improvement as it continues its recovery from theGreat Recession of 2008. The state budget is resting on a solid foundation in terms of satisfyingrevenue projections contained in the 2015‒2017 biennial budget. The state successfully facedand responded to a state economic environment that has been characterized for the past few yearsby recession, a budget crisis and political budget fights. The 2017‒2019 biennial budget was theresult of divided government. The Senate and the Assembly—with Democrat majority control,and Governor Sandoval—a Republican, resulted in Nevada adopting a 2017‒2019 biennialbudget that was the result of compromises. The 2017‒2019 legislatively approved appropriationsclosely resemble the 2015‒2017 biennial budget on a category basis. Economic recovery, economicgrowth, and incremental tax revenue growth constituted the basic approach taken to budgetingby the 2017 Nevada Legislature and Governor Sandoval.

In spring 2017, the New Mexico State Legislature faced difficult financial and political challenges.Persistent high unemployment, high poverty, and outward migration combined with weakoil revenues and reduced federal spending has resulted in a steady reduction in General Fundrevenues. Shrinking revenues caused state legislators to twice revisit current appropriation levelswith the goal of avoiding budget deficits and providing assurances to investor rating agencies.Political discord regarding the appropriate fiscal remedy has made the financial situation moredifficult as legislators and the governor debate the need to increase revenues or cut state agencybudgets. At the conclusion of regular and special sessions, the legislature enacted a $6.1 billionbudget for the fiscal year beginning on July 1, 2017. The enacted budget reflects a small increasein public school funding (half of one percent) and a decrease in spending for higher education(one percent). Legislators ultimately provided the governor with multiple potential revenue increases.The governor vetoed all such increases opting to approve the use of severance tax bondproceeds from suspended infrastructure projects to balance the operational budget. The proceedsprovided just enough to balance the budget leaving only $24 million in reserve.

The foremost challenge facing the Oregon Legislature confronts nearly all state and localgovernments today: meeting growing and uncertain spending commitments while funding thepublic employee retirement system adequately. There is more than magnitude to this problem.The solutions are constricted by a rigid revenue system, funding patterns locked in by party politics,an initiative system that fosters spending commitments more easily than revenue raising,and strong judicial protections of public employee contractual guarantees. To capture the contextof the budget debates of the Winter/Spring of 2017, this paper examines the nature and legaciesof the November 2017 election, Oregon’s broad economic context, and the core budget debateswithin Salem.

The 2017 Utah legislative session, an intensely busy 45 days, focused heavily on tax reform,funding of public schools, and addressing the state’s homeless crisis. At the conclusion of thesession, the FY18 budget totaled $16.2 billion, a seven percent increase over the FY17 budget.Public schools received a large increasing in funding—in total a seven percent increase to addressstudent growth and other programs. The discussions about tax reform failed to produce anyagreements and will likely be addressed in the 2018 session. Although homelessness was addressedwith more than $12 million in funding for new homeless shelters, low-income housing,and expanding a 10-year tax credit, the crisis in the state continues to grow and a special sessionis likely to be held in fall 2017. This report provides the details about the 2017 legislative session,the FY18 budget, and the factors—such as demographics and economics—that impacted thebudget.

The crafting of the Washington state 2017‒2019 biennial budget during the 2017 legislativesession coincided with the looming deadline set by the Washington Supreme Court inthe McCleary decision requiring a sustainable system to achieve “ample provision” for equitableK-12 support. Washington’s improving urban economy lessened some of the budget challenges,eviscerated by divided government and the Supreme Court’s McCleary and Hirst decisions. Inwhat is become common place, the legislature required multiple special sessions to, on the lastday prior to the mandated budget shutdown, pass the McCleary fulfilling operating budget. Threespecial sessions, however, weren’t enough for the legislature to negotiate a solution to the Hirstdecision. This standoff between rural water rights and development resulted in the state capitalbudget being held as a pawn in the negotiations and is indicative of the greater challenges facingWashington State and its divided population, economy and territory.

In 2017 Wyoming faced one of the most divisive legislative sessions in memory; it was adark fiscal climate driven by lower than expected oil and gas prices. In the midst of decliningstate revenue, lawmakers rejected any new taxes or increases of others, while cutting the statebudget by $400 million. Although revenues appear to be stabilizing, an uncertain fiscal climateremains.