Plummeting Tax Revenues Will Put Governors In Tough Budget Situations

Good old days: Before the coronavirus hit, governors, like California’s Gavin Newsom, had easier jobs. AP/Rich Pedroncelli, Pool

“Governors Have the Best Political Jobs in America” is the name of one of my lectures in a leadership course I occasionally teach at the University of Virginia.

In that class, I describe how governors have huge appointment powers for their personal staff, agency directors and even boards and commissions.

Governors dominate state legislatures, which are often part-time with few staff. They have substantial say over state budgets, which in 2019 ran from US$6.1 billion for a small state like New Hampshire to $311.3 billion for California.

When former governors Ronald Reagan, Bill Clinton and George W. Bush later became president and had to work with the U.S Congress, they wished they still had the line-item veto powers they had as governors, which allowed them to cut individual items in the budget passed by the legislature.

Today, as governors continue to provide leadership on the coronavirus crisis they are about to confront a second crisis, as their state’s fiscal positions will rapidly deteriorate. In my view, it will be as bad as the Great Recession of 2008 to 2009 and its aftermath.

I might call that lecture now “Governor, why did you want that job anyway?”

The magnitude of the fiscal crisis that governors and their states will have to face is just starting to emerge. And that crisis will affect states’ abilities to do everything from paying teachers to paving roads to providing social services.

Money in, money out

Total state spending in 2019 was about $2.1 trillion. In national summary figures, the largest state program is Medicaid, which is about 28.9% of total spending, substantially above the 19.5% for elementary and secondary education and the 10.1% for higher education. The other major spending is for transportation, which is about 8.1%.

The remaining 33.4% is for a catch-all category of smaller programs like the environment and economic development.

On the revenue side of the equation, which is also about $2.1 trillion, the three major taxes on sales, personal income and corporate income make up 40.8% of the total. Special fees and other taxes represent 28.5%. The federal government, through grants and contracts, contributes 30.7%.

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This article is republished from The Conversation under a Creative Commons license.

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