2011 AFSCME State Legislative Agenda
Solutions for a Fiscal Crisis
State budgets continue to be battered by the aftermath of the Great Recession. Revenues are still falling for most states, and if, as we hope, tax collections soon bottom out, they will remain at depressed levels for some time to come. Even after cutting spending in each of the last two years, passing some significant tax increases, and relying on much-needed federal fiscal relief, states will still have to deal with budget shortfalls totaling $260 billion for 2011 and 2012.
At least 42 states have cut their state workforces, by imposing layoffs, furloughs, pay and benefit cuts, or other measures. Public service job cuts have been so severe that employment in state and local government has fallen by 242,000 over the past two years. In addition, 45 states have cut services to residents, including health care, care for the elderly and disabled, and K-12 and higher education.
Despite the deep cuts that states have made to their budgets, some spending remains seemingly immune to cuts. Spending on contractual services continues to grow in many states, even as the rest of the budget is shrinking. Tax breaks still eat up millions before the first dollar of revenue comes in the door. And in some states, excessive layers of management remain even after the employees they supervised have been let go.
The good news is that some states are beginning to bring this hidden spending out of the shadows and onto the table. Because of the severity of the fiscal crisis, many states are finally making headway on cutting contract spending, ending special-interest tax breaks, and cutting excess management. Most states have also come to grips with the need to raise revenue to meet their residents most basic needs. But there remains more to do. Its up to us to keep the pressure on lawmakers to find better ways to solve budget shortfalls than further cuts to the vital services we provide.
Cut Contract Spending
One of the largest areas of state spending is also one of the most hidden: service contracts. In many states, lawmakers and the public do not know how much is spent on purchased services, even as detailed information on salaries and benefits sometimes even for individual workers is published every year. Contract spending has grown even as the rest of state budgets are being cut. AFSCME affiliates across the country have taken on the contractors and pushed for measures to cut contract spending. Many states are realizing the savings potential of requiring agencies to cut their purchased services budgets, renegotiate contract terms with vendors, rebid expiring contracts instead of automatically renewing them, and bring privatized work back in-house. For example:
- California Governor Arnold Schwarzenegger signed an executive order to freeze pending contracts, require agencies to cut contract spending by 15 percent, and stop contract amendments.
- Delaware cut spending on consultant contracts by 10 percent.
- Indiana saved $190 million by renegotiating contracts with vendors.
- Kentucky cut more than $115 million in contract spending by renegotiating with vendors, controlling cost overruns, bringing work back in-house and reducing sole-source contracts.
- Nevada lawmakers cut an estimated $10 million from contractual services in a mid-budget special session.
- New York replaced 500 information technology contractors with temporary state positions. The appointments are limited to 5 years, any reductions in force must begin with the temporary positions, and the temporary employees can test for civil service openings. In addition, Governor Paterson created a task force to approve new personal service contracts and required agencies to meet criteria and support cost-savings claims before awarding contracts.
- Ohio Governor Ted Strickland ordered agencies to develop plans for a 30 percent reduction in contract spending, rebid all expiring contracts, in-source any service that can be provided more cost-effectively by state employees, and temporarily freeze additional contract purchases. The governor also encouraged agencies to renegotiate terms with vendors to reduce costs by 15 percent.
- Pennsylvania Governor Ed Rendell brought privatized functions back in-house for $1.7 million in savings.
End Wasteful Tax Breaks
States have enacted thousands of tax exemptions, credits and abatements for special interests over the years, costing hundreds of millions of dollars in lost revenues. When revenues plummeted and elected officials started trying to cut our jobs and the services we provide, AFSCME affiliates around the country demanded that more attention be paid to this hidden spending through the tax code. States have begun to take action on tax expenditures in the past two years:
- Kansas enacted a 10 percent haircut on most tax credits and suspended its film tax credit. Under the provision, tax credits are worth 10 percent less than their original value, and cannot be used to offset more than 90 percent of the total tax liability.
- Colorado eliminated or suspended more than a dozen tax exemptions, including enterprise zones, property tax homestead exemptions for seniors, sales tax vendor discounts, conservation easements, direct mail, energy used in manufacturing, candy and soft drinks, downloaded software, Internet retail sales, food wrappers and napkins, agricultural products, alternative fuel cars, and business operating losses.
- Iowa reduced the cap on business tax credits, and suspended the film tax credit. The state also established a regular review process to evaluate tax credits.
- Oregon required sunset dates and a systematic review of most tax credit programs and also cut back and capped the renewable energy tax credit.
- Oklahoma suspended 23 different tax credits for two years, and deferred four others.
- New York has replaced its ineffective Empire Zone incentive program with a new tax credit costing 90 percent less.
- Wisconsin all but eliminated its film tax credit after highly-touted productions turned out not to be worth the states cost.
Its wrong to lay off public service employees, to close facilities, to force residents to wait longer for services they need, to put off investments we all need, just to keep in place wasteful and unnecessary tax breaks for special interests. The Wall Street Journal wrote that, to plug their budget gaps, states have cut employees, benefits and in many cases raised taxes. Amid that backdrop, a more-skeptical eye toward tax breaks was inevitable. Its up to AFSCME to keep the scrutiny on these tax breaks and ensure they get cut before we do.
Cut Excess Management
State and local government payrolls have declined sharply. To balance budgets, public employees have been laid off, taken furloughs, had their hours, pay and benefits cut. These cuts have harmed front-line services just as they have impacted our members. At the same time, many government agencies have added layers of management that do not contribute to the work we do. We need to focus on excessive layers and numbers of managers.
- AFSCME Council 61 in Iowa last year pushed for and passed a minimum span-of-control requirement of 15 staff for each supervisor. Agencies that cannot meet the requirement must face a review panel, which includes union representation. Supervisors whose positions are cut cannot bump union members from their jobs.
- The Kentucky state budget generates savings by reducing the number of non civil-service employees the governor can appoint.
- In Washington state, AFSCME Council 28 pushed to pass a law requiring the state to issue annual reports on management staffing and pay. The first report provides data on management staffing and details on managers bonuses, and serves as a baseline for comparisons in future years.
- Texas has required a minimum management ratio of 11 to 1 since 2003.
- Other span of control studies from Seattle, Kansas City and Maine serve as examples to states that want to examine their organizational structure.
Raise Taxes to Meet Historic Revenue Drops
Rejecting anti-tax rhetoric, a majority of states have passed tax measures during this fiscal crisis. Since the recession began, over 30 states have raised taxes, sometimes quite significantly. Increases have been enacted in all types of taxes: personal income, business, sales, and excise taxes. Major state revenue packages have been enacted in Arizona, California, Connecticut, Delaware, Hawaii, Kansas, Maryland, Michigan, Nevada, New Jersey, New York, North Carolina, Washington and Wisconsin.
The ideal mix of taxes to target and revenue to generate will depend on the circumstances of each state. What is universal is the need for a balanced solution that recognizes that state employees and services have already taken big cuts and further reductions will cause the most harm – both to state residents and to the state’s economic recovery.
For help in promoting these solutions and policies in your state, or for more information, contact AFSCME’s Department of Research and Collective Bargaining Services at 202-429-1215 or firstname.lastname@example.org.
BACKGROUND DOCUMENTS – 2011
- Iowa Management Ratio Reforms
- Kentucky 2011-12 Budget Contractual Services Savings
- Kentucky Non-Merit Employee Reductions
- Nevada Contractual Services Savings