In the Eye of the Storm
Unions chart a course through a second year of turbulent budget deficits

By Barbara McKenna

For the next fiscal year, states are facing the worst budget deficits seen in 50 years. The National Conference of State Legislatures has estimated that these deficits could amount to as much as $85 billion.

This red ink comes on the heels of the $50 billion deficit states worked through in devising their current fiscal year 2003 budgets. And it must be added to the $17.5 billion shortfall states are grappling with right now, as they confront the revenue gap that has widened since they enacted the 2003 budgets.

Just as talk of war all fall has diverted the country's attention from economic calamities at home, the November elections provided some distraction for politicians unwilling to focus on the negative. But last month, as 24 new governors took occupancy of their gubernatorial mansions, and as one-third of the seats in state legislatures turned over, there could be no more denial. The most pressing issue facing elected officials is figuring out how to keep the state budgets in balance (as required by law in almost every state) while dealing with revenue shortfalls averaging between 13 percent and 18 percent of the states' expenditures.

California posed one of the most shocking scenarios. In December, Gov. Gray Davis announced that the deficit, thought to be approximately $21 billion, was really closer to $30 billion--and climbing.

"It's unbelievably stressful," says Mona Field, an AFT member who teaches at Glendale Community College and who is also an elected trustee on the Los Angeles Community College District Board. "Every day the bad news gets worse."

Last year, every legislator she spoke to, Field says, admitted "the budget was all smoke and mirrors and that we'd see real figures after the election." Soon enough, those figures emerged. "It's incomprehensible," says Field. "One-third of our state budget isn't there!"
 

Dealing with painful realities

Last year, the states had to deal with the first year of serious revenue shortfalls, brought on by a number of converging events: a stock market in free fall, the devastating toll of terrorist attacks and security responses, and the effects of federal and state tax cuts. In FY 2002, states took in $38 billion less in revenue than they did the year before.

To balance their budgets, states used a combination of finesses and belt cinching. They dipped into rainy-day funds stored up during the boom years of the 1990s. They tapped into tobacco lawsuit settlement funds. They levied new sin taxes on cigarettes and alcohol. And they cut programs.

Of course, higher education took some hits. "We do not benefit from any protection," notes Travis Reindl, director of state policy analysis for the American Association of State Colleges and Universities. "Higher education is one of the first necks on the chopping block."

Many states level-funded higher education, and then had to come back for mid-year cuts and tuition or fee increases. In October, the College Board reported that public university tuition increased 9.6 percent in 2002-03, and tuition in the public community colleges went up 7.9 percent. These were the largest hikes in 10 years.

This year, the revenue picture is worse, with the FY 2003 shortfall approaching $67.5 billion. The cuts to higher education (and to many other essential public services) are getting ever closer to the bone.

In this situation, says Reindl, a sort of triage takes place. "First you cut things--such as maintenance and repairs, travel to conferences, computer upgrades. Then you move to human resources--leaving vacancies unfilled. There is an effort to protect the student-oriented piece of the campus experience as much as possible." But, he adds, "We're way past that now."

In fact, Reindl believes 2004 will be the fiscal year when states hit the low point of the national economic slowdown. That's both good news and bad: The worst is yet to come, but the end is in sight.
 

What's a five-letter word for 'revenue enhancement'?

"We're in the eye of the storm," says Ed Muir, AFT assistant director of research. It is a brief calm before the roar of a more devastating deficit cycle that will compound the injuries of the first. This vantage point, between sets of draconian measures, provides unions with an opportunity to put some proposals on the table and shape the direction of the discussion. It may even open the door to a more reasonable response to budget shortfalls--raising more money to maintain essential services.

This past October, the AFT executive council moved quickly to assemble the AFT Public Employees' Budget Crisis Task Force to gather information and develop a strategy to recommend to states. The task force's major recommendation: "Make this discussion be about revenue, not cuts," says Muir.

Revenue? In this context, would that be a euphemism for taxes?

All we want our federations to ask, says Muir, "is before you look to cut, have you done everything you can to be sure the revenue system is performing as well as possible?

Sometimes you look for uncollected taxes. Or sources of money a state has but hasn't considered before. Or you close loopholes. Or readjust the tax system because the feds have come in and undermined the tax base," he says.

Given the magnitude of the deficit problems, "We won't get through this without tax increases," Muir adds.

In fact, while virtually every candidate for state office this past fall seemed to oppose the idea of raising taxes, by December, New York's Republican governor, George Pataki, and California's Democratic governor, Gray Davis, both were suggesting that taxes might be a way out of their state budget crises.

One Washington, D.C.-based think tank has been issuing analyses and alerts on the issue of state deficits and tax cuts. The Center on Budget and Policy Priorities (www.cbpp.org) reported in December that the worsening state of fiscal crises and the proposals lawmakers were considering to address them could force deep cuts in programs--such as healthcare coverage, child-care subsidies and state higher education funding--that serve as a lifeline for low-income working families.

On Dec. 23, CBPP reported that in the 11 states where proposals for cuts already had been issued, 1 million people currently covered by Medicaid or State Children's Health Insurance Programs could enter the ranks of the uninsured.

Rather than look for programs to cut, the center lays out a case for a review of states' revenue histories. It suggests that state and federal lawmakers' urge to cut taxes when economies were flush during the 1990s resulted in net cuts that have far exceeded the surpluses of that period.

Further, the center points out:

• The windfalls that prompted the tax cuts were the result of unsustainably high economic activity. The revenue windfalls turned out to be temporary, as capital gains have declined dramatically.

• Many states used temporary revenue gains to finance permanent cuts, a situation that cries out for review.

In 1991, despite significant recessions, 44 states raised taxes at the same time they reduced spending. Now, as the country faces a much worse recession, very few states are contemplating this recourse, yet the need for government services is greater than ever.
 

Developing strategies to focus the discussion

The AFT research department has been working to help state federations steer the deficit debate away from many lawmakers' spontaneous compulsion to focus on cutting services. The department is customizing suggestions for each state and preparing a checklist that federations and locals can use to address their particular budget situations (see sidebar).

Connecticut was one of the first states to benefit from the AFT's efforts to reframe the budget discussion. While the task force was still meeting in October, Gov. John Rowland announced 3,000 public employee layoffs. This was to address a budget shortfall of $2 billion for FY 2002 and 2003.

"We have to come up with cuts or revenue enhancements," says Leo Canty, president of the Connecticut Federation of Educational and Professional Employees. "We have to figure out a way to make taxes palatable." With the program cuts, people will be paying the same taxes but getting much reduced services.

The federation is working with a coalition of all state employees, called One Connecticut. It represents more than 100 labor, service and community organizations. They are working on "a stable, fair and sensible revenue proposal, incorporating state corporate taxes," says Canty. At least five big city mayors "are singing our praises," he adds. "There are lots of ways to skin this cat."

Elsewhere, AFT unions are swinging into gear to prepare for the grueling months ahead.

In Massachusetts, the eight unions representing employees in public higher education (AFSCME, AFT, NEA, SEIU, UAW, NAGE, IBPO and the Teamsters), have formed a coalition called Higher Education Unions United (HEUU), reports Dan Georgianna, president of the University of Massachusetts Faculty Federation. The coalition mounted actions on the state's public college and university campuses in the fall, after then Gov. Jane Swift announced she would not provide the raises that had been negotiated and approved for the employees. HEUU plans further actions for this month.

In Illinois, the United Professionals of Illinois has a long history of participating with Citizen Action Illinois, says Sue Kaufman, UPI president. That coalition was geared up to be a player when the Legislature convened last month to address a deficit that may run as high as $4 billion. As locals, Kaufman says of the UPI chapters that are all at the bargaining table right now, "we have got to hold the Legislature and our political leadership accountable so they don't devise short-term political solutions that make them look good, but that place a long-term burden on higher education in the state."

In New York, the state is facing a $10 billion shortfall. It is the second year in a row that the state's tax revenues have declined--a situation that has not occurred since the 1940s, says Tom Kriger, director of research/legislation for the United University Professions. What is more, while higher education was not hurt too much by the measures the governor took last year to deal with the deficit, this year promises to be a whole new ball game. Gov. George Pataki is proposing a 20 percent tuition hike--which amounts to about $600--at both the State University of New York and at the City University of New York. It would be the first increase since 1995. If tuition does not go up, deep cuts to academic programs are among the solutions being discussed.

UUP and the New York State United Teachers are counting on their coalition-building skills, working with social service and environmental groups, as well as statewide unions, to put any number of options of their own on the table. These options include postponing tax cuts, capturing federal windfalls and closing the tax loopholes on corporations, Kriger says.

In January, UUP met with local chapters on State University of New York campuses to create a political action plan. The union is part of a coalition of 60 groups devising alternatives to budget cuts. The coalition is spearheaded by the Fiscal Policy Institute, a progressive think tank in the state.

"Our members are very active politically," says Kriger. Still, "it will be an ugly five or six months. I've got my life preserver on."