Tracking the Recession: A Chat With Two State Leaders

By: - April 27, 2009 12:00 am

One is the son of a dairy farmer whose day job is a divorce lawyer when he’s not presiding as the Democratic speaker of the North Carolina House. The other is the son of a Baptist minister, an executive in the Waffle House (“Good food fast”) restaurant chain and a Republican state senator from the Atlanta suburbs.

Their backgrounds could not be more different. But Joe Hackney of North Carolina and Don Balfour of Georgia share the experience of being top leaders of the bipartisan National Conference of State Legislatures, the Denver-based organization that offers advice and advocacy on state issues.

Together Hackney, NSCL president, and Balfour, NCSL president-elect, sat for an hour to answer questions from reporters and editors at the outset of NCSL’s annual spring forum April 23-24 in Washington, D.C.

Despite their personal history and different party affiliations, they agree mostly on the big stuff: The economic stimulus and financial system rescue plan are starting to help in their states. The public has no idea about the depth of the financial troubles facing state governments, even after the stimulus money is spent.

Georgia made deep cuts in services to balance its budget this year, Balfour said, and probably will need to trim an additional 8 percent from its fiscal 2010 budget. “The general public thinks, ‘Oh, you all just cut the fat.’ Let me tell you, if there’s fat, I really don’t know where it is,” he said, recalling how the Legislature even considered cutting funds for nurses in public schools.

Hackney and Balfour shared a knowing laugh when Hackney said he gets e-mails from people who report seeing state construction workers “leaning on a shovel” instead of working, as if that’s one of the main reasons states have a cumulative budget gap of more than $200 billion.

“We did polling before the session,” Hackney said. “We asked people, Why is the state budget in a deficit? The top answers were waste and inefficiency, the national economy and the state economy. Which one do you think polled the highest? Waste. The feeling is out there among the public that we have to do some cutting every year. We do whether it’s a bad year or not.”

For now, at least, Hackney and Balfour say that even though the stimulus program is in its initial stages, they see signs in their states that the $787 billion program and the $700 billion Troubled Asset Relief Program to bail out financial institutions are working.

“The thing that is having the most effect so far is the TARP,” Hackney said. “I really think the banks are stabilizing. I talked to some bankers yesterday in my state, in the western part of the state. Lending has eased up, and is going ahead.”

The stimulus, Hackney said, “is helping to save a lot of state government jobs, so you start there. And it’s hard to overstate the significance of that in my state. … As far as the economy in general, the money is just getting out there. The first impact in my state would probably be the paving and road-building industry. I think they’ve been pretty much put to work.”

In Georgia, Balfour said, lawmakers combined $1.3 billion of stimulus money and $1.6 billion of cuts to cover the state’s budget shortfall, helping lawmakers avoid making deeper cuts. “Without the stimulus package, I think we and all the states would have been in terrible shape,” he said. “If not for this, we may have been going through a deeper recession.”

Even with the stimulus money – North Carolina and Georgia each could get about $6 billion – both states will still face grave budget challenges, which is true for most states. NCSL, in a report released shortly after the interview with Hackney and Balfour, said states will need to slash $62 billion to balance their budgets for the current fiscal year after already cutting $40 billion. Next year’s gap could exceed $121 billion, NCSL said. 

Georgia may shorten the school year for teachers by five days to save $50 million each day, Balfour said. Education cuts may also resolve North Carolina’s financial mess; the budget gap is $3 billion to $4 billion for the fiscal year that starts July 1. The state has spent millions of dollars to reduce class size in the lower elementary school grades and on early childhood education programs.

Hackney asked, “Do you roll back all of those education improvements, so important in attracting industry to the state, or do you just give every single employee in the state a small hit” through furloughs, layoffs and pay freezes?

Balfour worries that in Georgia, the preoccupation with the state budget will make it difficult to address the state’s worsening traffic congestion for several years unless residents agree to a tax increase. Officials have estimated the state needs $3 billion a year for 20 years to meet its transportation demands.

“I did a survey in my district asking would people be willing to do a 1 percent sales tax increase for roads,” Balfour said. “It’s just a yes or no question. But people write in on the e-mail, ‘We don’t need to do that. Cut the waste.’ Let’s assume there’s $100 million there to waste. We’re talking about three billion dollars a year for 20 years! I mean, there’s no comprehension of the massive need for transportation.”

Some economists have said the stimulus should have been closer to $1 trillion. Hackney and Balfour disagreed a bit over whether a second stimulus package might be needed. Balfour said another stimulus would swell the federal budget deficit, which is already near $1 trillion.

“I don’t think we can afford another stimulus,” Balfour said.”Now, I’m not saying I wouldn’t have done it (the stimulus) this year, because I think things probably would have fallen even more off the cliff. But at some point in time, you can’t triple or quadruple the (federal budget) deficits.”

Hackney said it is too early to say whether another stimulus is needed, but he said he is confident the stimulus and TARP will jump-start the economy and pay back the cost of the programs. “I think if and when – and I think it’s really a when – the economy rebounds and we hit one of those high-growth periods, we can pay this off. But the bottom line is we really have no alternative right now.”

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Stephen Fehr

Stephen Fehr is a senior officer with Pew’s government performance portfolio. He is a lead writer on many of the products generated by the portfolio, specializing in state and local fiscal health.