GAO report says states face severe budget shortfalls in years ahead

WASHINGTON, DC (KSNT) – A new report from the US Government Accountability Office says states will continue facing the risks of budget shortfalls unless they make a fundamental change in how they approach spending.

The report should serve as a wake-up call for Kansas legislators when they begin meeting in January to address the state’s looming 2015 estimated budget shortfall of nearly $400 million.

The report released Wednesday says current rates for total tax revenues aren’t expected to hit their 2007 record numbers until 2058. It especially notes that nationwide, states are seeing declines in sales tax, income tax and property tax revenues. Additionally more and more of state budgets are committed to rising Medicaid expenditures and health care compensation for state and local government employees and retirees.

The GAO study concludes that “(a)bsent any policy changes, the sector will face an increasing gap between expenditures and receipts in future years.”

The report says the best solution is for state legislatures to make changes in their spending policies to adjust expenditures to actual revenue. It warns that with the increasing shortfalls, closing that fiscal gap “would require action to be taken today and maintained for each year equivalent to an 18 percent reduction in the state and local government sector’s current expenditures.”

It also warns that even if states increase their tax revenues they would still have to maintain the 18-percent spending reductions to gain any ground.

By comparison, Governor Sam Brownback’s plan to deal with this fiscal year’s projected $279 million shortfall meets none of the GAO’s suggestions. Brownback’s plan, released December 8th calls for no reductions in public and higher education, a four percent cut in existing state agency budgets and reduces the state’s contribution to the state employee’s retirement fund, KPERS.

The report estimates that health care compensation for state and local government employees is already growing at an alarming rate, while wages and salaries have failed to keep pace with the nation’s economic growth putting even more pressure on local governments to make up the gap.

 

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