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Published on Wednesday, March 20, 2013

Today’s state revenue forecast – what it might mean for cities

Today, the state received unexpected news with the release of the latest state revenue forecast. Legislators have been waiting for this quarterly forecast before releasing their 2013 – 2015 biennial budget proposals, and many were anticipating this forecast would show the state had even less revenue than originally predicted. Instead, the forecast came in fairly flat with an increase of $59 million for the current biennium and a $19 million decrease for the biennium starting on July 1.

The forecast does not improve the outlook for funding budget items important to maintaining and operating cities. The state still has a revenue gap of roughly $1.3 billion just to maintain general fund programs and services at existing levels. Add to that the state Supreme Court mandate for increased funding to K-12 education, and the gap grows significantly more. How much more is yet to be determined by legislators.

Addressing the gap has several challenges, both politically and mathematically.

  • Divergent voices within the legislature make this a particularly difficult dilemma to resolve. Some say it’s a spending problem, not a revenue one, while others believe that new revenue or eliminating certain tax breaks is the only way to maintain a proper array of services. That debate will intensify as the Governor is expected to identify his budget priorities or principles at the end of next week and the new Majority Coalition in the Senate unveils its budget sometime before the end of March.
  • Understanding and “doing the math” presents the most significant challenge. The following chart illustrates where the state’s general fund revenue is now spent and what it would take to maintain current spending levels in the 2013-15 budget.
  • Of note in the below pie chart is that two-thirds of the budget is “off limits” to cuts because of constitutional and federal requirements. That leaves only the other one-third ($11+ billion) to find cuts.
    • It’s not likely that further cuts will be made in corrections.
    • Higher education cuts would mean layoffs and higher tuition costs – not likely either.
    • Further Human Services cuts will be strongly opposed and, if significant, could have serious impacts on service demands for local governments.
  • That leaves the “Other” slice of the pie that funds the legislature, many agencies, all natural resource programs, some education and transportation services and yes – funding that is shared with cities like liquor revenue, criminal justice support, sales tax streamlining and Public Works Trust Fund and Model Toxics Control Act account allocations from the general fund. All together, these “Other” expenditures account for just under $3 billion spent in the current 2011-13 biennial budget – just about equal to the projected “gap” facing the legislature.

For months, AWC has been communicating with you and others that the partnership that has long defined the fiscal and service delivery relationship between cities and the state is about to be very seriously tested. We soon will learn how our legislators and Governor feel about how it will continue as they unveil their budget proposals.

Look for more information in Friday’s edition of our Legislative Bulletin, and remember, there’s no time like the present to share, or again share, with your legislators the importance of one or more state revenues or programs that keep your community safe and viable.

Economic and Revenue Forecast Council’s March 2013 materials