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STATE GOVERNMENT REDESIGN EFFORTS: New Brief Examines Governors’ Actions to Reduce Spending, Close Budget Shortfalls

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“The problem isn’t over. Governors coming into office following the November elections will face continued challenges and will need to devote a large share of their agenda to additional redesigning and streamlining efforts.”

Although the so-called “Great Recession” that began in December 2007 technically ended in June 2009 when the national economy began to grow again, state economies typically take longer to recover. In fact, a new issue brief from the National Governors Association Center for Best Practices (NGA Center) says that state revenues may not reach 2008 levels in real terms until late 2012 or early 2013. At the same time, costs of government services, as well as ongoing liabilities related to health care, pensions, and other benefits, will continue to rise. States will also have to deal with many long-term investments that have been deferred. Consequently, the brief finds, state budgets may not recover until the end of the decade.

According to the brief, State Government Redesign Efforts 2009 and 2010, governors have taken record measures to downsize and redesign state governments during the 2009 and 2010 state fiscal years because of sharp declines in state revenues that led to record budget shortfalls. Some of the changes are temporary, but most reflect a “new normal” for state government in the long term, the brief finds. It notes that at least fifteen states conducted reviews to identify areas of state government that can be made more efficient and less costly while at least eighteen have reorganized agencies and more than twenty states have altered employee compensation.

The brief examines these and other actions that governors have taken to address the tight budget environment. Specifically, it focuses on budget changes in these policy areas: corrections, K–12 education, higher education, employee costs, shared services and agency consolidation, privatization and asset sales, and tax expenditures.

In K–12 education, the brief finds that although funding has been cut for K–12 education in many states, governors have generally tried to minimize funding cuts by trying to achieve greater efficiency with existing resources. For example, governors have been encouraging district consolidation, allowing class size to increase, and cutting noncore programs. Even with these policy changes, as many as thirty-nine states made broad program area cuts in K–12 in Fiscal Years 2009 and 2010.

As a way to lower costs, states are also considering virtual learning and digital textbooks. According to the brief, a state budget task force in Georgia found that the state could save more than $4.5 million if 1 percent of students enrolled in two online K–12 courses. In August, Utah’s Advisory Commission to Optimize State Government made final recommendations to the governor, several of which emphasized online technology in education, including an expansion in online courses, greater use of online textbooks, and the establishment of online guidance counseling for high school students transitioning to college.

States have also cut newer programs that were established when economic times were good. New Jersey cut funding for after-school programs; Maryland cut gifted-and-talented summer centers and certain math and science initiatives; Illinois eliminated the state writing exam for elementary and junior high students to save $3.5 million.

Higher education is also seeing funding cuts. According to the brief, thirty-nine states cut higher education budgets in 2009 and 2010 while also urging their university systems to become more efficient and raise the percentage of students that graduate. Many states are beginning to employ performance funding that ties a portion of the state’s subsidy to the number of degrees awarded instead of just to enrollment. States also are requiring colleges to produce more measures that report degree completion and value to the student.

The brief finds that states can also reduce costs by relying more heavily on their community college systems, especially when it comes to remedial classes. For example, Tennessee will eliminate remedial education classes at public universities, shifting the courses to community colleges; Georgia’s State Budget Task Force recommended encouraging the state’s four-year colleges to partner with two-year colleges to offer remedial courses at a discounted formula-funding rate.

The brief warns that fiscal pressures will continue to exist in coming years. As a result, governors will face budget challenges for the near future and will have to consider long-term solutions to reduce the cost of government.

“The problem isn’t over. Governors coming into office following the November elections will face continued challenges and will need to devote a large share of their agenda to additional redesigning and streamlining efforts,” said John Thomasian, director of the NGA Center. “It will take extraordinary leadership on the part of new governors to take the necessary—and often difficult—steps to create a smaller, leaner government, but much can be learned from the actions governors already have taken over the last two years.”

The complete brief is available at http://www.nga.org/Files/pdf/1010STATEGOVTREDESIGN.PDF.

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