by Gongwer News Service
February 2, 2009

Governor Jennifer Granholm is expected to echo some of the speeches of her colleague governors in her State of the State address this week. Other governors have used the yearly address to brace their constituents for sweeping changes necessary to balance crushing deficits.

With a downturn so severe that even states once labeled “recession proof” are now crippled with deficits up to billions of dollars, it’s not surprising that each of the 32 governors who had delivered their addresses by week’s end focused almost entirely on the tough choices they must make because of the economy.

Ms. Granholm, who has said “nothing was off the table” when it comes to balancing the 2009-10 budget, is expected in her Tuesday speech to focus on long-term restructuring as a way to turn the state’s economy around.

While details are sketchy, Ms. Granholm could name Lt. Governor John Cherry to chair a new executive committee of her cabinet, with top officials acting as secretaries to oversee a multi-year effort to enact a massive overhaul of state government.

Reportedly, the committee will focus on aligning government around a service-based economy and away from the current model, which Mr. Cherry has said is structured around a manufacturing model.

The review process will also look at how to eliminate duplication of functions, standardize operations and procedures, sources said.

If Ms. Granholm announces a government overhaul as expected, she would join leaders from around the country, including in Indiana, a state that projected nearly a billion-dollar surplus as recently as a year ago but is now feeling the crunch.

Indiana’s Republican Governor Mitch Daniels said reform is especially necessary in K-12 education, where, he said, a less top-heavy system would funnel more money into the classroom and to teachers.

Adding that protecting education funding should be a priority and would be “a victory in this economy,” Mr. Daniels lamented education cuts around the country, including by $2 billion in New York, $2.3 billion in Florida and $2.5 billion in California.

Ohio’s Governor Ted Strickland also outlined a plan to change education financing in his address two weeks ago, asking the state to shift to a new “evidence-based” system of financing its public schools.

“The time has come for us to stare truth in the face,” he said in ticking off a series of historically bad statistics, including Ohio’s loss of more than 100,000 jobs last year, a doubling in home foreclosures and a plummeting stock market.

Like in Ohio, where Mr. Strickland is counting on $3.4 billion in state fiscal aide from Congress to address a budget gap that some have estimated as high as $7 billion in FY 2009-10, Ms. Granholm will also likely delay announcing more specific cuts in hopes that federal money will balance the state’s projected $1.3-billion deficit.

But after news last week that the state would have to lay off up to 2,000 workers to balance the budget without federal money, the governor may have no choice but to acknowledge the possibility of staffing cuts in her speech.

Leslee Fritz, budget spokesperson, said that since 2001 the number of state employees has fallen by 17 percent without layoffs, and the administration hopes to continue to enact changes without being forced to make layoffs.

But, Ms. Fritz said: “without the stimulus for 2009-10 it would be hard to envision how you take that revenue impact without some impact to state workers.”

The state has some 50,000 workers, which is down from more than 70,000 several decades ago.

Even so, if massive cuts must be enacted to the budget (and a $1.3-billion general fund cut would be close to 15 percent of the total budget), then the number of workers would have to be cut.

In the last year, at least 19 states have declared a hiring freeze and several others, including Utah, Florida, Indiana, Kentucky, New York, South Carolina and Washington, have reduced hours for state employees to save money.

A few governors, such as Nevada Republican Jim Gibbons, officially announced proposals to trim staffing costs during their State of the State address.

Mr. Gibbons said that in order to avoid mass layoffs, he would institute a 6-percent wage cut for all state employees, a reduction in pay that he pledged to undergo as well.

Colorado Governor Bill Ritter, Jr., a Democrat, echoed many state leaders in saying that after several rounds of cuts that were easier to make, “employee compensation will (now) be part of the (budget) solution.”

That state, in relatively better shape than most, expects $632 million in revenue shortfalls in 2008 and nearly $700 million more in 2009.

Ohio’s Governor Strickland announced last week that each agency will be cut by 10 percent to 20 percent, adding that state agencies, employees and others will have to share in the burden of those reductions.

“We must ask State of Ohio employees to endure a financial sacrifice,” he said. “This is a difficult day within a difficult year.”

As for how many governors will turn to some type of tax increase to bring their budgets back into the black, analysts peg it at 20 percent or more.

So far, as in Kentucky and Virginia, increasing taxes on cigarettes seems to be more popular with leaders than changes to the broader tax structure, such as those proposed in California and New York, where leaders suggested hiking the sales tax.

Other creative measures to increase revenue include fee increases such as those proposed in Ohio and taxes on junk food such as New York’s proposed 18-percent “fat tax,” which the state would add to an array of foods that health officials say contribute to obesity.

Massachusetts Governor Deval Patrick announced in his address two weeks ago that his plan would both increase fees and raise taxes in order to collect $587 million in new revenue.

Massachusetts joined a handful of states that balanced the budget by slicing higher education funding, and Michigan may follow that action.

Sources said Ms. Granholm, who will present her executive budget on February 12, will probably cut every area of state spending, though higher education would likely see a smaller reduction because the administration sees it as critical to reviving the state’s economy.

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