Payrolls may have increased further had it not been for the significant number of layoffs of government workers. The continued layoffs are notable, California has been cutting positions for years and moving others to part-time only. As CivSource reported previously, the state has already laid off tens of thousands of people.

State payroll accounts for about $18 billion of the overall budget, a figure which successive governors have been trying to keep in check for decades. Forced furloughs were the most recent way Governors tried to save money. However, as state budget observers have noted recently, furloughs are only a temporary and largely ineffective budget solution.

According to McClatchy, the largest increases came at the Department of Mental Health and the Department of Motor Vehicles with state workers in those offices clearing salaries well above $500k.

Payroll increases are a double edge sword for states simultaneously looking for ways to cut the budget while fostering economic growth. The McClatchy account noted that the increases contributed, “$140 million in wages to the Sacramento economy in 2011, contributing to a budding recovery. Previous forced furloughs dampened much of the city’s economic activity. Despite this, state workers are being thrust into the limelight over high salaries during tough economic times. Public workers salaries are often the subject of criticism from those that dislike the idea of government jobs.

The vote came after weeks of protest from Democrats in the statehouse involving walk outs and amendments designed to slow down or derail the bill. However, after several days of protest, the Democrats eventually conceded and allowed the vote to go forward. The vote in the Senate will happen sometime late next week after what is expected to be several more days of protest from the public and Democratic lawmakers alike.

Just under half of states are right-to-work states. After the 2010 elections brought in a swath of anti-union Governors, several states – most notably Wisconsin and Ohio passed measures to strip union rights. The measures resulted in significant public backlash including successful recall elections in Wisconsin and a new recall action against the Governor.

However, some Governors, specifically Rick Snyder of Michigan have said publically that they do not think pushing right-to-work is worth the fights seen in other states. Snyder has said that while he sides with those pushing legislation, he doesn’t think it makes sense to push at this juncture. Indiana, is home to some of the strongest union forces in the country and they are expected to use this time between votes to press hard on derailing the measure in the Senate.

Maryland’s business development office has come under criticism recently for its lack of transparency. In response to that, they have released Maryland Finance Tracker which will let business owners see what financial incentives are available to them when they add new jobs or open new facilities.

There is also an interactive map – MDbizMap which shows visitors market data for their area of the state including employers, schools, local tax credits, and other incentives. Additional resources are expected to come online over the next several months.

The tools follow the release of the state’s first sustainable growth plan and several other interactive online tools designed to help residents and increase transparency. Governor O’Malley has made these types of initiatives central to his administration in effort to upgrade state government’s overall service delivery.

Governor Synder is calling for spending now before infrastructure conditions deteriorate further. In 2011, several transportation officials and the Brookings Institution held a one day summit to outline several of these same issues. Shortly after that event, Snyder indicated that he would be working to ensure that rail projects throughout the state keep moving forward.

Around the same time, the Governor proposed a New International Trade Crossing bridge between Detroit and Windsor which was blocked in the state Senate. He used this morning’s speech to reiterate the need for a second span and asked for help from local business leaders to build support for the project.

Tonight, Synder will hold an online town hall meeting to give Michigan residents a change to weigh in on the bridge, his infrastructure plan and other issues outlined his recent State of the State address.

They can post questions to Snyder’s Facebook page, on www.michigan.gov/townhall or on Twitter @onetoughnerd using the hashtag #AskGovSnyder.

Toronto Open Data also helped with the effort by posting data related to budget items through the open data portal. Final spending decisions will still reside with the city council, but officials hope that this will be the start of a more effective budget process. The city council aren’t the only officials using participatory budgeting, the Public Housing authority also uses the process to determine some of its capital spending.

Other cities worldwide use participatory budgeting to a greater extent, but the practice is somewhat new to western cities. The process can have positive effects for both citizens and municipal governments alike by showing public officials what the priorities of their citizens really are. As CivSource reported last year, public health non-profits are also asking citizens for their input on how city public health initiatives should be prioritized.

Participatory budgeting can also cut back on waste, fraud and abuse by being more inclusive and helping the public become more knowledgeable about the inner workings of their local government offices.

Few cities in the US use participatory budgeting, only New York and Chicago open up part of their budgets to citizens. However, California is considering ways to bring the process there. A North American non-profit called The Participatory Budgeting Project is also working to raise awareness on the issue by holding events in several cities throughout the US and Canada.

When federal health care reform was passed in 2010, the federal government provided a plethora of grants and loans to the states in order to help them meet the new state requirements outlined in the law. However, many of these funds were one-time capital infusions that expired if unused or on a given deadline. Some were meant to last longer than that, but still required that congress appropriate money each year manually through the budget process. Now, because congress has failed to pass a budget, and is instead working on serious of rolling temporary extensions, programs started using funds that have to be reappropriated manually each year are on the chopping block for cash strapped states.

One such casualty is in Texas, which is closing its Consumer Health Assistance Program less than one year after its creation due to the lack of of a federal budget measure. The program was created through grant funding provided as a result of health care reform. The program employed nine people who handled questions from citizens who were trying to determined what health insurance they qualified for under new and existing laws. But, without more money from the federal government and no indication when any might be forthcoming, the office will be closed. Citizen calls will be forwarded to the state department of insurance which handles all insurance related questions and does not maintain a specific health care related hotline.

Community health clinics, which provide care to mostly uninsured individuals have also faced steep cuts nationwide both through budget cuts and a failure to manually reauthorize funding. The failure of congress to provide a permanent answer on “doc fix,” through the budget also means that Medicare is no longer a guaranteed revenue stream for health care providers and may face a 24% cut.

In Maine, the Governor has proposed removing more than 65,000 people from MaineCare a health care program for low-income residents. The proposal also includes a measure that would close several assisted living facilities leaving another 5,000 people to look for a new residence in order to close a budget gap.

Health care is one of the biggest, if not the biggest chunk of most state budgets. The longer that federal funding remains uncertain, more of these programs will likely close or stall out before they begin as cash strapped states try to meet existing obligations.

Under current rules, elected officials are required to disclose their finances and some interactions with lobbyists. However, those records are only available by submitting a request. Individuals who submit a request must either purchase a copy of the records and have them sent or travel to the Secretary of State’s office and view them in the office. A bill proposed by Representative Yee calls for an electronic database of this information.

The measure calls for an appropriation from the state’s general fund to create the database. The database would not only be searchable but would also allow officials, lobbyists and companies to file their statements online. The Secretary of State supports the measure calling it necessary for state transparency.

State officials recently came under scrutiny for how they handled influence over the Fiesta Bowl, a situation which led to calls for easier access to the dealings of elected officials and Yee’s bill. The Secretary of State’s office began posting financial disclosure information on its own website several months ago but there is no overarching system in place to handle how this information is posted and the Secretary’s website was never constructed with that intent originally.

The Network’s objectives include identifying and supporting key industry clusters statewide. Once these clusters are realized, they will work with business leaders to foster innovation, create and retain jobs. The Network will also offer job training programs to grow a workforce that is prepared to work in these new fields.

State officials also noted that the Network will be tasked with providing performance metrics that track its overall impact throughout Colorado.

Ajay Menon the state’s first Chief Innovation Officer, is leading COIN and will volunteer 20 hours a week for the state in addition to his full-time job as Dean of the College of Business at Colorado State University. COIN will initially be housed within the state’s Office of Economic Development and International Trade. Funding for COIN will come from private donors; no state money will be used.

“The Colorado Innovation Network is a roadmap for making Colorado the best state for innovation and where every road must lead to new jobs,” Hickenlooper said. “We’ll work statewide with industry leaders to build a business environment which promotes innovative practices, creates jobs and grows our economy.”

Two weeks ago, the House committee tasked with finding recommendations on how to bridge the investment gap canceled its plans to discuss the issue. Republican Rep. Jim Merrill of Daniel Island, the committee chairman said that officials were weeks away from having any kind of plan in place. In the interim the state has started looking for an investment professional to act as a consultant for the $26.2 billion pension fund. The state is expected to post RFP’s online for both this position and a global custodian for the fund within the next few weeks.

Now, bills are moving forward in the statehouse proposing their own fixes along with calls to increase the overall transparency of the pension program so that officials and the public can gain a deeper understanding of the real cost of the program. Since 2010 over two-thirds of states have moved to pass some kind of reform to their pension plan for public workers. Budget shortfalls combined with shakey investment returns have slashed funds available to pay out to pensioners just as many are set to retire.

South Carolina passed a law in 2000 that changed when employees were allowed to retire with full benefits, opting to reduce the number of years needed from 30 to 28. This move immediately created a $1.8 billion pension deficit, a number which has only grown as economic conditions worsened. Now as reform prescriptions move forward, local lawmakers are set for a fight as people realize the totality of changes and cuts required to close the gap.

Along with those cuts a new rule proposed by the Government Accounting Standards Board would require municipalities to show how much they owe in retirement benefits on their balance sheets. This is a new rule for cities and one which may endanger municipalities that recently saw improvements in their credit ratings if they are forced to show new paper liabilities. For some cities the new rule may require them to show a liability significantly larger than their total payroll making cities look insolvent.

Unsurprisingly, this rule combined with reform measures has brought cities into the pension reform debate in new and significantly more involved ways. The municipal association has written a letter to state lawmakers asking that the rule not move forward, but transparency advocates say this kind of reporting is needed so that the public and public officials can understand how the state’s money is being spent.

Governor Nikki Haley has said that pension reform is a top priority for her administration and was quick to point out that reforms will likely hurt. Measures are expected to start moving forward this week that would roll back the full retirement period to 30 years along with other changes such as changing the formula of how state workers salaries are averaged to reduce the net pension benefit.

The Wall Street Journal survey findings were interesting given the states have demonstrated an ability to balance their budgets with available resources, although in many states it has resulted in reduced services. Over the past four years, the states have faced cumulative revenue shortfalls of more than $500 billion, but have managed to balance their budgets each appropriation cycle. And as the Center on Budget and Policy Priorities just reported, the states also recently projected a $103 billion dollar shortfall for state fiscal 2012 alone.

Today, I believe an under recognized concern facing the states is the potential unintended consequences of federal cost cutting actions. Here’s an interesting stat: more than 20 cents of every dollar spent by the average state is a federal dollar. It should be obvious that planned cuts to federal domestic discretionary spending will have a direct impact on states,particularly in areas such as education and Medicaid, which have large proportional expenditures of federal dollars.

That is not to suggest that Congress should not be acting assertively to address the federal debt issues. Rather, it is important that Congress fully contemplate the impact of its actions on the states, and in the areas where cuts are required, work to assure that states are given adequate flexibility to manage their finite resources in an as efficient a manner as possible.

A corollary concern is the impact of federal deficit actions on state credit rating. As previously shared, there are already five states that have been threatened with credit downgrades: Maryland, Virginia, New Mexico, Tennessee and South Carolina. It is likely no coincidence that these are states with large federal installations and significant federal jobs.

Although there’s a lot coming out of Washington that impacts states, there is also much that Washington can learn from the states. The states have demonstrated that they can meet their obligations with budget reductions that have frequently been in the five 5 to ten percent range. Washington can learn from states on how to approach challenges.

As always, I look forward to your comments.

Mr. Robert N. Campbell III is Vice Chairman, Principal, Deloitte LLP and is the U.S. State Government Leader, based in Austin, TX

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