States undertake structural redesigns in face of lingering revenue shortfalls

According to a new analysis by the National Governors Association, states are pursuing long-term strategies to downsize and streamline operations in the wake of the Great Recession. From corrections and K-12 education, to payroll and agency consolidation, state governments are trying to deal with record revenue shortfalls and increased demands for services.

The NGA brief, “State Government Redesign Efforts 2009 and 2010,” comes in anticipation of what could be one of the largest classes of new governors. Director of the NGA Center, John Thomasian, said “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 he also urged incoming governors to consider actions already being taken, many of which are making inroads to more efficient governance strategies.

According to the issue brief, over fifteen states have conducted government-wide efficiency reviews; some eighteen states have reorganized states and at least twenty states have altered employee compensation, including pension reforms.

In FY 2008, state general revenue expenditures totaled $687.3 billion, the report said. In FY 2010, they fell to $612.9 billion. Expenditures are forecast to rise only to $635.3 billion in FY 2011 – $52 billion lower than in 2008.

The brief focuses on seven broad categories, including corrections; K-12 education; higher education; employee costs; shared services and agency consolidation; privatization and asset sales; and tax expenditures.

Select findings include:

  • Throughout fiscal years 2009 and 2010, 29 states have used layoffs; 26 states have imposed furlough days; 13 states have reduced employee benefits; and 15 states have issued salary reductions, all as parts of an overall strategy to reduce or eliminate budget gaps.
  • Since 2009, at least 17 states have consolidated or eliminated agencies that have been identified as duplicative or nonessential.
  • Several states are combining services in IT and back-office functions to save money. Initiatives in Washington, California, Iowa, Minnesota and Wisconsin have resulted in millions saved.
  • Many states are looking to outsource or privatize state services to lower costs. In some cases, states are also selling assets to obtain cash windfalls.

Mr. Thomasian said that state revenues are not expected to return to pre-recession levels until sometime in 2013. “This realization,” the brief concludes, “has prompted governors to reexamine the core structure of their state governments, with the hope of emerging from the Great Recession functioning better and smarter than before.”