Policy Area

State financial management leaders are working to offer increased services and transparency even as they contend with the need to accomplish more with limited resources. Government accountability, innovation in technology and strategic partnership initiatives will usher states into an exciting era of positive change.

In 2004, states turned an important corner on the road to fiscal recovery. Compared to previous years, revenue collections have recovered healthily, although they are not vastly surpassing budgeted estimates as they did in the late 1990s boom. The news isn’t all good, however. Expenditure pressures remain immense. Pent-up demand for spending in areas that were cut during the fiscal crisis still exists, while K–12 education and Medicaid battle each other to consume ever larger pieces of the budget pie. Federal budget deficits and their inevitable effect on domestic spending also will wear heavily on states as grants-in-aid are reduced or eliminated.

Economic developers and elected officials have long faced accusations of “corporate welfare” for the methods they use to lure companies to their turf. But a federal appeals court ruling in September 2004 that called certain Ohio tax breaks unconstitutional has also suddenly called everyone’s turf into question. While companies and states alike scramble for certainty in making the case for projects, the legal case may eventually wind its way to the Supreme Court.

As the state’s chief state legal officer, the attorney general commonly serves as the most visible and influential state official in the fight against crime. In recent years, multistate efforts by attorneys general have increased their visibility, power, influence and success in enforcement efforts in a number of complex legal areas impacting all areas of public life.

Both a slow economy and tax policies contributed to the recent state fiscal crises. Tax rate increases and one time revenue sources can solve temporary budget deficits, but maintaining the integrity of income and sales tax bases is necessary to prevent structural deficits.  Extending the sales tax to selected services, participating in the Streamlined Sales Tax Project, and requiring corporate combined reporting are among the potential solutions discussed by the authors.

Despite the slow turnaround of the economy, states are still faced with the challenge of maintaining and creating new jobs. Around the country state governments and economic development organizations are relying on proven programs and are challenging themselves to develop new ones in an effort to attract businesses to their areas and encourage expansion among existing local companies.

The U.S. Congress passed landmark legislation in 2002 that was intended to improve the administration of elections in this country. The nation’s chief state election officials are  working now to implement those reforms, despite the fact that much-anticipated federal guidance is late and promised federal funds may never arrive.

State and local governments face significant impacts from fundamental federal income tax reform, including new budget costs and the effective loss of revenue choices. It is hard to pin down the precise nature of these implications prior to congressional action. At the least, any discussion of federal tax reform legislation deserves careful scrutiny by state and local officials because there are significant fiscal federalism implications.

Over the next 20 years U.S. consumption of oil and gas is expected to increase by at least onethird, while prices decline somewhat in real terms from today’s high levels. Dependence on foreign imports of oil and gas is expected to increase as domestic production declines.

Lieutenant governors lead today and prepare for tomorrow. Most have significant state leadership roles and all are first in line of succession to become governor. The 2004 election factors and results indicate this office is continuing to grow in influence and that lieutenant governors will further impact state legislative trends and governments.