States Continue to Face Troubles Despite ‘Vulnerable’ Recovery

The economy is starting to pick up again, but state policymakers shouldn’t get too excited.

“We can all kind of feel the economy is starting to pick back up again,” said Peter Marino, fiscal adviser to the Rhode Island Senate. “I would describe it as a vulnerable recovery.”

Economists have moderated their expectations for recovery, he told attendees at the Capitol Ideas Roundtable discussion of state fiscal issues. “They’ve changed the forecast of going into double dip recession from one in four chance to one in three chance,” Marino said.

Businesses are beginning to see better profits and cash flow, he said. That’s the good news. The bad news is this: With those two things traditionally comes an increase in hiring, but that’s not happening as the nation climbs out of the Great Recession.

“New hiring has been dormant,” Marino said. In fact, most experts don’t expect employment figures to rebound before the third quarter of 2013, he said.

And even though some states are seeing higher revenues and tax receipts, many states will adjust staffing levels in their 2012 budgets, which begin next July, Marino said. That will affect unemployment numbers, he said.

Panelists at the fiscal roundtable addressed state cost drivers, including unemployment insurance, pensions and the impact of the Dodd-Frank Wall Street Reform Act on states.

Maine Labor Commissioner Laura Fortman used her state as a case study to discuss the unemployment insurance situation. More than 40 states borrowed from the federal government to cover those expenses at the state level, she said, and many are faced with paying that money back—plus interest—in the short term. In the long term, many states are looking at ways to reform their systems to avoid problems similar to the ones states are now facing, she said.

Maine took steps after recessions in the 1980s and 1990s.

“The legislators were caught in a no win situation where they were constantly making very difficult decisions,” Fortman said. “The situation was so bad that people felt they needed to do something so there was a sense of urgency.”

Maine legislators increased the taxable base wage from $7,000 to $12,000 and set up an array system to equitably distribute unemployment tax rates across all employers relative to their use of the unemployment system. The state also set an 18-month reserve system, which has helped out during the current recession.

Other panelists were Kentucky Rep. Bob Damron, a recent past president of the National Conference of Insurance Legislators, and David Craik, pension administrator for the Office of Pensions in the Delaware Office of Management and Budget.