Numbers, Facts and Trends Shaping Your World

States, Flush with Cash, Still Face Tough Issues

by Barbara Rosewicz

Managing Editor

The grass is definitely greener in state capitols than in Washington, D.C., this election year. While the federal government is mired in red ink and stymied by partisan division, most states in 2006 have extra cash and are blazing new policy trails. The upshot is that governors and state legislators seeking re-election on Nov. 7 will be discussing a different set of ideas and issues than those occupying members of Congress who face voters on the same day.

While President Bush’s new budget plan envisions a $354 billion deficit, states have turned the corner on their worst fiscal crisis since the Great Depression and more than 20 now are discussing tax cuts to spend down surpluses. Grassroots issues – from penalizing illegal immigrants to expanding preschools to controlling runaway Medicaid costs – are building up political steam at the state level.

The role of state capitols in shaping the nation’s political discussion was evident in 2004 when conservatives succeeded in driving voters to the polls to pass state bans on gay marriage. This year, Alabama, South Carolina, South Dakota, Tennessee and Virginia are preparing to vote on constitutional amendments to outlaw same-sex unions. Nineteen states already have constitutional bans in place – most added after Massachusetts began marrying same-sex couples on May 17, 2004.

According to’s State of the States 2006 report, emerging wedge issues this election year include illegal immigration, state spending caps fashioned after Colorado’s now-suspended Taxpayer’s Bill of Rights, and efforts to require schools to spend a minimum of 65 percent of education dollars in the classroom. All of these are being pushed by conservative groups.

On the liberal side, efforts are under way in six states to place initiatives on the November ballot to raise the minimum wage above the $5.15 an hour set by Congress in 1997. Since the start of the year, both Democratic Gov. Bill Richardson of New Mexico and Republican Gov. Arnold Schwarzenegger of California also have proposed minimum wage hikes. Eighteen states now require higher wages than does Congress.

What might generate the most headlines is a growing backlash against illegal immigration, fed by frustration at the federal government’s inability to stanch illegal border crossings. The political heat is being turned up not just by states on the Southern border but also by some almost half a continent from Mexico – from North Carolina to Minnesota – that are jarred by unaccustomed influxes of undocumented workers.

As many as 11 states may seek to copy Arizona’s 2004 voter-imposed ban on most services for illegal immigrants. A new get-tough attitude is stirring as some legislatures seek to crack down on employers who hire undocumented help and to authorize local police to start arresting illegal immigrants. Politically, this is a dicey issue for the GOP because it splits the party between nationalists and the business community, which supports President Bush’s proposal to start granting permits to guest workers.

Immigration is not the only issue producing tension between the Bush administration and states:

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  • Snafus in the launch of a new federal Medicare drug benefit in January forced states unexpectedly to pick up drug bills for seniors turned away from pharmacies.
  • At least five states – including Bush’s home state of Texas – are expected to sue the federal government over a longer-term problem with the new Medicare drug plan and the payments it imposes on states.
  • Texas, where Bush was twice elected governor, also has struck a defiant stance – along with several other states – on complying with the federal No Child Left Behind education law, one of the president’s chief domestic accomplishments.
  • Both Red and Blue states are parting with the Bush administration over its limits on stem cell research.
  • Seven states are importing cheaper drugs from Canada against federal advice.

Hurricane Katrina also revealed major fault lines between the states and the feds on dealing with natural disasters, and sewed continuing discord between Louisiana Gov. Kathleen Blanco (D) and the Bush administration over how much federal money should be sent to help rebuild New Orleans. Moreover, the hurricane inflamed complaints by governors nationwide that extensive use of state National Guard units to fight in Iraq was leaving states in the lurch in handling emergencies. This month, though, U.S. military officials announced plans to reduce the number of Guard troops deployed to Iraq and Afghanistan over the next year.

In a happy coincidence for an election year, the brightest trend running through state capitols is that states financially are in a better position than in any of the past five years. All states finished last fiscal year in the black and overall got off to their best revenue start since at least 1991 in the first months of fiscal 2006. After slashing expenditures, raising taxes and raiding rainy day funds to close budget shortfalls of more than $250 billion since 2001, when a recession and terrorism attacks took a huge toll on tax revenues, states facing serious financial difficulties now are the exception rather than the rule. Only Louisiana and Mississippi, ravaged by hurricanes, and Michigan, stunted by the woes of its auto industry, still aren’t out of the woods.

The newfound breathing room in state budgets is opportune for governors and state lawmakers, many seeking re-election. While state officials are able to float proposals for tax cuts and new spending for the first time in years, congressmen on the campaign trail are sure to be dogged by concerns over the growing federal deficit. So far, more than 20 states are discussing tax cuts, including what is billed as the largest tax reduction in Florida history – $1.5 billion – proposed by Gov. Jeb Bush (R), who can’t run for re-election.

Like salve to a wound, new spending is being targeted at areas that were among the first to be cut during states’ budget crisis: higher education, teacher’s salaries and roads. Lagging in the polls, Republican governors Schwarzenegger of California and Robert Ehlrich Jr. of Maryland both chose to propose major boosts in funding for public colleges this year. Schwarzenegger also has announced a $200 billion 10-year plan to upgrade the state’s aging infrastructure – although he would have to borrow to do it.

Still, there is one word that can spoil the dreams of state lawmakers hoping to use extra revenues to rebuild school buildings and bridges that have gone unattended during tight times and to curb growth in college tuition. The word is “Medicaid.”

Graph: Total State Expenditures by Function, Fiscal Year 2004

Looming over state budgets like a thundercloud, the government health insurance program for 53 million poor and disabled Americans already claims the largest share (22 percent) of states’ spending, when factoring in federal funds – even more than for K-12 education. Congress just gave states greater authority to charge co-payments and premiums to recipients and to raise barriers to elderly people seeking to qualify for Medicaid-paid nursing home care. Now state lawmakers must make the politically tough votes to curb runaway Medicaid spending – whether by imposing higher costs on the poor or pushing some recipients off the rolls. Medicaid is expected to top the legislative agenda this year in at least half the states, according to the National Conference of State Legislatures.

New demands on states’ extra revenues also are expected in the Snowbelt to help low-income residents pay heating bills in the face of double-digit hikes in the price of natural gas.

Amid a renewed interest by states and the White House in the nation’s public high schools, a number of states are starting to tackle the problem of high dropout rates by interceding when students are barely out of diapers. Increasingly, preschool is being seen as no longer just for the poorest and richest kids. Five governors have made the push for preschool a cornerstone of their education policies. California in June will vote on a ballot measure pushed by movie producer Rob Reiner, among others, to impose a special tax on individuals with incomes above $400,000 to fund preschools.

Map: Availability of Preschool Education by State

While support for the death penalty – at least without DNA-supported proof of guilt – seems to be growing shakier nationwide, waves of states are getting tougher with sexual offenders. Twelve states have passed laws permitting Global Positioning System devices to track high-risk sexual predators. Last year, state lawmakers passed more than 100 sex offender laws – double the number in 2004 and far more than previous years, according to NCSL.

One of the most divisive social and election controversies – abortion – is taking on new dimensions at the state level. In the wake of President Bush’s reshaping of the U.S. Supreme Court, legislators in at least five states are proposing strict abortion bans designed to lead to a court case allowing the high court to overturn its 1973 Roe v. Wade ruling giving women the right to terminate a pregnancy. Meanwhile, abortion opponents continue to chip away at abortion rights in state legislatures, winning laws requiring parental consent or notification when minors seek the procedure and inaugurating a new tactic to require doctors to warn patients about fetal pain.

The emotional divisions over reproduction are also carrying over into growing skirmishes in state capitols over whether to make “the morning-after pill” – an emergency contraceptive – available without a prescription and over how to deal with pharmacists who refuse to dispense it.

On the political front, at stake in the states this year are 36 governors’ seats – the most in the four-year election cycle – and 84 percent of the nation’s 7,382 state legislative seats in 46 statehouses, along with all 435 seats in the U.S. House of Representatives and 33 in the U.S. Senate.

Such political giants as Florida’s Bush and New York Gov. George Pataki (R) are leaving office. Colorado, Iowa and Ohio – potential swing states in the 2008 presidential election – have open gubernatorial races. In California, voters will determine whether actor-turned-governor Schwarzenegger will be spending the following four years in Sacramento or back in Hollywood.

By the end of 2006, the national political scorecard will be defined by more than whether Republicans held onto both houses of Congress. The full answer will depend on how much the balance of power shifts in the states, where Republicans now hold 28 governors’ offices to 22 for Democrats. The GOP has only a slim edge in legislatures with control of both houses in 20 states while Democrats control 19. (Control is divided in 10 statehouses, and Nebraska’s legislature is nonpartisan.)

States have lately proven more successful than Washington, D.C., in brokering compromises despite partisan divides, particularly on money issues. A powerful motivator is a constitutional requirement in all states except Vermont to balance the budget, forcing states – unlike the federal government – to cut or innovate. But in statehouses, as in the U.S. Capitol, election-year politicking lowers expectations for compromise this year.

To get your own copy of’s State of the States 2006, download a PDF version or order a full-color copy here.

Contact Barbara Rosewicz at

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