State Policy on Pew's Radar: Ensuring States' Fiscal Health

The Pew Center on the States is tracking, researching and analyzing a range of issues affecting states' fiscal health and economic competitiveness, including the clean energy economy, public sector retirement benefits and tax reform.

In 2010, Pew will continue to monitor movement on these issues, which should reshape the role of state government. Here are some states that have played a key role in these areas of interest.


Fiscal Health

A Pew report released in November 2009, "Beyond California: States in Fiscal Peril," showed that some of the same pressures that have pushed California toward economic disaster are wreaking havoc in a number of other states, with potentially damaging consequences for the entire country. Arizona, Florida, Illinois, Michigan, Nevada, New Jersey, Oregon, Rhode Island and Wisconsin joined California as the 10 most troubled states, according to Pew's analysis of data as of July 31, 2009. This snapshot captured an important juncture: the first and second quarters of 2009, and the pressure point for governors and legislatures in the throes of crafting their budgets for fiscal year 2010 (which began July 1, 2009, in all but four states).

New York did not make the top 10 list, though it came very close and its fiscal future looks ominous. It had one of the steepest revenue declines in the country, and, despite $6 billion worth of new taxes and fees, is running dangerously low on cash.

Clean Energy

Pew's Clean Energy Economy study in June 2009 found that jobs for all levels of workers in the new clean energy economy grew at nearly two-and-a-half times the rate of U.S. jobs overall between 1998 and 2007. It also found that a growing number of states have enacted policies, such as renewable portfolio standards, aimed at spurring new businesses and jobs in the "green" sector and protecting the environment.

Tennessee outgoing Governor Phil Bredesen (D) announced plans last summer to create the Tennessee Solar Institute on a former dairy farm in Knoxville. The governor said he would spend federal economic stimulus money to help finance the institute and a solar farm generating electricity near Brownsville. Bredesen's initiative is one of several that bear watching in 2010 as states reposition themselves during the economic recovery. Tennessee is a leader in trying to produce renewable energy jobs, and several states want to follow what happens there.

Public Sector Retirement Benefits

Pew's report, "Promises with a Price," released in December 2007, found that states had promised at least $2.73 trillion in pension, health care and other retirement benefits for public employees over the next three decades. It concluded that states had saved enough to cover about 85 percent of their long-term pension costs, but only 3 percent of the funds needed for promised retiree health care and other non-pension benefits. Pew expects to release an update of this report in February 2010.

Louisiana could provide a test of how states will restructure their public pension systems to reduce costs. Lawmakers are considering a proposal to scrap the current system, which provides lifelong defined benefits for state police, state employees, public school teachers and other education personnel. In its place would be a defined contribution system similar to 401(k) plans common in the private sector.

Tax Reform

In collaboration with Governing magazine, Pew released "Growth & Taxes," a report on how states' tax structures impede economic vitality, in January 2008.

The Maine tax structure would be reformed by voters' approval of a 2010 referendum after lawmakers passed the measure in 2009. Nevada is trying to sort out how to reform its antiquated tax structure, which is at the center of its fiscal problems. The state is dependent on sales and gambling taxes to finance its government, and some lawmakers want to broaden the base to include a new business tax. A panel of business, civic and political leaders is scheduled to make recommendations before the legislature is next in session in January 2011. Arizona has a year-long planning effort, broader than Nevada's, aimed at sketching a new direction for the state on the eve of its 2012 centennial.

Return to State of the States 2010.

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February 11, 2010 -
State of the States 2010: How the Recession Might Change States (Adobe PDF)