WASHINGTON — California has improved its budget practices and Virginia has enacted pension reforms, but New Jersey has been unable to get past chronic pension and budget problems, a nonprofit group found in a report released Monday.
The Volcker Alliance detailed its findings in its latest report: Truth and Integrity in State Budgeting: Lessons From Three States.
The report builds on the work done from 2001 to 2014 by the State Budget Crisis Task Force, chaired by Volcker and Richard Ravitch, former Lt. Gov. of New York. The task force group released a report examining six states.
This one follows up with three of the states — California, Virginia and New Jersey — to find out how their budgetary practices have been doing in a period of revenue growth as the economy continues to recover from the Great Recession.
The report is part of the Alliance's efforts to lay the groundwork for research toward building a common approach toward responsible budget practices in all 50 states.
"Our objective is to encourage useful approaches toward accurate and easily understandable financial reports," said Paul Volcker, the former Federal Reserve Board chairman who founded the Alliance in 2013. "We invite and encourage governors, legislators, and all who are involved in this process to work with us in developing these approaches."
The report found, among other things, that, "many states continue to balance their budgets using accounting and other practices that obscure rather than clarify spending choices.
"These practices make budget trade-offs indecipherable, lead to poorly informed policymaking, and limit future spending options. Beyond that, they weaken the fiscal capacity of states to support the cities and counties that desperately need their aid," the report said.
California has improved its fiscal health through changes in budgeting practices, according to the report. Voters approved three key economic reforms that resulted in a $254 million surplus in 2013, the passage of five consecutive on-time budgets, four general obligation credit rating upgrades from three major rating agencies and the reduction of state accumulated debt obligations to $26.9 billion in 2015 from $34.7 billion in 2011.
The reforms included Proposition 25, which reduced the requirement for budget approval from 2/3 votes to a simple majority vote and Propositions 30 and 39, which temporarily raised sales and income taxes and changed the formula for calculating corporations' income taxes, respectively.
However, challenges remain, such as $131 billion in unfunded pension liabilities, $64 billion in unfunded retiree healthcare benefits, an estimated $64 billion needed to infrastructure maintenance and improvements, as well a tendency to spend too much during economic booms.
The report credits Virginia's budget practices with employing strategic planning for both revenues and capital spending, repeated re-estimates of revenues, strict statutory constraints on borrowing, and an actively employed rainy day fund.
These policies encouraged Virginia to adopt three major pension reforms with a goal of 100% funding by 2019 and to raise revenues for infrastructure improvements through targeted tax increases, the report said.
New Jersey, however, is not faring well, according to the report.
The Alliance said the state "continues to rely on short-term maneuvers to balance [its] budget such as debt restructuring, diversion of funds, and inconsistent management of revenue collection."
"New Jersey's reliance on these measures correlates with the chronic inability of the state's revenue streams to match its expenses," the report said.
The state's public schools are underfunded despite the fact that it has the fifth-highest cost per student in the country, according to the report. The state also has few funds to address its growing infrastructure issues and it has a combined $90 billion pension and other post-employment benefits gap, the report found.
