LANSING – States face a series of revenue and fiscal issues, including Medicaid costs, underfunded retirement costs, local government fiscal stress and narrowing tax bases that could lead to overall budget crisis for many states, a national report said.

The report, from the State Budget Crisis Task Force, did not include Michigan in the states it studied – which included New York, California, Texas, Illinois, New Jersey and Virginia – but a number of the states have shared economic and fiscal issues with Michigan. Most of the conditions the report spoke about are conditions that have been talked about with concern in Michigan and many states as well.

The report said there were six essential broad problems that states confronted as they faced ongoing fiscal issues. Some of those problems were matters as seemingly simple as definitions of terms such as fiscal year, expenditure and revenues.

But scholars have pointed out there are some conflicting phrases in the document given the number of amendments added to Michigan’s Constitution. In addition, some of the budgeting processes in some of the states are not as transparent as they should be, the report said.

Overall, the report identified six broad topic areas that it said could lead to ongoing budgeting problems for the states.

The task force was created by former New York Lt. Governor Richard Ravitch and former Chair of the Federal Reserve Paul Volcker. Among the others named to the task force were former U.S. Secretary of State George Schulz, former U.S. Secretary of Health, Education and Welfare Joseph Califano and the former director of the U.S. Office of Management and Budget Alice Rivlin.

The task force said that even with some revenue recovery to the states following the fiscal crisis of 2008-2009, “states are grappling with unprecedented fiscal crises.”

It outlined the primary problems facing states as:

Increasing Medicaid costs, especially as enrollments increase, savings and cost control programs are harder to implement and medical costs increase;

Underfunded retirement programs for public workers, especially as the overall population ages and more workers reach retirement age, and pension systems across the nation are underfunded compared to pressing obligations;

The threat that federal deficit reduction poses to states as more and more of their revenues for operations have come from the federal government;

Increasing financial stress and fiscal crisis that face local governments as they too must contend with increasing demands for services and strained revenues;

Narrowed tax bases – especially lower sales taxes as more people buy products on the Internet and lower gasoline taxes as vehicles become more fuel efficient (or don’t use fuel at all) and people drive less – and volatile tax bases (such as income and overall sales taxes) that respond to economic pressures; and State laws and rules that hide transparency of the budgeting process, making it difficult for the public to understand the magnitude of the overall crisis.

“The threats and risks vary considerably from state to state, but the storm warnings are very serious. Only an informed public can demand that the political systems, federal, state and local, recognize these problems and take effective action. The costs, whether in service reductions or higher revenues, will be large. Deferring action can only make the ultimate costs even greater,” Ravitch and Volcker said in a statement in the report.

Of the findings, Budget Director John Nixon and Chief Deputy Budget Director Nancy Duncan said in a statement that the findings reflect why Governor Rick Snyder has been so focused on getting the state’s budget into structural balance as well as addressing public employee retirement benefits.

“Many states are indeed managing from a position of fiscal crisis, and Michigan faces these same pressures like other states, but we have taken positive steps to get Michigan out of fiscal crisis,” they said. “Although Michigan has taken – and will continue to take – steps to address the structural funding problems identified in this report, we can’t do it alone. As the report points out, the federal government has a role to play. For example, as Governor Snyder has asked, they need to address the issue of taxing internet sales to level the playing field for our local merchants and to help state’s collect revenues owed to them by Internet merchants.”

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