The day after the Nov. 5 elections, William Eggers wrote a “Memo to Rookie Governors” in the Wall Street Journal. His message? “Cut, Cut, Cut.”
It was the same message he brought to the economic advisory staff of Gov. Mike Easley Monday morning, prior to a luncheon presentation Eggers gave at the John Locke Foundation in Raleigh.
A senior fellow at the Manhattan Institute and director at Deloitte Research, Eggers has consulted and advised all levels of government on issues of reform and expenditure reduction.
The “cut” message is one he has delivered to several states and municipalities nationwide, which are desperate to close budget gaps in the millions, and sometimes billions, of dollars. Having faced similar situations last year, Eggers said at the luncheon that politicians’ solutions for budget problems “were not profiles in courage.”
He said that last year many states “banked on sin,” by raising tobacco taxes, courting casinos to come to their states, and gambling tax hikes. He said governors also used accounting gimmicks like delaying payments to schools by one day into the following fiscal year, and pushing off payments to their cities and counties. Many also tapped reserve funds and payments from the national tobacco settlement. Eggers said those resources won’t offer much relief for the coming fiscal year.
“We’ll see a lot more layoffs this go round,” he said.
Which Eggers believes is where governments will, and must, achieve the greatest amount of budget savings. He said North Carolina, in recent years, has had the greatest growth of government expenditures in the South.
“[It’s] been higher than just about any other state,” he said.
In his Wall Street Journal article Eggers wrote, “With revenues in free fall, states will find it impossible to balance budgets without reducing government work force costs.”
He said ways to accomplish such difficult cuts include: employment caps, hiring freezes, renegotiating contracts, early retirement incentives, freezing COLAs, and higher premiums for retiree health care costs.
Eggers cited Florida and Virginia as two states which are “in pretty good shape,” that made significant moves to reduce the size of their governments’ work force. Florida has a plan to reduce its number of employees by 25 percent over five to six years. He said Virginia eliminated 6,000 positions in one year, over the course of three rounds of budget cuts.
Eggers also advocated reforming the way states manage their Medicaid programs. He said in the short term, “states can reduce drug costs through private pharmacy contracts, co-payments and buying pools.” Long term, they can seek private and community alternatives to institutional care and eliminating optional services.
Touching a subject that might be a sore spot with Easley, Eggers also said education cannot be off limits for budget reductions. He said research on most states shows only half of money spent on education makes it into the classroom.
Suggesting an overhaul in the way state government operates, Eggers said programs and agencies must undergo “results-based” evaluations. He said leaders should link funding to performance, with those who excel and produce savings earning financial rewards for doing so.
Chesser is associate editor for Carolina Journal.