Last year, state lawmakers were able to have their cake and eat it too, vigorously cutting taxes and substantially increasing spending, while still able to rack up record savings in their rainy-day funds. The good times are still around — most states are seeing surpluses — but there are reasons to be nervous. Inflation may have slowed a bit, but it’s still eating into real revenue growth. And the prospect of a struggling economy – what economist Mark Zandi is calling a “slowcession,” if not a full-blown recession — is also making some legislators wary.
Still, there’s a considerable appetite both for new spending and continued tax cuts. “No doubt, 2022 will go down in the record books as one of the most successful tax-cutting years in history,” says Jonathan Williams, chief economist at the conservative American Legislative Exchange Council. Given sizable surpluses, he expects to see more. As the year begins, there are promises of major cuts coming not only in the capitols of red states, including Iowa and Texas, but from Democratic governors in states such as Connecticut, Kansas and Wisconsin.
Even as the desire to cut taxes continues, spending is also going up. State lawmakers are enjoying not only their own healthy revenues but lots of extra money from Washington in areas such as infrastructure, clean energy and public health. While they continue to spend money on big-ticket items such as broadband, they’re also having to increase salaries to remain competitive in tight labor markets.
The challenges of finding enough workers to do the job are nearly universal, in every state and seemingly every government function. It’s an issue that pervades and colors every other issue, says Tim Storey, CEO of the National Conference of State Legislatures, whether you’re thinking about education, health, mental health, transportation, policing or corrections. And the concerns certainly extend into the private sector.
“Whether it’s the people who pick up our garbage or the people who drive our trucks, we are having a hard time recruiting,” says Phoenix Mayor Kate Gallego. “We are not the lowest unemployment market, but it’s the No. 1 thing I hear from employers: ‘We’re trying to grow in Phoenix, but we’re having a hard time recruiting talent.’”
Aside from the ubiquitous questions of budget and staffing, other issues will play out differently between states along familiar red and blue lines. Republicans failed to capture a single legislative chamber in November. They still have total control (governor plus legislature) in 22 states. Democrats, through a combination of legislative and gubernatorial wins, now control everything in 17 states — their high-water mark dating back nearly 30 years.
Republican and Democratic legislators can be counted on to move in opposite directions in many areas, including voting rights; climate and other environmental protections; paid sick leave and other labor protections; and cultural issues such as education policies regarding instruction of gay and racial histories, as well as protections for students and adults who identify as gay or transgender.
The main area of cultural warfare, however, will be abortion. Many states had their policies in place – whether enshrining rights or banning procedures – ahead of the Supreme Court’s Dobbs decision in June, which ended the federal right to abortion. But the decision came too late for some states to respond.
Democrats in states such as Minnesota and Washington will work to guarantee abortion rights, while red states without bans already in place will impose further restrictions. There is some movement in red states, however, to clarify when procedures to protect the life of the mother are OK if the fetus is not viable. The issue will remain contentious in state courts. On Jan. 5, South Carolina’s supreme court ruled that a ban on abortions at six weeks violated the right to privacy under the state constitution.
States face a welter of other challenges, including housing affordability and homelessness, faltering education performance since the pandemic, mental health challenges and fentanyl and other drugs. Complaints about federal management of the border are not only continuing from states that neighbor Mexico but are increasingly heard from others much further north.
Regardless of the issue, states are starting to recognize that they’ll have to adjust their expectations about Washington. Democrats have lost their hold on the House, but not the Senate, which will lead at least to nasty disagreements on Capitol Hill, if not utter and complete gridlock. “I don’t think there’s going to be a lot President Biden can get from Congress,” says Roy Cooper, the Democratic governor of North Carolina. “My advice directly to the president was to focus on implementation.”
There’s a lot to implement. And a lot to address. As lawmakers begin their new sessions, here are some of the key issues they’ll be working on.
— Alan Greenblatt
Budgets
It’s one of those best of times/worst of times situations. Right now, state budgets are in excellent shape. Many states are enjoying surpluses and their rainy-day funds are at record highs.
But in contrast to the free-and-easy party time that extra federal money created for them last year, lawmakers are nervous about inflation and the better-than-decent chance that the economy will fall into recession during this calendar year.
States have tripled the amount of money in their rainy-day funds over the past couple of years, leaving them with a grand total of $343 billion in reserve. “We’ve been fortunate in Arkansas that we’ve been able to cut taxes and have $1.2 billion in our catastrophic reserve fund, and a $1.6 billion surplus on top of that,” says Matthew Shepherd, speaker of the Arkansas House. “But we understand that the picture can change in the future.”
Lots of other states are now enjoying a bounty. Wisconsin is sitting on an all-time record surplus of $6.6 billion. Georgia happens to have a surplus matching that exact dollar amount. Texas has a Texas-sized surplus of $27 billion, which will likely translate into a major property tax cut.
Ten mostly red states cut individual income tax rates in 2022. More will follow this year. North Dakota Gov. Doug Burgum released a budget proposal in December that would give his state the lowest flat-rate income tax in the country, at 1.5 percent.
Some economists warn that states should not turn temporary surpluses into a permanent reduction in rates. They tend to favor the approach taken in a number of blue states last year, offering sales or gas tax holidays and one-time credits and rebates. “I always think there’s a danger when things are going well, that states tend to cut taxes and then that creates problems later,” says Ron Fisher, an economist at Michigan State University.
The same holds true for spending. States have been doing a lot of that. General fund spending increased by 18 percent in fiscal 2022, according to the National Association of State Budget Officers. It’s set to climb another 7 percent in the current fiscal year.
The rainy-day balances have positioned most states pretty well for any downturn, but they still have to worry about rising costs. Low unemployment and staffing shortages are putting upward pressure on wages for state employees, while inflation and supply chain problems have made infrastructure projects more expensive. One big warning sign is California, which already faces a $24 billion shortfall heading into the next fiscal year, starting on July 1. Tax receipts are way down there, even though employment has increased substantially in the state.
Fitch Ratings reviewed the fiscal conditions of the 15 largest states between July and September and found that California was the only one seeing tax receipts decline, compared to the previous year. But the national revenue picture was already starting to soften by the fall. Although total state tax receipts continued to go up, they declined in real terms, due to inflation. “It seems to me, in times of uncertainty, it’s better for governments to be stable and not make a lot of changes,” Fisher says.
— Alan Greenblatt
Corporate Social Justice
A surprisingly important political theme in 2022 was the state-led backlash against “ESG investing” — the investment strategies that stress environmental, social and corporate governance factors in addition to financial performance. The group of practices that make up ESG have fairly long histories and have been known by other names. Those include socially responsible investing, in which investors buy shares in companies that promote good social outcomes and avoid giving money to others — for example, tobacco companies — that they see as a social detriment.
It’s only in the last few years that social justice investing has become more contentious, especially as it relates to managing public funds. The controversy is tied to growing activist movements, including the climate justice movement, which has called for an end to fossil fuel burning and urged divestment from oil and gas companies. Some big private investors, including BlackRock, have made statements declaring sustainability a key goal in their investment strategies. And while it’s not always clear how much those investment decisions affect real-world environmental or social outcomes, even the declarations of intent have caused some conservative officials to reject ESG as part of a broader pushback against left-leaning “woke” politics.
In an October letter to BlackRock’s CEO, Louisiana State Treasurer John Schroder said the state would be withdrawing some $800 million from its stake in the company, a move he said was “necessary to protect Louisiana from actions and policies that would actively seek to hamstring our fossil fuel sector.” Texas has banned its own cities from doing business with firms that it determines are “boycotting” fossil fuels. Leading the charge has been Florida Gov. Ron DeSantis, who is determined to make his state the place “where woke goes to die.” In an August statement announcing the removal of ESG considerations from the state’s pension investments, DeSantis said ESG reflected a corporate attempt to “impose an ideological agenda on the American people through the perversion of financial investment priorities.”
Approaches vary, but as many as 24 states have taken some type of action against ESG to date. Some officials are seeking to protect key industries, like oil and gas in Texas and Louisiana, while others say they’re acting to protect public money by keeping nonfinancial concerns out of their investment strategies. Overall, ESG “isn’t greatly understood, so it’s easy to mischaracterize and use as a weapon to gin up outrage,” says Chris Fidler, head of industry codes and standards at CFA Institute. Over the next year, Fidler says, it’s likely that more jurisdictions and fund analysts will develop disclosure protocols, to better describe how ESG factors into certain investments.
Still, the backlash may intensify in the short term. House Republicans have vowed to use their new majority to investigate ESG practices, including the Securities and Exchange Commission’s proposed disclosure rules for climate change-related risks. It’s possible that the ESG label, still relatively young and never a perfect description for a variety of practices, will start to unravel. But investors aren’t going to stop considering nonfinancial factors for their portfolios, particularly when it comes to climate risks.
— Jared Brey
Crime
Crime was an inescapable issue during last year’s midterms. Combined, candidates and issue groups spent more than $150 million on attack ads regarding crime, mainly tarring Democrats for being too soft. In the past, when the public mood has turned punitive, policies to increase incarceration have followed close behind.
But the mixed results of the elections may produce conflicting results when it comes to policy. The pendulum is always swinging between states becoming harsher and times when they pull back. This year, the pendulum will swing both ways at once. “I expect unprecedented cross-currents this year, with blue states going harder at reform and red states rolling things back,” says Adam Gelb, president of the Council on Criminal Justice.
Consider bail. Last year, Illinois became the first state to eliminate cash bail entirely (although the state Supreme Court put that plan on hold, at least temporarily, just before it was set to take effect on Jan. 1). The new Democratic majorities across the lake in Michigan look ready to alter bail requirements, although they likely won’t eliminate them entirely. Conversely, New Jersey might roll back reforms passed a few years ago, as part of the spillover from media coverage of crime increases in New York.
Several states in the South are prepared to imitate a 2021 Texas law that made cash bail a prerequisite for release for many more of the accused. Other red states such as Missouri are looking at bills that would create harsher sentences for convicted offenders. Still, not everyone thinks the return of tough-on-crime rhetoric during the campaign year will translate into widespread policies that increase incarceration. “I don’t think red states will revert back to tough on crime, honestly,” says Jillian Snider, director of criminal justice policy at the R Street Institute, a conservative think tank. “They recognize the burden tough on crime has put on us, with costs of housing inmates at $50,000 or $60,000 a year.”
The criminal justice reform détente over the past decade or so between conservatives and liberals has come on the “back end,” dealing with re-entry issues, when people are coming out of prison, as opposed to the sentencing laws that put them there. There’s still considerable momentum for policies that help ex-offenders establish productive lives, notably “clean slate” laws that expunge people’s records to give them a leg up on finding housing or jobs. Even in red states, there are bills on tap to make expungement automatic. Clean slate and proposals to eliminate fines and fees are being pushed by advocacy campaigns with budgets in the tens if not hundreds of millions of dollars behind such efforts.
It may sound simple, but getting people into prison or out of prison requires manpower. That’s something in short supply. Policing, courts, corrections, parole — go down the list and every part of the system seems to be in crisis mode due to vacancies and turnover.
That’s something policymakers will be forced to pay attention to, says Marshall Clement, deputy director of the Council of State Governments’ Justice Center. While many states have seen increases in homicide and violent crime rates, clearance rates — cases resulting in arrests or otherwise being cleared — have gone down in all but a handful of states. That may sound like a technical problem, but Clement says that in terms of deterrence, “A dollar spent increasing time served is less effective than an increase in the odds of getting caught.”
Lawmakers should be thinking about things like funding for backed-up crime labs, Clement says. “You can’t really get tougher on crime,” he says, “by punishing fewer and fewer people longer.”
— Alan Greenblatt
Education
Education ended up being one of the sectors most affected by the pandemic. Not all students have returned to school, making enrollment decline a major problem in some places, particularly big cities. Many of those who are back aren’t at grade level, given the substantial amount of learning loss due to closed or remote classrooms. Reading scores are down the most in a decade and math scores are the worst since the 1990s. In trying to address all this, schools remain short-handed, with some 300,000 fewer people working in education now than in 2019.
None of these issues seem to be getting talked about as much as you might expect at the state policymaking level. Lawmakers instead remain concerned with culture-war fights, debates about private school choice and issues such as whether to offer universal funding for pre-kindergarten instruction.
The pandemic and parental dissatisfaction presented an enormous opportunity for proponents of school choice. Supporters of choice programs such as vouchers and tax-credit scholarships enjoyed arguably their most successful year ever in 2021. Last year’s move by Arizona, becoming the first state to offer education savings accounts (in essence, a type of voucher), appears certain to inspire copycat moves. States such as Ohio and Indiana that have near-universal eligibility already will want to go all the way, suggests Robert Enlow, president of EdChoice, which promotes school choice. “If you look at our polling on ESAs in particular, there is not a single demographic group that is under 70 percent,” he says.
Advocates are hoping that private school choice will finally arrive in Texas, following a quarter-century of frustration. Gov. Greg Abbott and Lt. Gov. Dan Patrick have both named school choice as a priority for this term. “Empowering parents means giving them the choice to send their children to any public school, charter school or private school with state funding following the student,” Abbott said last year on the campaign trail.
The holdup in Texas, as in some other states, has been opposition from rural Republican legislators. Their districts may lack private schools or other choice options, while the public schools are often the leading employer in rural communities. Rural opposition has been worn down, however, with support for choice becoming GOP orthodoxy — and apostates often driven out of office. Groups such as American Federation for Children have spent millions taking out incumbents opposed to choice. Last year, Iowa Gov. Kim Reynolds backed four challengers who successfully unseated Republican legislators opposed to her private school scholarship plan, including the chair of the state House Education Committee.
If school choice proponents enjoyed success in red states, they failed to gain ground in blue states. Republicans did not flip a single legislative chamber last year. “Once upon a time, people thought Republican legislators would be winning big in a way that might open up new possibilities for issues like school choice,” says Michael Petrilli, president of the Thomas B. Fordham Institute, a conservative education think tank.
Republicans in a number of states appear set to continue the battles widely seen last year over issues such as transgender students, book bans and teaching of racial history. A dozen states saw copycat bills filed last year imitating Florida’s new limitations on the ways sexual orientation can be discussed in classrooms (dubbed by critics as the “don’t say gay” bill). Last month, attorneys general from 14 states filed an amicus brief siding with Florida in a case challenging that law as discriminatory in federal court.
Lawmakers in Democratic-controlled states appear concerned more with traditional issues such as revamping school funding formulas. There are scattered searches for ways of tinkering with education directly, such as a push in Colorado to improve math instruction. Incoming Maryland Gov. Wes Moore has made universal, free pre-K a priority, hoping to speed up the state’s current 10-year timetable for implementation.
But efforts to expand education programs are running headlong into the problem of finding enough workers to make them happen. Last summer, President Biden called for districts to hire 250,000 additional tutors to address learning loss, but there weren’t 250,000 qualified individuals waiting around who weren’t already occupied.
Schools received an additional $190 billion from various federal COVID-19 relief packages. There aren’t a lot of decisions left for states to make about how to spend the money. They’ve been slow in doing so, but at this point states have mostly made their allocations, sending out checks to districts. “Even though the money’s not spent,” Petrilli says, “the policy’s been made.”
— Alan Greenblatt
Energy and Climate
The Bipartisan Infrastructure Law (BIL) and the Inflation Reduction Act (IRA) represent historic investments in a clean energy economy, and they couldn’t come too soon. As reported recently in Science, warming that has already occurred is tipping the scales toward climate impacts that can overwhelm government resources.
The emphasis in 2023 will be on “winning the win,” says Kate Wright, the executive director of the bipartisan Climate Mayors network. “We really need to prove that we can successfully transition and deliver local benefits.”
The majority of the IRA funding, $227 billion, is for business tax credits for clean energy production, manufacturing, clean vehicles and low-carbon energy systems in residential and commercial buildings. State and local governments will need to adopt a collaborative, entrepreneurial approach to realize the potential for job creation and economic development.
“One of the top things we hear is there is just so much in the IRA and the infrastructure bill, that state energy offices and public utility commission staff are overwhelmed,” says Dan Esposito, senior policy analyst at Energy Innovation. “Staffing up in 2023 will really help.” There are opportunities for state energy offices to plan for “renewable energy zones” and streamline permitting and siting in those locations.
It's more than a matter of cultivating new capacity. Projects representing more than 930 gigawatts of clean energy and more than 420 gigawatts of storage are in limbo, waiting for approval from regional authorities to connect to the grid before build-out can begin.
The limits of existing transmission capacity are part of the problem, and planning for more will require local government to engage with communities where new lines might be built. The Federal Energy Regulatory Commission (FERC) has asked for comments on proposed rule making that could speed the approval process for new transmission infrastructure.
Grid capacity will also come into play as states work to expand EV charging infrastructure, says Owen Minott, a senior policy analyst for the Bipartisan Policy Center, with some better prepared for added demand than others. The BIL includes $7.5 billion for EV charging, and all 50 states have had action plans approved for their share of the $5 billion in the National Electric Vehicle Infrastructure Formula Program (see Infrastructure).
More than two dozen offshore wind bills were put forward in 10 state legislatures in 2022, and almost half passed. East Coast states including Maryland, New Hampshire, Maine and North Carolina have been among the leaders. Offshore wind leases off the coast of California were awarded to five companies at the end of 2022. Increasingly, such moves are being accompanied by attention to the training and workforce development needed to build local industries and economies.
Utilities will need to adapt to a changing mix of inputs and demands. “A big part of successful IRA implementation will be holding utilities accountable for redoing their resource plans, which are now outdated,” Esposito says.
State leadership in climate action will have new importance with a divided Congress, says Dylan McDowell, executive director of the National Caucus of Environmental Legislators. Democrats gained control of both houses of the legislature and the governorship in four states during the midterms, pro-environment majorities have emerged in more states and more seats are being filled by people with professional experience relevant to energy and climate issues. Even states not known for emphasizing climate action will not leave federal dollars allocated for that purpose on the table.
Damaging hurricanes and a series of 100-year floods in 2022 have added urgency to difficult discussions about the outsized risks development in flood-prone areas poses to citizens, insurers and government, and the strategies for zoning, building codes and managed retreat.
Emphasis on equity is interwoven throughout the IRA and BIL and underscored by a mandate in the Biden administration’s Justice40 Initiative that 40 percent of federal investments in climate and energy are directed to “disadvantaged communities that are marginalized, underserved and overburdened by pollution.”
A number of states have introduced statutes that reflect this focus on environmental justice, says Bethany Davis Noll, executive director of the State Energy & Environmental Impact Center at the NYU School of Law. They will bring deeper consideration of the impacts of proposed projects on disadvantaged communities and greater attention to helping those most affected by fossil fuel pollution access clean energy jobs.
“These are really something to watch because they're responding to stark and ongoing needs that have been playing out in states for a long time,” says Noll.
— Carl Smith
Health
Just as it tested the resilience of immune systems, the COVID-19 pandemic pushed the limits of the nation’s health systems. Vaccinations and treatment have greatly reduced the pandemic’s dangers, but work is needed to address lingering impacts on systems of care, the health-care workforce and the well-being of Americans.
In November, the Centers for Disease Control and Prevention (CDC) announced that it will award $3.2 billion to state, local and territorial health departments. “In that way, 2023 will be the best of times,” says Brian Castrucci, executive director of the de Beaumont Foundation. “However, it comes with the worst of times — the continued politicization of public health, which will stand in the way of the best use of these dollars in some communities, making the nation even more vulnerable to pandemics and other nationwide health threats.”
One significant problem for 2023: the public health workforce had been shrinking for years before the pandemic, and excessive work demands brought on by COVID-19 have worsened the situation. The interplay between CDC funds, local political climates and the willingness of workers to take public health jobs will determine how much progress health departments make toward the estimated 80,000 full-time employees needed to meet minimum public health requirements, says Castrucci.
Medicaid eligibility redeterminations have been unnecessary for the past three years due to a congressional mandate that states maintain continuous enrollment until the COVID-19 public health emergency (PHE) is declared to be over, in exchange for additional funds. Medicaid enrollment has grown by more than 19 million since February 2020.
The omnibus bill passed at the end of 2022 restarts redetermination at the end of April, independent of the status of the PHE, which is expected to end in April 2023. States have been bracing for the staffing and logistical demands of outreach and assistance to millions of Americans whose contact information may or may not be current.
“The big challenge for the states is how they can do this, not disrupt coverage for folks who are eligible, and help everyone end up with coverage,” says Jane Longo, principal at Health Management Consultants. An estimated 18 million Americans could lose Medicaid coverage when the health emergency ends this spring.
Behaviorial health problems will be another focus in the coming year, says Hemi Tewarson, executive director of the National Academy for State Health Policy. “The pandemic years have been driving demand, and that has been coupled with diminished provider capacity.”
This is prompting a hard look at integrating services, from primary care physicians to employment specialists, housing providers, and schools as well as the role of out-of-state licensure and telehealth.
State and local governments are beginning to make plans for an expected $50 billion in settlements from opioid-related lawsuits. The National Association of Counties has announced the creation of an Opioid Solutions Center to assist with this work. “There's an effort to try to have more oversight and guardrails around where the money is invested compared to the tobacco settlements of years ago,” says Tewarson.
The pandemic has accelerated the need for states to confront long-standing issues around nursing homes staffing and funding. In some states, these are now at 50 percent capacity, making it difficult for them to stay open. Most of the swelling population of older adults would prefer in-home care, but home-care workers can earn less from these jobs than they would as a checker in a discount store.
The Supreme Court ruling on abortion could play out in a variety of ways, with some states increasing access and others enacting bans. The U.S. is the only developed country in which the number of women dying in childbirth has increased since 1990. Abortion restrictions could bring more attention to family planning and contraception services or Medicaid expansion to cover doulas, midwives or postpartum care.
States will also feel pressure from citizens upset about the high costs of health insurance and prescription drugs. “I think states are hoping to leverage what Medicare ends up doing in terms of negotiated prices,” says Tewarson. Pushback against anti-competitive health insurance contracts is growing, and some states are implementing programs to set cost-growth benchmarks.
COVID-19 controversies have made it essential to improve both health care and public health to build public trust in these systems, and in government itself.
“It starts with better partnerships and better communication between public health officials and the public, working with the business community, working with the faith community, with schools,” says Castrucci. “There will be other pandemics and we can't go into them not having resilient partnerships already created.”
— Carl Smith
Housing
“The housing crisis,” a phrase that is increasingly on the tongues of political candidates and elected officials, describes a lot of different conditions that don’t always connect. But as a catchall term, it works, because in most places, housing is either too expensive, too hard to find, too far away from a job, or too badly deteriorated for too many people.
It’s not just gentrifying neighborhoods in big cities where these problems exist. More and more, housing affordability is a challenge in rural and suburban areas, and for people all over the income spectrum. Poor tenants have it worst: As the National Low Income Housing Coalition (NLIHC) notes in its annual report, “No state has an adequate supply of affordable rental housing for the lowest income renters.” Homelessness is on the rise, especially in places that have the most severe housing shortages, such as California. And rising mortgage interest rates — a product of efforts by the Federal Reserve to fight inflation — have made first-time homeownership a special challenge over the last year, particularly for minority buyers.
These challenges are a growing political preoccupation in states and cities. In the November election, voters approved scores of housing-related ballot measures raising bond money for affordable housing and touching on everything from rent control to tenant protections, zoning policies, and taxes on short-term rentals like Airbnb. Traditional urban divisions, such as those between some leftist groups and pro-housing-supply activists, have shown small signs of softening. At the state level, Pennsylvania’s Whole-Home Repairs Program was enabled by rare bipartisan, rural-urban coalitions.
What will this year bring? More action at the state level, predicts Jenny Schuetz, a senior fellow at Brookings Metro focused on housing policy. Legislatures in blue states will continue to debate a range of progressive policy approaches. But housing will be a focus in states governed by Republicans, too, she says. That includes Virginia, where Gov. Glenn Youngkin has proposed a plan to loosen local zoning restrictions and “remove regulatory barriers to housing development,” and Utah, where Gov. Spencer Cox is hoping to raise more money for affordable housing.
Yonah Freemark, senior research associate at the Urban Institute, predicts the next few years will bring a potential breakthrough on social housing — publicly built and owned housing that’s affordable to low-income people and available to everyone. There’s been “considerable momentum” on the issue in Rhode Island and California. Freemark expects that to continue, “potentially with a state or two actually passing a law enabling the construction of such units.”
At the federal level, Congress isn’t likely to do much more on housing for the remainder of President Biden’s first term, says Sarah Saadian, senior vice president of public policy and field organizing at NLIHC. If Republicans push for spending cuts, as they did when they took control of the House in 2010, it could have a long-lasting impact on the federal government’s ability to invest in housing.
In the biggest cities, high-stakes experiments with homelessness will continue to occupy much of the attention. In Los Angeles, advocates will be monitoring the impacts of new Mayor Karen Bass’ declaration of a local emergency around homelessness. In New York, there’s bound to be a pitched debate as Mayor Eric Adams begins to implement his plan to forcibly commit homeless people with “untreated psychotic disorders.”
— Jared Brey
Immigration
Immigration to the United States is regulated by Washington under rules established 70 years ago in the Immigration and Nationality Act. Even so, states and localities are often left to fend for themselves when they think federal agencies are not acting in their best interests. Following a record number of encounters at the southern border last year, some governors and local officials have acted on their own to deal with an overwhelming number of migrants. Often, this is in ways that are at odds with the federal government.
Last summer, outgoing Arizona Gov. Doug Ducey ordered the construction of a border wall made from hundreds of stacked shipping containers. Facing a federal lawsuit, the state had spent at least $80 million on the makeshift barrier before agreeing to take it down at the end of the year. Incoming Gov. Katie Hobbs had vowed to remove the container wall, calling it a political stunt and waste of taxpayers' money.
Border cities and states are not alone in dealing with mass migration. Asking for federal help for housing and services, New York City Mayor Eric Adams recently declared a state of emergency, stating that the influx of immigrants could cost the city a billion dollars this year. Many of the arrivals have come to New York on buses from Texas, sent by Gov. Greg Abbott. But the majority were sent by the city of El Paso, a popular entry point, and also one of the poorest cities in the country. The recent surge in migrant crossings has overwhelmed the town’s resources, often resulting in hundreds of new arrivals being released into the city’s streets when shelters are at capacity.
An end-of-year federal spending bill promises some relief for cities overwhelmed by asylum seekers, providing $800 million in grants to pay for shelter, food and first aid.
With comprehensive immigration reform stalled at the national level, the lack of a broad nationwide consensus has resulted in a patchwork of state laws and regulations. Arizona, Montana, Kansas, Missouri, Mississippi, Georgia, North Carolina and Indiana have directed local law enforcement agencies to cooperate with immigration enforcement. Several states have laws that limit or deny public services and benefits to immigrants.
Oregon, Illinois, New Jersey, California and Washington are among states that protect the migrants by staying out of immigration enforcement. New York lawmakers are hoping to go a step further, pushing to pass an Access to Representation Act that would provide asylum seekers with legal representation in immigration courts, the first state to do so.
Even as Arizona’s fight over a state-built wall of storage containers was going on at the border, the state’s electorate recently voted to allow immigrant students to pay in-state tuition rates at public universities and community colleges, joining at least 20 other states. More than a dozen states offer equal access to financial aid.
Arizona, Colorado and New Mexico recently removed immigration-related barriers to obtaining professional licensing, making it possible for highly skilled and underemployed immigrants to earn more and pay more taxes as a result. Rhode Island is the most recent state to offer a driver’s license or identification card to those without correct documentation, joining a growing list of 18 states and the District of Columbia that have enacted laws allowing the immigrants to obtain a license. Expanding on its driver’s-license-for-all policy, California will offer state-issued identification cards to every resident, regardless of immigration status, within four years. California’s version of Medicaid will soon offer access to health care for all income-eligible residents, regardless of immigration status, the first such state action of its kind.
— David Kidd
Inflation
Even though economic indicators are returning to pre-pandemic levels, last year’s spike in the consumer price index, the highest in 40 years, threatens to upend the recovery. There is no shortage of opinions as to what caused the recent rise in inflation. Whether it was a flood of federal money tied to COVID-19 relief, a sudden rise in consumer demand, supply chain issues, or more likely, a combination of factors, states and localities are left to deal with the consequences. But not without help.
The latest federal stimulus bill, President Biden’s $1.9 trillion American Rescue Plan, includes $350 billion in emergency funding for state, local and tribal governments, intended for use in COVID-19 recovery efforts, maintenance of vital government services and the support of long-term economic growth. Much of the money was used to make up for anticipated lost tax revenue due to the pandemic, rather than new spending. Recipients are obligated to use the funds by the end of 2026.
Besides the stimulus money, states have also benefited from increased sales and income tax revenue, a result of the inflated prices paid for goods and services and higher wages. Several states have seen double digit increases in taxes collected over previous years, creating budget surpluses. Thanks to higher interest rates, states have seen the value of their investments grow exponentially. However, fluctuating property taxes from an uncertain housing market, combined with diminished federal assistance and the rising cost of providing services and capital projects, will make it difficult to maintain the status quo.
Since 2020, the cost of construction materials has risen significantly faster and higher than the consumer price index. These unexpectedly higher prices, supply issues and a workforce shortage have forced states to rethink projects and how to pay for them. Last year Virginia set aside an additional $200 million for anticipated inflation-related cost overruns for highway projects, in order to protect the contractors it relies on to do the work.
After several rounds of federal help and higher-than-expected tax collections, many states are tapping into rainy-day funds and budget surpluses, sending inflation relief checks to their taxpayers. To date, almost half of the states have already offered one-time rebates and expanded tax credits, or expect to do so in the coming year. Most of the relief money comes from budget surpluses and is being distributed by legislative edict or as automatic rebates. Some economists worry that the payments will do little to offset the pain of inflation, and could even end up exacerbating the problem.
By the end of January, California will have sent inflation relief payments ranging from $200 to over $1,000 to more than 23 million qualifying taxpayers. Colorado had planned to return $400 to every taxpayer in 2023, but thanks to the state’s strong economy, the amount was increased to $750 and moved up a year. Last summer, families in New Mexico received a combination of rebates and tax credits totaling up to $1,500.
At record levels after two years of growth, state rainy-day funds and budget surpluses are not expected to continue at the same pace. Lawmakers will have to deal with an uncertain economy and significantly less federal aid. Continued high rates of inflation diminish government spending power and threaten the COVID-19 recovery.
— David Kidd
Infrastructure
The Infrastructure Investment and Jobs Act (IIJA) which was adopted in 2021 fell well short of many Democrats’ biggest hopes for a paradigm-shifting investment in climate change adaptation and public transit. But over the course of 2022, the bill, also referred to as the Bipartisan Infrastructure Law, began releasing unprecedented sums for states and cities to spend on broadband infrastructure, electric vehicle charging, drinking water systems, power grid improvements, flood mitigation, and repair and maintenance (and, yes, expansion) of roads and bridges. More money will be available in 2023.
Two big categories where states could start to see results from legwork they did in 2022 are EV charging and broadband deployment. Over the summer, each state produced a plan for building EV charging stations along the interstate highway system as the first step toward establishing a nationwide charging network. They’ll get a combined $885 million from the Federal Highway Administration in 2023, and in each of the following three years, to start building the stations. The National Telecommunications and Information Administration is also planning to announce allocations of some $42.5 billion in broadband funding by midyear. Internet access advocates have raised some questions about the accuracy of the FCC’s national broadband map, which sets the table for funding decisions. Jurisdictions can file challenges to the maps early this year.
Cities also have a unique opportunity to receive infrastructure funds directly from the federal government for EV charging and many other transportation-related programs, says James Brooks, director for infrastructure, transportation and solutions at the National League of Cities’ (NLC) Center for City Solutions. The first year of the IIJA created “a great deal of momentum” that will result in lots of new projects starting in 2023. The NLC’s Local Infrastructure Hub is helping smaller cities prepare applications for a range of competitive grant programs, with deadlines throughout 2023.
The Department of Transportation is expected to announce grants through the $5 billion Safe Streets and Roads for All program early this year, which is intended to help address what The New York Times called “the exceptionally American problem of rising roadway deaths.” Another $200 million will be awarded through the Reconnecting Communities program, aimed at addressing legacy infrastructure like highways that have divided cities. Until the end of February, states and cities can apply for a piece of $1.5 billion in RAISE grants focused on sustainable transportation infrastructure.
The country’s aging water systems also have some chances to improve. Jackson, Miss., had the most high-profile water crisis of 2022 when its system failed in late summer, and toward the end of the year, Congress allocated $600 million for repairs. The Environmental Protection Agency is also helping communities adhere to new lead and copper rules, and to build inventories of lead service lines, which are due by October 2024. Those inventories will inform the allocation of $15 billion in IIJA funding for replacing lead service lines. With more extreme weather expected as global average temperatures continue to rise, water systems — along with roads, rail corridors and coastal infrastructure — will need every dollar they can get.
— Jared Brey
LGBTQ
The Respect for Marriage Act was a bipartisan milestone. By establishing that same-sex and interracial couples are entitled to the rights and responsibilities of marriage by federal law, it eased anxieties that a second cultural bombshell might come from the Supreme Court.
The law doesn’t interfere with the rights of religious organizations to define marriage or require business owners to provide service to same-sex couples or families. It doesn’t prevent states from banning same-sex marriage, but Melissa Deckman, CEO of the Public Religion Research Institute (PRRI) doesn’t expect to see many states moving in that direction.
A 50-state survey conducted by PRRI in 2022 found almost seven in 10 Americans support same-sex marriage, as do majorities of religious groups. Almost 80 percent favor laws protecting LGBTQ people against discrimination in housing, jobs and public accommodations.
“When it comes to LGBTQ issues, momentum is going to be around issues surrounding transgender rights and school curriculum,” says Deckman. In 2022, hundreds of new bills sought to limit classroom discussion of gender and sexuality, restrict health care for transgender youth or ban them from school sports. Very few became law.
In June, the U.S. Department of Education (DOE) released proposed amendments to Title IX regulations that, among other things, would establish protections against “discrimination based on sexual orientation and gender identity.” If these are adopted, schools that don’t allow transgender students to use the bathrooms or pronouns that match their gender identity could lose federal funding.
The push to keep issues of gender and sexuality out of schools is framed as a matter of parental rights. “There’s a fear on the political right that even discussing transgenderism is akin to indoctrinating students,” says Deckman.
States and districts have banned books with LGBTQ characters and themes. The civil rights enforcement arm of the DOE announced that it is investigating the legality of bans instigated by a North Texas school district, a sign of pushback that will be welcomed by librarians and students who easily found the books elsewhere.
Trans girls and women have been banned from publicly funded sports in nearly 20 states. Courts in several states have blocked such bans, and a federal appeals court in Connecticut recently threw out a case challenging a trans-inclusive sports policy.
Controversy has centered around competitive advantage, says Pepperdine law professor Maureen Weston, director of the university’s Entertainment, Media and Sports Dispute Resolution Project. But the science to support this concern is still in flux.
It's hard enough for any young person to come out as transgender without the added penalty of being excluded from sports, Weston says. “The fairness of it has to be balanced against this as well.”
If policy debates around sex and gender are meant to improve the well-being of young people, there’s another factor to consider. A 2022 survey of 34,000 LGBTQ youth by the Trevor Project found that 45 percent had “seriously considered” suicide in the past year. Inflammatory rhetoric reaches them through social media, whether they search for it or not.
— Carl Smith
Mental Health
Mental and behavioral health remain big challenges in the pandemic era. Legislators are looking to support call centers, behavioral health crisis services and drug addiction centers, while also confronting mental health workforce shortages and availability problems for in-person and online services.
More than 50 million American adults suffer from some sort of mental or behavioral health condition including anxiety, depression and substance abuse. And it’s not limited to adults. According to the U.S. surgeon general, one in 10 children and adolescents suffer from emotional and mental disorders that impact their lives at home and at school. Left untreated, people with mental and behavioral health conditions are more susceptible to chronic disease, unemployment, substance abuse, homelessness, incarceration and suicide. The annual cost associated with untreated mental illness in the U.S. is estimated to be over $100 billion.
According to a recent study by Mental Health America (MHA), 93.5 percent of adults with a substance abuse disorder did not receive any kind of treatment in the past year. More than half of adults with a mental illness did not receive treatment. MHA ranks Wisconsin, Pennsylvania and Massachusetts as the top three states for “lower prevalence of mental illness and higher rates of access to care.” Even though Wisconsin ranked highest of all the states, almost half of its residents with a mental illness did not receive treatment.
The pandemic strained a system that was already unable to cope. Half of all Americans say that their mental health has been negatively affected by COVID-19, reporting symptoms of anxiety or depression. Social isolation may have slowed the spread of the disease, but not without a cost to much of the population, especially the elderly and infirm.
In the latest effort to tackle the problem, individuals experiencing severe mental illness on New York City’s streets and in the subway are now subject to involuntary hospitalization. Mayor Eric Adams recently directed the city’s police, firefighters and EMS workers to forcibly hospitalize anyone who appears to be a danger to themselves and unable to meet their own basic needs. Adam’s directive was accompanied by an 11-point mental health agenda that he would like the state Legislature to take up in their next session. Advocates for the homeless and mentally ill have questioned the wisdom and legality of the mayor’s directive. Still, a judge ruled against pausing the plan in its early stages.
On a smaller scale, police in Wichita, Kan., have been responding to mental health calls with a three-person “integrated care team,” that includes a mental health professional, an officer and a paramedic. After four years, the data shows that calls for help have been more appropriately handled, freeing up police and fire personnel for other calls for service.
Small towns and rural areas face an entirely different set of problems in dealing with mental health, including great distances between facilities, and a shortage of trained responders. More and more of these communities are pooling scarce resources and adopted policies intended to divert persons in need away from jail and into an appropriate facility or the care of relatives.
The transition to a new, nationwide, three-digit number was brought online in 2022, intended to streamline call-in requests for help. Virginia was the first state to fund its 988 call centers, using a dedicated telecom tax. Gov. Glenn Youngkin recently announced $230 million in new mental health and substance abuse spending, including money for mobile crisis teams and receiving centers. At some point, the goal is to dispatch trained providers when issues cannot be resolved over the phone. And for those unwilling or unable to talk on the phone or in person, a number of cities offer wellness apps to citizens and responders, something that gained traction during COVID-19.
Adhering to the adage that an ounce of prevention is better than a pound of cure, more and more jurisdictions are raising mental health awareness by hosting community events. St. Louis Park, Minn., brings residents together on the shortest, darkest day of winter with bonfires and activities. Canton, Ohio, promotes its one-mile “mindfulness walk” at a local park, to promote “relaxation, focus and awareness, reflection, and embracing the present moment.”
As awareness of mental and behavioral health seems to grow each year, so too does the need for an expanded mental health workforce and related facilities, especially difficult at a time of medical staffing shortages.
— David Kidd
Taxes
After the roller coaster of the early COVID-19 days, states have seen tax revenues stabilize and even grow more quickly than they were before the pandemic began. The relatively healthy financial picture for states has led to a trend of tax cuts and rebates. But 2023 holds a lot of unknowns for the economy, and thus for state tax policies.
Over the past two years, states have enacted “an unprecedented level of tax-rate reductions,” says Jared Walczak, vice president of state projects at Tax Foundation, a right-leaning think tank. According to Walczak, 27 states have cut a major tax and 21 states have reduced income tax rates. Another mini trend has been the switch from graduated-rate income taxes to flat taxes in a handful of states. The potential for a recession makes it likely that the pace of tax cuts will at least slow down in 2023. But states now have a broader tax base than they did before the Tax Cuts and Jobs Act of 2017, Walczak says, and the baseline they’ll return to after an eventual downturn is higher than before.
It’s been difficult for states to advance “novel new taxes” like digital services taxes, stock-transfer taxes and other taxes on the wealthy while their revenue collections have been so high, Walczak says. But some of those ideas could gain steam again if an economic downturn leads to lower revenues. Many economists are predicting at least slower growth if not overall recession in 2023, and a generally “gloomier outlook” for state revenues than over the past few years.
There have been notable exceptions to the trend of state tax cuts and rebates. In Massachusetts, voters approved the so-called Fair Share Amendment which raises taxes on people with incomes over $1 million a year. The proceeds of that tax are intended to support investments in transportation and public education. Walczak says the close vote — the tax won by 52 percent while Democrat Maura Healey won the governor’s office by 64 percent — shows that voters generally are suspicious of wealth taxes and “need to be convinced” that they are worthwhile, even in progressive states like Massachusetts. A proposal to raise taxes on people earning more than $2 million in California was soundly defeated in November, even while Los Angeles voters approved a mansion tax to support homelessness efforts.
Generally, states are moving in two different directions on tax policy, says Aidan Davis, state policy director at the left-leaning Institute on Taxation and Economic Policy. Those trends, which roughly align with party control, are likely to stay in place. But the across-the-board preference for tax cuts over the last two years could quickly change if the economy goes into recession. Amid strong collections and federal COVID-19 relief funds, many state-level cuts were enacted without broad political acknowledgment of what was being sacrificed long term, Davis says. Polling shows that Americans generally favor higher taxes on the wealthy. It’s possible another wave of progressive tax increases could materialize in the event of a downturn and reduced state collections.
— Jared Brey
Workforce
State and local governments continue to struggle to return to pre-pandemic employment levels. Historic levels of federal support are available for infrastructure projects, climate action, rebuilding public health and more, but it won’t be possible to make the most of these opportunities if there aren’t public-sector workers to plan, manage and execute them.
It likely will be difficult to find workers for jobs in education, public safety, engineering and technology throughout 2023 and beyond. Smaller and rural governments will face the greatest challenges, says Joshua Franzel, managing director of MissionSquare Research Institute. As a result, more are beginning to share highly skilled workers.
Worries about a depleted public-sector workforce predate COVID-19; a wave of baby boomer retirements has been a concern for years. In 2022, more than half of the human resource directors contacted by MissionSquare said that employees were accelerating retirement plans, twice as many as reported this in 2020.
Plans to develop a pipeline of recruits to fill positions emptied by retirement have not materialized and the pool of qualified applicants is too small, says Elizabeth Kellar, director of public policy at the International City/County Management Association (ICMA). Rehiring retirees or promoting a “second career” in public service may be increasingly necessary.
Community college programs have brought new workers to careers in public safety and public administration; expanding these is another way to gain ground against retirements and resignations. More governments are looking to engage with high school career programs.
Recruitment is moving beyond listing job requirements to storytelling that captures the personal rewards of public service. ICMA has produced a series of videos, Life, Well Run, for this purpose.
Government employers can’t simply list openings, but must use multiple campaigns and channels, says Gerald Young, senior research analyst at MissionSquare. This extends beyond social media to targeted outreach to segments of the community that might not have considered government jobs, a strategy that also has potential to contribute to workforce diversity.
Human resources staff can make better use of data from “stay interviews” and employee satisfaction surveys to guide recruiting and prevent further shortages resulting from overwork and burnout among those who have stayed on the job.
Flexible schedules, remote work options, gig workers, intergovernmental contracts and apprenticeships are all expected to play a role in filling empty positions. More governments are looking at incorporating nontraditional benefits such as subsidized child care and commuting or student loan repayment in their overall benefit packages.
Erica Ford, who is public-sector people advisory services leader at Ernst & Young, sees recent disruption in the tech workforce as an opportunity for government employers, a chance to offer displaced workers purpose-driven work and stability. Mass layoffs at tech companies have affected workers with HR, communications and PR skills as well as cyber talent.
These workers are likely to respond to opportunities to be part of projects with huge impact, and more are in play now than at any time in recent memory. “There's such an opportunity for government to really do a full civil service transformation,” Ford says.
— Carl Smith
