- Associated Press - Monday, June 8, 2015

ATLANTA (AP) - With budget deadlines looming for nearly all states, disagreements over closing deficits or expanding Medicaid are forcing several legislatures to extend their sessions.

The number of states in which lawmakers and governors are at odds over budget problems pales in comparison to those dealing with red ink during the Great Recession. But it serves as a cautionary note during a year in which the national economy is at its healthiest since the recovery began.

Legislative special sessions are underway in Alaska, Florida, Illinois and Washington, and a number of other states facing significant shortfalls are struggling to figure out how they will meet their constitutional requirements to balance their budgets. Forty-five states begin the next fiscal year on July 1 and must have their operating plans in place by then.

Describing late budgets as “summer cliffhangers no one wants to see,” credit analyst Gabriel Petek with Standard & Poor’s Ratings Services said recently he expects most states will pass budgets before the June 30 deadline and avoid the prospect of a state having to shut down any government functions.

“A handful of states, however, continue to grapple with large projected budget gaps or still have major policy issues to resolve,” Petek wrote in a recent report. “This doesn’t necessarily mean these states won’t have budgets in hand by the start of the new fiscal year. But the significance of what remains unresolved does raise the specter that in at least a few of them, budget adoption could be late.”

Even with falling unemployment and a roaring stock market, experts say a majority of states have failed to climb back to their pre-recession status in terms of tax revenue, financial reserves and job creation.

A recent survey by Associated Press statehouse reporters found at least 22 states were projecting budget shortfalls for the coming fiscal year. Stagnant or declining tax revenue, combined with rising pension and health care costs, are among the chief reasons for the continuing budget turmoil, which experts say could mean deep cuts in state services if the overall economy turns sour.

Illinois is facing the largest budget gap of any state after a temporary tax increase expired Jan. 1. A special session is underway after Democrats passed a spending plan that was $3 billion out of balance and Republican Gov. Bruce Rauner vowed not to sign anything he considered “a fake budget, a phony budget, an unbalanced budget.”

Lawmakers in Alaska and Washington already have made it through one special session and are working on their second.

Washington lawmakers are grappling with a projected shortfall of more than $2 billion due to a court ruling and a voter-approved initiative requiring additional education spending.

Alaska has plenty of cash to cover a $3.2 billion projected deficit for next fiscal year, but Republicans need Democrats to sign off on a plan to tap a special reserve fund. Negotiated raises for union workers are a sticking point.

Amid the impasse, layoff notices were sent to nearly 10,000 Alaska state employees who could be out of a job if a fully funded budget isn’t in place by July 1. The state’s back-to-back special sessions already have cost the state at least $430,000.

Meanwhile, Florida lawmakers deeply divided over a plan to expand Medicaid adjourned their regular session without passing a state budget.

A key issue has been how the state should cover a loss of hundreds of millions of dollars in federal aid to hospitals, with the Senate advocating for expansion and the House and Gov. Rick Scott adamantly opposed. The federal government has offered to extend the hospital funding for two years regardless of expansion, but at half the $1.3 billion it is currently sending.

Alabama Gov. Robert Bentley plans to call for a special session amid a stalemate with lawmakers over how to address a $200 million shortfall, although the state’s fiscal year doesn’t start until Oct. 1. Lawmakers have so far rejected Bentley’s call for $541 million in new taxes.

Brian Sigritz with the National Association of State Budget Officers said roughly half the states already have a final budget. Over the last three years, about a dozen states annually held special sessions, according to the National Conference of State Legislatures.

Kansas legislators are in the midst of their longest session ever as lawmakers have been deadlocked over proposals to raise taxes to close a projected $406 million shortfall. Technically, it’s not considered a special session because lawmakers can extend their normal 90-day session if needed.

The state’s budget gap arose despite efforts by Gov. Sam Brownback and GOP lawmakers to spur economic growth through income tax cuts. Republicans control 129 of the Legislature’s 165 seats.

“My frustration is that we’ve got all the majorities to do anything,” said state Sen. Ralph Ostmeyer, R-Grinnell. “We can’t do anything.”

In Pennsylvania, Republicans who control the Legislature have yet to detail how they plan to close a projected $2 billion hole in the state budget due in part to a steep increase in public pension payments under a 2010 law designed to correct a decade of underfunding pension obligations.

In two cases - Minnesota and South Carolina - lawmakers need special sessions despite having budget surpluses. For Minnesota, this is the first time in several years in which lawmakers are not dealing with a budget shortfall.

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Associated Press writers Seanna Adcox in Columbia, South Carolina; Brian Bakst in St. Paul, Minnesota; Becky Bohrer in Juneau, Alaska; Kim Chandler in Montgomery, Alabama; Gary Fineout in Tallahassee, Florida; John D. Hanna in Topeka, Kansa; Kerry Lester in Springfield, Illinois; and Marc Levy in Harrisburg, Pennsylvania, contributed to this report.

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Follow Christina Almeida Cassidy on Twitter: https://twitter.com/AP_Christina.

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