Monster-sized budget surpluses allow new governors to dream big

In Massachusetts, which has a nearly $5 billion surplus, Democratic Gov. Maura Healey is looking to establish free community college for people 25 years old and older. Hawaii Gov. Josh Green and Oregon Gov. Tina Kotek, both Democrats, aim to put $1 billion each toward addressing their state’s affordable housing crisis. And Democratic Maryland Gov. Wes Moore wants to create a service year program for high school graduates.

While Republican governors are prioritizing tax cuts, some can’t resist the opportunity by asking their legislatures to approve plans to boost certain public programs funding. Gov. Joe Lombardo, for instance, is seeking to increase annual spending per public school student in Nevada — which lags more than 40 states — by more than $2,000.

McCrory, who inherited billions of dollars in debt to the federal government for unemployment loans and a $500 million Medicaid deficit when he was elected in 2013, recommended that governors put the money toward one-time infrastructure and capital needs instead of long-running operating expenses.

When McCrory ran for reelection, he resisted calls from his Democratic challenger, now-Gov. Roy Cooper, to use the bulk of a newfound surplus toward giving teachers even bigger raises than he proposed and instead prioritized saving it.

“Politically, that was stupid. But fiscally and responsibly, I did the right thing,” he said. “I was pleased that I left the money in reserves. I’m damn proud of it. I never got a thank you note.”

There are some indications that fiscal conservatives’ trepidation may be justified. The financial good times could be coming to an end as recent research shows annual revenue growth rates slowed during fiscal year 2022 and state revenues are on track for negative growth by the end of the current budget year, according to a new analysis from Pew Charitable Trusts.

“Although higher-than-expected tax revenue growth, abundant federal aid, and record financial reserves have improved budget conditions recently, states must navigate several looming challenges,” Pew states, “including slowing revenue growth as the economy weakens and monetary policy tightens, historically high inflation, and a tapering of federal COVID-19 aid.”

And to realize their dreams, governors also have to face down their state lawmakers, who hold the real purse strings. Some, like Healey, will negotiate with a Democratic legislature eager for programs that Republican Gov. Charlie Baker might’ve rejected. But nowhere is the political gap between a new governor and their legislators wider than in Arizona — one of only two states where a new governor is faced with a legislature squarely controlled by the other party.

Arizona has an anticipated $1.8 billion surplus. But just weeks into her first term, Gov. Katie Hobbs, a Democrat, who was narrowly elected in a race that attracted national attention, unveiled a budget in January that immediately drew the ire of the Republicans who control the state legislature.

“House Republicans are reviewing Governor Hobbs’ budget proposal,” Arizona House Speaker Ben Toma tweeted, “but based on the left-wing wish list of spending details disclosed so far, I’m confident to say that it will be dead on arrival.”

Hobbs made her own flex a few days later, brandishing a veto stamp used by former Democratic Gov. Janet Napolitano, who was in office the last time Arizona had split government.