State Budget Crises Will Have Lasting Effects
Ed Kilgore points out that California’s not alone in facing fiscal armageddon — other states aren’t far behind:
If current trends hold, states are expected to encounter an even higher level of shortfalls–$180 billion–in Fiscal Year 2011, for which they are just beginning to make plans. They are far past the ability to borrow from reserve funds, cancel major new investments, or cut out “waste.” We’re talking serious cuts in services and employment, and the kind of tax increases that no one likes and that could combine with spending cuts to further depress state and even national economies.
For all the handwringing about the federal budget deficit, state deficits are the real killer. They’re almost impossible to reduce.
State spending is a lot harder to cut than federal spending, both politically and practically, because it (literally) hits closer to home. The bulk of state spending is taken up by very necessary, basic things like infrastructure and education. While the federal government can happily cut things like old defense contracts or the National Weasel Research Center at East Hole, WV, or whatever, state governments really have nowhere to go without seriously hurting something important. Cf. Schwarzenegger cutting things like children’s healthcare while still falling so far behind that he needs to cook the books:
…even with the revised budget deal, California will need to borrow $8 billion to $10 billion to cover its cash needs this year, and the state is likely to face another $7 billion to $8 billion deficit in the 2010-11 fiscal year.
Matt Fabian, a bond analyst at Municipal Market Advisors, based in Concord, Mass., said California’s plan was filled with accounting tricks and will likely do little to improve the state’s poor credit rating.
Among the questionable maneuvers in the plan, the state will accelerate income tax withholding by 10 percent to inflate revenues during the year and shift state employee payroll by one day for a paper savings of $1.2 billion. The state also will sell a portion of the state’s workers compensation insurance business for $1 billion, which the Legislature’s nonpartisan analyst doubts could be done within the fiscal year.
Plus, imagine a California crisis in a state where tax hikes are off the table — either because of TABOR-type legislative handcuffs, or because in small, poor or rural states, there may just not be enough of a tax base to ever balance spending. Yikes. I pity that governor. (Hey, why was it that Sarah Palin left Alaska in such a big hurry?)
…I wonder how long it will be before we reach the stage of intergovernmental begging — which has been a fixture in Canadian politics for decades. Wealthy provinces like Alberta and Ontario regularly send federally mandated “transfer payments” to hopelessly poor provinces like Newfoundland, to the great irritation of the wealthy provinces’ taxpayers and executives. How do you think, say, New York would like sending 5% of its tax revenues to Arkansas? Good times…
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