Running out of budget gimmicks, states face grim years

Financial issues are forcing states into calamitous binds about what they can do. Most of them are afraid to impose their sales taxes on services, the very area in which more of the economy is moving.
Crosscut archive image.

Washington Gov. Chris Gregoire. (State of Washington)

Financial issues are forcing states into calamitous binds about what they can do. Most of them are afraid to impose their sales taxes on services, the very area in which more of the economy is moving.

"This may be the most calamitous fiscal year states have known in decades," reports Rob Gurwitt in Governing magazine, the 23-year old bible on coverage of state and local governance across the continent.

And the coming fiscal year, experts are predicting, may be almost as grim as the states run out of budget gimmicks, rainy day funds and the infusion of federal stimulus money that helped them, finally, to balance their current budgets. The states'ꀙ cumulative 2010 and 2011 budget shortfalls may be about $350 billion — a third of a trillion dollars — estimates the Center on Budget and Policy Priorities.

Why such grim news? Sales and personal tax receipts, which soared in the last decade because of the hot, credit-driven consumer economy, cratered with the recession. The pre-recession revenue levels, Governing reports, 'ꀜwill either take an unusually long time to recover, or never do so.'ꀝ Indicators of prolonged fiscal migraines run from the ravages of industrial decline in the Great Lakes states to the mortgage crises that have tripped the Sunbelt'ꀙs perpetual growth machines.

All states face increasing health care costs for their needy. And then there'ꀙs the long-term debt that states have incurred'ꀓin bonds they'ꀙve sold, in pensions and post-retirement health benefits, in replacement or maintenance of physical infrastructure that can'ꀙt be permanently ignored. Governing columnist John E. Petersen comes up with a startling $2.4 trillion of 'ꀜaggregated indebtedness'ꀝ the states carry. And they'ꀙre unlike the federal government, which with an accumulated debt of some $12 trillion, can at least print money and borrow (up to a point) at will.

Ironically, if crisis has hit the states, it'ꀙs also hit Governing magazine itself. Its former parent corporation, the St. Petersburg Times, late last year insisted on unloading it for cash. And there'ꀙs fear the magazine itself may never again be what it was in its heyday under founder Peter Harkness. The top bidder and buyer, e.Republic, does publish credible trade magazines such as Government Technology. But, as the New York Times reported, the fact that its top managers are members of the Church of Scientology has caused some uneasiness.

E.Republic'ꀙs first move was to slash Governing'ꀙs staff including more than half the magazine'ꀙs top brain trust of such editor/writers as Alan Ehrenhalt, Christopher Swope, Penny Lemov, Ellen Perlman and Alan Greenblatt, plus deputy publisher Elder Witt'ꀓalmost anyone earning a high salary.

I recall hoping through the '70s and '80s that someone would start up a quality magazine focused on states and cities. Then Governing, a class act, appeared. Now there'ꀙs just hope'ꀓand little more'ꀓthat the junior writers and free-lancers the new management relies on will be able to keep up the quality.

And hope, to be candid, may be all we can harbor for the states too. 'ꀜThe realization has started to dawn,'ꀝ Gurwitt reports, 'ꀜthat fundamental assumptions about how state government operates needs rewiring.'ꀝ Or in the words of Indiana Gov. Mitch Daniels, 'ꀜthat we'ꀙre facing a near-permanent reduction in state revenues that will require us to reduce the size and scope of our state governments.'ꀝ

California, with its monstrous deficits, its emblematic issuance of IOUs instead of real money, its furloughs of state workers, has received the most national attention. But Michigan Gov. Jennifer Granholm warns that her state budget may need another 20 percent cut, after last year'ꀙs 10 percent gouge. Granholm suggests shrinking the state government from 18 departments to eight. Florida'ꀙs budget is down 28 percent from its peak in 2006. Illinois faces a yawning $12 billion hole in a $26 billion budget. Check New Jersey, New York, Arizona, Georgia, Oklahoma — indeed all but a few resource-rich states like Wyoming — and you find more of the same fiscal agony.

And money'ꀙs not the only problem. Fierce partisanship and prolonged legislative standoffs mdash; reminiscent of today'ꀙs Congress mdash; have impacted states nationwide (as Alan Greenblatt describes in another Governing article). The legal progeny of California'ꀙs infamous Proposition 13 of 1978 — requirements of super-majorities to pass tax increases, either state or local — make accords in tough times incredibly hard to forge.

"I'd like to see see states think a lot more strategically — where they can and should be in ten years,'ꀝ says Scott Pattison, executive director of the National Association of State Budget Officers. But too little is happening, he acknowledges. States don'ꀙt yet have the political will to extend sales taxes to services — the growth area of their economies. America is dramatically 'ꀜoverincarcerated'ꀝ by world standards, but legislators fear political kickback if they release even low-level offenders. The new talk is of cutting seriously into school and university budgets, where there are clearly inefficiencies — but also the danger of a society failing to seed its future.

Bottom line: state governance in America is in for an incredibly rough ride. And all of us with it.


Please support independent local news for all.

We rely on donations from readers like you to sustain Crosscut's in-depth reporting on issues critical to the PNW.


About the Authors & Contributors