State governments are
accomplishing what Washington has utterly failed to do: balance their
budgets.
Members of the New York State Legislature are bragging about their efforts,
while noting that much more remains to be done to truly put the Empire State on
a financially secure trajectory. Assembly minority leader Brian Kolb (R/C-Canandagua)
has advocated legislation freezing the municipal share of Medicaid funding,
cutting the size of state government, providing targeted tax credits, placing a
moratorium on unfunded mandates, and banning “backdoor borrowing.”
While the states did receive $135 to $140 billion in aid from the federal
government, (mostly in the form of assistance to pay Medicaid expenditures,
according to the Center on Budget & Policy Priorities) they did not have
the deficit-fighting tools, including the ability to print money, that
Washington has at its disposal. They had to address the crisis
realistically, by making hard choices and balancing budgets, remedies the White
House has chosen to ignore. 49 of the 50 states have at least some form
of balanced budget requirement. Vermont is the sole exception.
The results are telling. Currently, the $15,874,365,457,260 federal deficit continues to climb ever higher. On July 27,
the White House Budget Office projected a $1.211 trillion federal deficit in
the current fiscal year. Growth projections continue to appear dismal,
and the potential expiration of the Bush tax cuts could have a harshly
detrimental impact on the economy.
In contrast, 19 states have no deficits and the other 31 share a $55 billion
dollar budget gap. The states addressed their gaps by reducing spending and
tightening their belts. 40 states have also raised taxes (nine reduced
them) —an option the federal government cannot take, since it would depress a
national economy already in danger of sliding back into recession, or, under
some views, continuing the current recession and making it far worse.
The
accomplishment is worth noting. State and local government employees
represent 15% of the national workforce, employing over 19 million workers, 6
times as many as the federal government. The 50 states and their local
jurisdictions spend $2.5 trillion annually.
Despite the massive tasks given to state governments, they have managed to
spend less since 2008, with 37 states below pre-recession fy 2008 spending
levels, according to the Pew Center for the States. To accomplish this, the
National Association of State Budget Officers reports that cuts have been made
to education, public assistance, Medicaid, corrections, transportation, local aid,
state employee levels. Agencies have been reorganized.
The National Association of State Budget Officers notes that despite a
gradually improving fiscal prospect and rising general fund spending, resources
remain tight, and revenue growth will remain below peak levels in the coming
year. NASBO describes a “new normal,” where scarce resources produce
slower revenue growth, and the challenges of rising health care, education, and
pension costs will continue to grip state capitals.
The GAO is concerned that property tax receipts, which had improved 3% from the
second quarter of 2009 to the third quarter of 2010, increased less than 1%
from 2010 to 2011. Combined with reduced federal aid, rising
Medicaid/health care costs, and decreased return from investments of held
pension funds, the GAO’s outlook is not optimistic. The impact of the
Patient Protection and Affordable Care Act (Obamacare) also provides
significant uncertainty.
On July 17, the State Budget Task Force (SBTF) led by former Federal Reserve
Chairman Paul Volcker and former New York Lieutenant Governor Richard Ravitch
released what they described as the “first ever comprehensive report detailing
threats to states fiscal sustainability and actions that can be taken to address
them.” It focused on the fiscal conditions in six heavily populated states,
including California, New York, Illinois, New Jersey, Texas and Virginia.
Their conclusion: “the existing trajectory of state spending, taxation, and
administrative practices cannot be sustained. The basic problem is not
cyclical, it is structural.”
According to the SBTF, the major threats to financial stability include:
Medicaid spending growth is crowding out other needs; federal deficit reduction
threatens state economies and budgets; underfunded retirement promises create
risks for future budgets; narrow, eroding tax bases and volatile tax revenues
undermine state finances; local government fiscal stress poses challenges for
states; and budget laws and practices hinder fiscal stability and mask
imbalances.
Devoid of access to gimmicks and faced with competition from other
jurisdictions, the states have made hard choices that will lead to their long
term financial stability.
No comments:
Post a Comment