Wednesday, December 22, 2010

Dealing with the State Budget Crisis: On the One Hand; On the Other Hand

Sunday night's 60 minutes segment included a feature on the imperiled budgets of states across the U.S. Many, like California and New Jersey, are facing unparalled fiscal challenges, due in no small part, to the impact of the great recession.

Texas, of course, faces such a problem as we look forward to upcoming legislative session due to start in next month. The state must grapple with a deficit somewhere in the neighborhood of $19-$20 billion dollars. Combine that with a lawmaking body so dominated by Republicans that most progressives dispair of getting anything done and you have a recipe for cuts so draconian as to stagger the imagination. And, of course, most of those cuts are anticipated to impact the most vulnerable in Texas - the poor, the very young and the elderly. Education is expected to take a hit as well.

Are things that bad across the country? According to the Center for Budget and Policy Priorities, the answer appears to be 'yes' and 'no'. According to the CBPP, the 60 minutes segment got some things right, but it got some other things wrong...

"Here’s what it got right:
"As correspondent Steve Kroft put it, “The ‘great recession’ wrecked [states’] economies and shriveled their income.” State revenues are about 12 percent below pre-recession levels, after adjusting for inflation, yet the cost of basic services like education and health care — the two largest areas of state and local spending — is rising."

"The real pain from states’ current fiscal problems has been visited on the most vulnerable people, from low-income families needing medical care in Arizona to recipients of mental-health assistance in Illinois. That’s because states are required to balance their budgets — they cannot borrow to cover operating expenses. States have responded to the loss of revenues, in part, by cutting health care services and payments to nonprofits that serve the needy."

"Fiscal year 2012 (which will begin next July 1 in most states) will be the most challenging year yet for state budgets. States have largely drawn down their reserves, revenues are still depressed, and emergency aid from the federal government (hardly the “bailout” CBS suggested, but rather a way to keep more people working and protect a fragile economic recovery) is expiring."

"Here’s what “60 Minutes” got wrong:
"Contrary to Kroft’s claim, states aren’t guilty of “reckless spending.” Total state and local spending, not including federal grants, is no larger now as a share of the economy than it was 20 years ago, according to U.S. Bureau of Economic Analysis data. (Federal grants to states have grown over this period to cover rising state Medicaid costs that result from health care inflation and a rising number of families without private health insurance.) State general fund spending in 2011 will be 6 percent lower than it was in 2008, without adjusting for inflation, according to data from the National Association of State Budget Officers."

"Underfunding of state and local pension funds did not cause states’ current fiscal problems and is not an immediate crisis. To be sure, some states have failed to make required pension contributions, including New Jersey (which in past years chose instead to cut taxes) and Illinois (which has a chronic revenue shortage due to political gridlock over modernizing its tax system). Nevertheless, the Center for Retirement Research at Boston College estimates that states and localities could restore pension systems to health by raising their contributions moderately once their revenues recover from the recession and/or by adjusting benefits, retirement ages, and similar policies. Many states are already starting to do both."

Read the entire post here.

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