Meltdown: State and Local Governments Falling Short

by: Michael Panzner November 15, 2008    
Michael Panzner

Michael Panzner

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During the good times, few state and local governments thought about what might happen if it all went wrong.

Polticians and policymakers failed to anticipate an inevitable bursting of history's greatest housing bubble. They did not foresee an end to the debt-fueled hyper-binge of consumer spending. They skimped on essential maintenance and infrastructure replacement projects and, instead, bought peace (and votes) from public employees with unaffordable pensions, wages and fringe benefits.

Now, though, it is all coming home to roost. In an article entitled State Budget Troubles Worsen, the nonpartisan Center on Budget and Policy Priorities details a rapidly deteriorating state of affairs that should not have been a surprise to, well, anyone.

States are facing a great fiscal crisis.  At least 41 states faced or are facing shortfalls in their budgets for this and/or next year.  Over half the states had already cut spending, used reserves, or raised revenues in order to adopt a balanced budget for the current fiscal year -- which started July 1 in most states.   Now, their budgets have fallen out of balance again.  New gaps have opened up in the budgets of at least 31 states plus the District of Columbia just four months after they struggled to close the largest budget shortfalls seen since the recession of 2001.  And these problems are expected to continue into next year.

Current estimates are that mid-year gaps total $24.3 billion -- 6.6 percent of the budgets of the 29 states that have estimated the size of the gap -- but they will almost certainly widen as the continuing economic turmoil causes revenues to come in below estimates in more states.

The 31 states facing mid-year shortfalls are Alabama, Arizona, California, Colorado, Connecticut, Florida, Georgia, Hawaii, Idaho, Illinois, Kansas, Kentucky, Maine, Maryland, Massachusetts, Mississippi, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, Ohio, Pennsylvania, Rhode Island, South Carolina, Tennessee, Utah, Vermont, Virginia, and Wisconsin.  In addition, the District of Columbia faces a budget shortfall.  These budget gaps are in addition to the shortfalls that these and other states faced as they adopted their budgets for the current fiscal year.  At that time, 29 states faced a total of more than $48 billion in combined shortfalls.

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This article has 9 comments:

  •  
    Nov 15 09:18 AM
    I for one will be very very interested to see how the state and local governments handle this. I am and have always been an advocate of small government. I have always been shouted down. Will the legions of government make-work jobs be slashed, or will my taxes be raised? Will we have stealth tax hikes like increased traffic fines with ever-so-zealous enforcement? How far wil government go toward biting the hand that feeds it?

    Governments at all levels now need, more than ever, the goodwill of their people. I wait anxiously to see whether they acknowledge this.
    Reply | Link to Comment
  •  
    Nov 15 09:36 AM
    It happens in every cycle. Local & state governments pay no attention to the business cycle and match their budgets to their increasing tax revenue, and beyond. Spending money is fun and makes everyone happy. When the worm turns, as it inevitably does, budgets have to be slashed and people laid off. More bonds will be issued (wealthy investors will always want tax free income) and the final day of reckoning will be put off again.
    Reply | Link to Comment
  •  
    Nov 15 10:28 AM
    these shortfalls are trivial compared the looming issue of unfunded or underfunded health care promises made to current and retired state and local government employees
    Reply | Link to Comment
  •  
    Nov 15 03:55 PM
    Here in the New Jersey and New York area you are already seeing a return to the economic decline of the early 70s and early 30s. Despite the happy talk and rosey pictures painted by Mayor Mike in Manhattan.
    Both state legislatures cannot say "no" to anyone, or any interest whatsoever. "No" is not in the vocabulary of New Jersians and New Yorkers.
    For that reason, the recession and downfall of their economies will be particularly harsh.
    Reply | Link to Comment
  •  
    Nov 15 04:44 PM
    About a year ago, I noticed that collections of state sales taxes in Georgia(where I live) were declining dramatically.
    The state estimated that gross tax collections would need to grow between 7% - 9% annually to keep up with the demands on state government. That the states are looking for help from the Feds doesn't surprise me. I hope the Federal government says no.
    Reply | Link to Comment
  •  
    Nov 15 05:21 PM
    Massacusetts voters,even the the face or wild spending and tax revenue free fall, gave the governor and legislature a free ride when they voted down a proposition at the last election for the repeal of the State income tax We are now trusting the cuts they make will be reasonable.
    Reply | Link to Comment
  •  
    Nov 15 11:46 PM
    I used to think each year what would happen when the house prices will fall, will my property tax bill also fall. Heck no, and I am being proved right. They were sending higher bills on the basis that the property value was going up, and now it is going up that the tax rate is going up. All the money has been used for fat retirement for the city officials. Fat pensions and fat retirement packages for city officials. Contractors hired to do city work charge too much money. Property Tax is a mess...
    Reply | Link to Comment
  •  
    Nov 16 09:07 AM
    While it's fair to say that state and local governments paid little attention, neither did its citizens.

    Not only do I prefer a MUCH smaller government, I'd like to shift towards a system where users actually PAY for services.

    My state began substantially raising user fees for non-essential services. While I'm paying significantly more for some of these things now, I prefer it that way. Let people vote with their dollars. If certain programs don't get enough "votes" to support the services, let them fail.

    Reply | Link to Comment
  •  
    Nov 16 01:31 PM
    Many, many people predicted that housing prices would fall.

    Many, many people warned against tying the value of state pension funds to the average price of stocks.

    Many, many people complained about the crumbling infrastructure.

    Many, many people complained about the "me society" and the lack of public spirit along with unprecedented and unregulated financial speculation.

    .................

    We live in a democracy, sort of, and 51% of the voters can send the other 49% to the showers to plan the next game strategy. Sometimes we even forget that the losers were in the game.

    About big/small government:

    Everyone is for a small government except when it comes to that part of government that protects or benefits them:

    For the rich it is:

    Police
    Fire departments
    Armies
    Sewage maintenance departments
    Parks
    Prisons
    Water supplies

    For the poor it is:

    Schools
    Infrastructure
    Welfare
    Police
    Pensions
    Merit based government bureaucracies

    Alexander Hamilton and John Adams, along with most of the Founding Fathers wanted a VERY strong centralized Federalist government that would be similar to the English government.

    John Jay said "the people who own the country should govern it" and he wasn't interested in governments who "govern least." The Founding Fathers wanted a very strong centralized government that could control "the mob."

    Thomas Jefferson said "I'm not among those who fear the people" but he owned hundreds of slaves.

    The Southern plantation owners feared a strong centralized government because they knew that it threatened their position as landed gentry completely dependent on African slaves.

    They were right to fear a strong centralized government, of course, as the Civil War proved.

    But we are wrong to use their battle cry, "That government which governs least governs best." Let the fate of the South be a warning to us.

    We can't afford to ignore history. Living only in the present is a fool's errand.
    Reply | Link to Comment
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