After the Money’s Gone

July 1, 2010

Think budgeters in Washington are clueless? State governments are giving D.C.’s spendaholics a run for their nonexistent money.

The White House’s “the economy’s in turnaround” narrative can’t be playing well in Honolulu, Helena, or Hartford. “States are facing tough challenges on the road to fiscal recovery due to steep declines in state revenue collections for the last two years,” reports The Nelson A. Rockefeller Institute of Government. “Most states will continue coping with budget gaps for quite some time.” The far-left Center on Budget and Policy Priorities agrees: “The states’ cumulative budget shortfall will likely reach $140 billion in the coming [fiscal] year, the largest shortfall yet in a string of huge annual gaps that date back to the beginning of the recession.”

How can this be? Didn’t states respond in responsible ways when the nation’s economy cratered?

Judge for yourself. State governments’ first mistake was to ignore the problem, or pretend the downturn would be fleeting. When denial didn’t work, they spent their reserve funds, then started to borrow billions. In the words of The Wall Street Journal, many began “skipping or deferring payments to already underfunded public-employee pension plans.”

In an act of supreme irresponsibility, states embraced the Obama administration’s “stimulus” package, much of which was aimed at shoring up their sagging fiscal fortunes until happy days returned.

The folly of trusting states’ bottom lines to fedpols has now been exposed. Governors, lawmakers, and department heads quickly grew addicted to higher-than-usual subsidies from the national treasury. Tens of billions of dollars in enhanced Medicaid support haven’t been enough. Acting on the misguided assumption that the stimulus’s bailout of the healthcare program would be renewed, 28 states now face big gaps in their spending plans for the fiscal year that just commenced. Now they’re begging Washington for more Medicaid moolah, as well as extensions of unemployment benefits and mega-cash to placate educrat unions -- er, “avoid teacher layoffs.”

Another favorite, and equally boneheaded, budget-balancing tool: taxes. Several states delayed income-tax refunds. Kansas, New Mexico, and Massachusetts raised their sales taxes. Cigarette taxes, which are often hiked during periods of economic expansion, went up in dozens of states, including Hawaii, New Mexico, New York, South Carolina, Washington, and Utah. Tax credits, exemptions, and deductions were suspended. Connecticut passed the “millionaire’s tax” long sought by liberal elites in The Land of Steady Habits. Fans of the lifestyle police, take heart: Washington established a 2¢ tax on cans of soda, and imposed its sales tax on candy, while Colorado included both soft drinks and sweets in its sales-tax base.

Even some voters have allowed themselves to be snookered by the agitprop of the government-spending lobby. Arizona’s residents approved a “temporary” sales-tax hike, and voters in Oregon raised taxes on individuals earning more than $250,000 and corporations.

The news isn’t all bad. There are signs that state governments are finally accepting fiscal reality. Cuts -- real cuts, not merely reductions in spending growth -- are occurring. New Jersey’s new budget is several billion dollars lower than the previous fiscal year. USA TODAY has documented a sharp decline in construction spending by state and local governments. Between 2005 and 2009, the paper found, annual infrastructure-expenditure growth averaged 7.4 percent. Through April of 2010, it had declined 6.8 percent.

Government schools are facing austerity, and that’s a beautiful thing. K-12 education might no longer be able to afford costly, ineffective fads such as class-size reduction and universal preschool. (Perhaps a shift away from trendy, union-driven “reforms” will place the focus where it should be: parents who fail to provide a home that fosters learning.) Subsidized universities are squealing over cuts to their budgets and greater tuition bills for students. Good. The dropout figures don’t lie. Far too many young adults are going to college, and the quicker “higher education is for everyone” groupthink is debunked, the better.

Bureaucrats’ outrageously generous pay and benefits are also facing long-overdue scrutiny. In Illinois, gubernatorial candidate Bill Brady has earned the scorn of greedy public-employee unions for proposing that the workers they “represent” be shifted to defined-contribution pensions.

Unfortunately, pro-taxpayer measures and proposals are arriving several years late. In the interim, a countless number of destructive policy decisions have been made -- expensive buck-passing that will require years, if not decades, to pay down.

Voters itching to boot out U.S. Senators and Congressmen shouldn’t forget that November offers a target-rich environment. Governors and state legislators who refused to aggressively react to budget deficits should face unemployment, too.

D. Dowd Muska ( is a writer, commentator and lecturer. He lives in Connecticut.

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