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The Pew Center on the States has done a good job documenting the dysfunction in current state budgets. “Beyond California: States in Fiscal Peril” uses both political and short-term economic variables to rank the states. And it shows that while California gets all the attention because its numbers are so big, many states across the country face their own severe financial problems. Some are suffering from bad economic fundamentals (think Michigan). Others are struggling with politics (hello, Arizona).
Pew focuses on the Troubled Ten: Arizona, Rhode Island, Michigan, Oregon, Nevada, Florida, New Jersey, Illinois, Wisconsin and, of course, California.
States like Michigan and Rhode Island, where longer term economic trends are driving fiscal problems, may have the toughest time digging themselves out of their budget holes. By contrast, states such as Florida, Arizona, and Nevada may do better in the long term because continuing in-migration suggests that growth will continue, albeit more slowly than at the rah-rah rates that contributed to their current economic collapse and budget trouble. But, for now, those states are struggling with political constraints and a need to figure out how to raise funds without constantly churning housing markets and building. Pew may also come down a little hard on some states. For instance, Oregon seems to have made good progress in solving its fiscal problems with a minimum of trickery assuming voters approve the legislated tax increases in January.
California remains unable to address its fiscal mess, thanks mostly to political gridlock. The most recent estimates show a $20 billion hole after 2010, even if state worker salaries remain frozen until 2013. As long as California continues to require a supermajority to pass a budget or increase taxes, even as it is stuck with voter-mandated spending and excessively generous retirement packages for government workers, it will continue to run structural deficits even during boom periods.
So what does it all mean? State budgets aren’t going to recover for a while. And governors and legislatures will face more tough choices—tax increases and spending cuts. And their lives will get even tougher once federal stimulus money dries up. Congress may extend some of that aid for a while, but not indefinitely.
State lawmakers must take a tough look at what services government should provide, even if it means jettisoning some popular but non-essential programs such as funding for state park maintenance, reducing class size, or providing after-school activities. And voters are going to have to be convinced somehow that mandating increased spending on education and Medicaid even as they limit taxes just doesn’t add up. (Yes, I’m talking to you, Arizona and Nevada.)
Budget wonks should take a look at the Pew report. It’s not happy reading but does provide a useful tool for figuring where the states stand.
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