George Rebane
The venerable Pew Charitable Trusts’ Center on the States has just released a new report ‘Beyond California: States in Fiscal Peril’ (more summary material here and here.)
The report documents what students of the American scene (that includes the astute RR readers) have known for some years now – legislating un/underfunded programs of social engineering will lead to financial ruin. Well that ruin is upon us now, and the Pew folks list the other states following California pell mell down the fiscal (then social) rat hole.
The “report released today by the Pew Center on the States shows that some of the same pressures that have pushed California toward economic disaster are wreaking havoc in a number of other states, with potentially damaging consequences for the entire country. Arizona, Florida, Illinois, Michigan, Nevada, New Jersey, Oregon, Rhode Island and Wisconsin join California as the 10 most troubled states”.
The conclusions are not always that crisp, and some explain the situation using arguments from the ‘it hurts on account of the pain’ school of logic. But those who still support the profligate policies that got us here (about which there is very little agreement) would do well to examine what the ‘here’ looks like across the country. The quoted material below is from the Pew online sources.
The nation is watching closely as California struggles to avoid going broke. So far, the most-populous state—and eighth biggest economy in the world—has unsuccessfully sought a $7 billion federal loan guarantee to pay its bills, temporarily issued IOUs to state employees and business contractors because it ran short of cash, and started shutting state offices several Fridays a month to close the largest state budget gap in the country. The same housing-market bust that triggered the national recession in December 2007 also set off the Golden State’s fiscal crisis. But a challenging mix of economic, money management and political factors has pushed California to the brink of insolvency.
California’s problems are in a league of their own. But the same pressures that drove it toward fiscal disaster are wreaking havoc in a number of states, with potentially damaging consequences for the entire country.
Here is the mixed list the report identifies as contributing factors (causes?), some of which are clearly the effects or attributes of the resulting disasters.
(1) loss of state revenues; (2) the relative size of budget gaps; (3) increasing joblessness; (4) high foreclosure rates; (5) legal obstacles to balanced budgets—specifically, a supermajority requirement for tax increases or budget bills and (6) poor money-management practices.
Finally, some key trends that apply across all of our states heading for fiscal crisis –
• Unbalanced economies. A number of states on the list, including Florida, Michigan, Nevada and Oregon, have struggled in part because their economies have depended so heavily on a particular industry. This reliance on a sector may have paid off in times past, but it put these states at greater risk when the recession hit. States cannot choose their natural resources, of course, but they can budget and manage for additional volatility that can result from dependence on a particular sector. States increasingly are seeking to diversify their economies.
• Revenues and expenditures out of alignment. The severity of the recession has resulted in states across the country facing substantial gaps between what they collect in revenue and what they spend. But many of our 10 states, including California, Illinois, Michigan, New Jersey, Rhode Island and Wisconsin, have a history of persistent shortfalls. Aligning revenues and expenditures is a key component of fiscal health.
• Limited ability to act. In most of the 10 states, including Arizona, California, Florida, Nevada and Oregon, lawmakers' latitude to respond to the fiscal crisis by raising taxes or cutting spending is limited by their states' constitutions, ballot measures passed by voters, or other statutory or legal impediments to change.
• Putting off tough decisions. Several states on the list were unable to muster the political resolve to enact long-term fixes to their fiscal problems. Virtually every state had to make tough decisions this year about where to cut and how to raise additional revenues, including through taxes or fees. But in some states, including California, Illinois and New Jersey, lawmakers punted the responsibility–either by asking their voters or governors to make the call, or by borrowing or using accounting methods to put off the hard choices until later.
In ‘The Tarnished State’ the respected syndicated columnist Victor Davis Hanson focuses on California as the canary state, and provides a succinct summary of how not to do it, and concludes with some hope for the future. A snapshot of the insanity –
Just three months after California raised taxes and cut services in an attempt to bridge a $24 billion budget shortfall, it is already broke. Once again it is begging and borrowing, issuing billions of dollars in bonds to raise cash — most of them rated barely above junk status. … But the more taxes rise, the more budget revenues fall short of outlays, despite recent spending cuts to stave off bankruptcy.
He concludes with –
As California hits bottom, there will be a growing realization, given its most unusual natural riches, that we don’t need to do everything right, just to stop doing everything wrong.
And that, dear reader, is also a prescription for our Republic.
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