State budget crisis deepens

In her analysis of “The State Fiscal Crisis” for the Center for Budget Priorities, Lisa McNichol reveals the dimensions of the most serious budget crisis in decades.

She writes: “States are facing budget deficits of approximately $100 billion that must be closed over the next several months.” This $100 billion is in addition to the $50 billion budget gap which states have already closed through spending cuts and tax increases for the fiscal year (FY) 2003. (4/23/03)

In February 2003 the National Conference of State Legislators reported that “State budgets are under siege.” NCSL President Angela Monson called next year’s (FY ’04) budget gap “startling.” “Thirty-three states estimate budget gaps in excess of 5 percent with 18 of those facing gaps above 10 percent. There is a great cause of concern since the deficit numbers continue to grow at an alarming rate.”

The budget gaps are the result of a recession-driven drop in tax revenues; the stock market crash; unfunded federal mandates; a shift to the state from the federal government of a growing share health care costs for the elderly and the disabled; reductions in state income tax rates in the ’90s; and the impact of federal tax cuts on state tax rates due to the “coupling” of the federal and state tax codes. McNichol estimates that Bush’s tax cuts could reduce state revenues by $150 billion over the next decade.

Faced with shrinking revenues, state governments around the country have begun to raise taxes and/or reduce spending. Cuts and layoffs have occurred in Medicaid, childcare, mental health services, subsidies for poor families, corrections, housing, aid to localities and education. Tuition to state universities and colleges has sharply increased. Similar cuts have been enacted in cities, townships and villages.

The economic impact of cuts in state spending has been studied by economists Joseph Stiglitz and Peter Orszag of the Brookings Institution. What they found was that every dollar cut from a state budget translates into a dollar reduction in the economic activity of the state.

While Stiglitz and Orszag make the case for significant federal revenue sharing, the Bush administration is busily planning to make sure this can’t take place. In a Washington Post article entitled “GOP Eyes Tax Cuts as an Annual Event” (5/11/03), Dana Milbank and Dan Balz write: “Coupled with war on terrorism which ... is likely to continue indefinitely, the constant pursuit of tax reductions [for the rich] has the potential to give U.S. politics a new rhythm. With Bush perpetually fighting for lower taxes and constantly battling terrorists ... there is little room for government to discuss new programs.” If allowed to succeed, this strategy will only compound the states’ difficulties.

Yale economist William Nordhaus estimates that the cost of a short Iraqi war to be in the range of $120 billion, while the expense of occupation over 10 years could range between $75 and $500 billion. Other economists concur. (Bob Burnett, “What is the War Going to Cost Us?” AlterNet, 5/2/03.) These costs of empire building are in addition to the FY 2004 military budget of $399.1 billion – part of the administration’s plan to spend $2.7 trillion on the military over the next six years (Center for Defense Information).

Add to these vast sums the costs of billions of dollars in “aid” and U.S. treasury-backed loans to Turkey, Israel, Egypt, Jordan, and Pakistan to secure their ongoing assistance.

While Bush’s budget priorities offer financial security for the military-industrial complex, it undermines the security of seniors, veterans, workers, students, the poor, the uninsured, the unemployed, and families.

In a recent Newsday article entitled “Bush’s Tax-Cut Plan Slashes Growth,” William Gale and Peter Orszag observe that “Bush’s reckless approach to tax cuts is a huge fiscal gamble. It benefits the wealthy but would impose new and increasing burdens on low-income households and future generations and it is unlikely to succeed in restoring broad-based economic growth and fiscal discipline.”

In the space of less than two-and-a-half years Bush has miraculously replaced a $5.6 trillion surplus with an estimated $2.7 trillion deficit over the next decade. State governments are dealing with their fiscal crisis through lotteries, off-track betting, and casino gambling. When it comes to guaranteeing profits to millionaires and war contractors, however, nothing is left to chance.

The author can be reached at pww@pww.org