10.01.2008 0

States’ Fiscal Woes Mounting

  • On: 10/20/2008 13:48:16
  • In: Fiscal Responsibility
  • By Howie Rich

    Last December, it was already becoming apparent that state governments across America were headed for some dire financial straits.

    Even the Center on Budget and Policy Priorities, hardly a free market think tank, said at that time thirteen states were facing revenue shortfalls totaling $23 billion.

    Of course, these quickly became the “good ole days” once the Center released an updated analysis this summer, showing twenty-nine states facing shortfalls of $48 billion.

    How did things get so out of control, so quickly?

    Not surprisingly, it started with rampant overspending. In fact, the average state grew government by 9.3% last year and 8.7% the year before—well above the already-high thirty-year average growth rate of 6.4%, a figure which, incidentally, is well above the annual growth in population and inflation.

    Not to be outdone, Washington politicians over the past two years have lumped another trillion dollars onto our national debt – the interest payments on which alone now total over $400 billion a year.

    At all levels of government, politicians simply couldn’t contain themselves with so much new money flowing into their coffers. And so rather than shoring up reserves or investing in our economy via tax cuts, they chose instead to spend billions of surplus dollars on more government.

    Now the chickens are coming home to roost.

    States are being hit with declining revenues due to depressed consumer earnings and spending, two factors which are exacerbated by astronomical gas prices and the collapse of America’s housing market.

    And so, as was the case during the post-September 11 downturn, the time has come once again for choosing.

    Put simply, will politicians trim the multiple new layers of bureaucratic fat that they’ve just created? Or will they follow the ageless big government playbook and threaten to wield their budget axe over vital services in an effort to bully taxpayers into accepting “revenue enhancements.”

    We’re all familiar with Ronald Reagan’s quip that “nothing is as permanent as a temporary government program.”

    Well, to that we should add “nothing is as irreplaceable as a new government bureaucrat,” particularly during economic downturns.

    And just as politicians have failed to stimulate economic growth with tax cuts during the good times, they have also failed to cut the pork during the bad times that inevitably follow their spending orgies.

    Three main factors contribute to this ongoing cycle of fiscal negligence.

    First, the majority of state governments spend your tax dollars based on institutional needs, not specific outcomes. In positive revenue years, new programs are created and old programs get automatic budget increases—regardless of their effectiveness. In negative revenue years, politicians again take the easy way out by implementing across-the-board cuts.

    As a result, funding streams continue to follow the needs of bureaucratic fiefdoms, not the citizens those agencies are supposed to serve, and the list of things government does that it shouldn’t do continues to grow.

    Second – unlike powerful labor unions and other special interests—the individual citizens most affected by revenue downturns don’t have a voice in the process. They can’t afford to dispatch armies of well-heeled lobbyists to state capitals across the country, or hold high-dollar fundraisers for the politicians who ultimately must choose what gets cut during lean times.

    Ironically, the lobbyists whose salaries they do pay for are focused exclusively on protecting bureaucratic turf, which is why it’s no surprise that institutional voices invariably drown out those of the taxpayers whenever budget “axes” fall.

    Finally, governments across the country continue to operate under the flawed assumption that they can spend their way out of difficult economic times – just as they operate under the flawed assumption that they can spend without consequence during boom times.

    Neither approach has ever done anything to grow our economy, just more government at the expense of our economy.

    State leaders facing revenue shortfalls this year have a rare opportunity to fundamentally shift this paradigm, but doing so will require standing up to the powerful unions and government interests who continue to feed off of our nation’s taxpayers.

    The author is Chairman of Americans for Limited Government.

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