Monday, April 7, 2008

States need federal aid to avoid draconian cuts

Last week, before we learned about the loss of another 80,000 jobs, I wrote that at least 25 states are expecting budget shortfalls for the 2009 fiscal year. This is the largest number since 2002, when in the aftermath of the 2001 recession 37 states were forced to cut their budgets.

California is looking to fill a $14.5 billion hole for its next fiscal year, and Arizona’s $1.8 billion budget gap is 16 percent of its general fund, the largest percentage in the nation.

Wisconsin's deficit now stands at more than half a billion dollars ($527 million).

In response, most of these states are developing plans to cut state spending because they are required to balance their budgets. This will only make the recession worse!

The Washington Post updated these developments:

State budgets have been hit hard by a worsening national economy, including rising costs for energy and health care. In addition, fallout from the subprime mortgage crisis -- declining home sales, deflated property values and mounting foreclosures -- has caused a slide in states' anticipated tax receipts. Revenue from property taxes, sales taxes and real estate transfer taxes is affected.

At least half of the nation's states are facing budget shortfalls, some of them severe, and policymakers in most of the states affected are proposing and passing often-painful measures to trim costs and close the gaps.

Spending on schools is being slashed, after-school programs are being curtailed and teachers are being notified of potential layoffs. Health-care assistance is being cut for the elderly, the disabled and the poor. Some government offices, such as motor vehicle department locations, will start closing on weekends, and some state workers are receiving pink slips.

Some analysts worry that the impact is being felt disproportionately by the most needy. ..

A recent 50-state survey by the
Associated Press showed that hundreds of thousands of poor children, the disabled and the elderly stand to have their health coverage eliminated as a result of budget cuts, and more than 10 million people would lose access to dental care, specialists and name-brand prescription drugs.

Budget experts said they see a repeat of the pattern that happened during the recession of 2001: States generally cut health services and medical benefits first, because these costs are often rising more rapidly than others, and the savings tend to be immediate.

Subsidies to higher education are also a favored target for budget cuts -- mainly because policymakers often believe that universities can find money from other sources, such as private donations or higher tuition.

Budgets for parks and recreation, and for natural resources and science, also stand to take a hit.

Over the past three months the nation has lost 300,000 private sector jobs. Yet, state governments are cutting back on services to the very people who have been hardest hit by the most severe recession since at least 1981 when unemployed peaked at 12%.

The states are required to cut spending because all of them except Vermont are required by law to balance their budgets.

These cuts will hurt our most vulnerable citizens, the unemployed, the poor, children and the elderly. They will undermine efforts to educate our children as pupil teacher ratios soar and art, music, technical education and physical education classes are eliminated. They will result in higher tuition and student fees, increasing the already spiraling costs of higher education and making it less accessible to the nation's working families..

The cuts will also make the recession worse by reducing the demand for goods and services at a time when private investment and consumption are declining.

There is an alternative-an additional stimulus package that includes aid to the distressed states. Such a package would be a twofer. It would allow the states to avoid imposing draconian cuts in education, healthcare and other areas and it would stimulate demand in our struggling economy.

Congress' original stimulus package of tax rebates was insufficient, the result of a compromise with the Bush administration's insistence on tax cuts as the only acceptable policy option. Now that it is clear that the recession is intensifying, Congress should immediately pass an additional stimulus package that extends unemployment benefits and provides temporary aid to the states.

1 comment:

Anonymous said...

Nicely said. A counter-cyclical policy should include increased state aid since states, unlike the federal government, cannot run operating budget deficits.

The question is how can this be effectively promoted? At the very least, there should be a sign on letter to our governor, our mayor, our state delegation and our congressional delegation asking for this.

Perhaps there already is such a letter in circulation that we can sign onto. Are there any progressive organizations at the national level, such as the Economic Policy Institute, that can organize and run such a campaign? Can the AFL-CIO run such a campaign? How about the National Governor's Association or the Association of State Legislators? Progressive economists (Stiglitz, James Galbraith)should also sign on. There should be a letter at various organizational meetings, such as union meetings, that people can sign onto.

I would suggest that people in the Milwaukee area who want to brainstorm on this issue, including legislators and representaives of our congressional delgation,should come together and devise a promotional strategy.

The presidential candidates should be asked to speak out on this crucial issue. (Jim Carpenter,