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.

Feds need to bail out states and economy!

Now that the Fed has bailed out one of the nation's most aggressive and reckless investment firms, Bear Stearns, President Bush and his economic advisers should turn their attention to helping the states and the American people.

At least 25 states are expecting budget shortfalls for the 2009 fiscal year. It is the largest number since 2002, when in the aftermath of the 2001 recession 37 states were forced to cut their budgets.

Many of these states owe their problems to stark declines in tax revenues after an implosion in housing markets. 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).

If the states cut their spending, government demand for goods and services will decrease , exacerbating the recession at the very time that fiscal stimulus policies are needed.

States, unlike the federal government which is allowed to engage in deficit spending, are required to balance their budgets. As a result, most states are cutting spending, particularly in education, as revenues decline.

According to the New York Times:"... eight states are cutting into the budgets for higher education, and nine states are cutting into their financing for primary and secondary education.

Delaware will not finance new school construction, and in Arizona, where school enrollment continues to explode, the Legislature, which wants to continue to pay cash to build schools, is fighting the governor, who would prefer to borrow for that construction in light of the state’s woes...

To help close a $600 million budget gap in Virginia, the state made hundreds of thousands of dollars in cuts at universities, including dorm cleaning staff, library budgets and graduate assistantships...

In California, Gov. Arnold Schwarzenegger’s proposed budget for 2008-9 includes a $4.4 billion cut in public education, the largest ever considered in the state. School districts, preparing for next year’s budgets, are already contemplating cuts to their staff. In the Alameda school district in Northern California, trustees voted to reduce the $83.7 million budget by cutting $200,000 to the sports programs, eliminating music programs for all children below fourth grade and increasing class sizes in ninth grade to an average of 29 students, up from 20.

If it appropriate for the federal government to lend hundreds of billions to banks and unregulated investment firms that financed a mountain of risky mortgages now headed toward default, then it is reasonable to assist states that are struggling under the weight of the mortgage meltdown and the financial crisis that followed.

The Bush administration and federal regulators are largely to blame for this mess because they turned a blind eye to reckless lending and investing. Their commitment to deregulation fostered the housing bubble, putting people in homes they couldn't afford and allowing financial speculators to mask the risk by slicing and dicing loans to the point that they could no longer keep track of them.

Officials, like Alan Greenspan, whose job it is to oversee these types of excesses, sat quietly by as the bubble inflated, or blew air into it by encouraging "innovative" lending schemes.

Now that the President and federal policy makers admit that the economy is in deep trouble, they have a responsibility to help the states cope with the fall-out by providing them with the revenue they need to balance their budgets without cutting education or other necessary funding.

A failure to assist the states will cause increased suffering and deepen the recession.