Remember how Barack Obama and Joe Biden went around the country, claiming credit for saving the jobs of teachers, police officers, and firefighters with the Porkulus package? The one commonality between them: all of them are public employees whose salaries get paid or subsidized by the states. The state grants in the $797 billion stimulus package allowed states to paper over deficit spending in 2009 in order to save the jobs of bureaucrats, not police and firefighters, who were less likely to lose their jobs than SEIU-represented beancounters in state capitals.
Well, 2009 will soon turn into 2010, and guess what? All of that deficit spending by the states still hasn’t been addressed:
As states across the country grapple with the worst economy in decades, most have cut services, forced workers to take unpaid days off, shut offices several days a month and scrambled to find new sources of revenue.
The good news is that much of the pain this year has been cushioned by billions of dollars of federal stimulus money, which has allowed states and localities to avoid laying off teachers, prison guards, police officers and firefighters.
The bad news is that for the next fiscal year, beginning in July, the picture looks even bleaker. Revenue is expected to remain depressed, even if the national economy improves. There will be only half as much federal stimulus aid available, and many states have already used up their emergency reserves.
Most states have just approved a budget for the fiscal year that began July 1, and their legislatures have adjourned for the summer. But in a dozen or more states, those budgets have already gone into the red less than two months into the fiscal year, by a total of about $24 billion. More than 30 states are projecting deficits for next year, according to the Center on Budget and Policy Priorities, a Washington-based think tank, and other expert estimates.
Who could have predicted that the one-time infusion of federal grant funds would result in the states postponing necessary decisions on spending reductions? Oh, yeah — we did. And the GAO warned of this problem over a month ago, noting that states grabbed the lifeline instead of creating jobs as Obama promised.
Now, the states face the exact same problem they did in 2009. They spend too much money for the revenues they receive. We have covered the California collapse in detail because it’s the most obvious example, but as the Washington Post reports — more than a month after the GAO report — two-thirds of states will run deficits in 2010 unless they act to get their budgets under control.
In fact, predicted state shortfalls will go higher in 2010 than in 2009, and much higher in 2011 at current rates. This year, the cumulative state deficits were $111 billion with the Porkulus cushion. Next year, it will total $163 billion, and 2011 is projected to hit $180 billion. In contrast, the worst year of the previous recession had a cumulative state deficit of $80 billion, cut almost in half the following year.
The only solution for states facing deficits is to start cutting spending. Just as in California, states have expanded government to unsustainable levels. This economic collapse provides an opportunity for states to restructure themselves, to alleviate the burden they place on their state economies, and to rescale to common-sense dimensions.
What they do not need is more federal bailouts. Federal grants will only go towards papering over their deficits in the short run and allow politicians to avoid tough decisions for another year. It’s a very expensive game of kick the can, and in the end the decisions will have to be made even after spending hundreds of billions of dollars in responsibility avoidance.