Failed States

After a long spending binge, governors go begging for a handout. It won't be their last.

Michael Flynn & Adam B. Summers from the May 2009 issue

(Page 2 of 3)

Total Revenue

The top-line figure for state funding is total revenue. It encompasses every dollar available to state governments: tax revenue, money from the federal government, income from trust funds, earnings from investments, even state employee contributions to pension systems. In 2002 total combined state revenue was $1.097 trillion (see Figure 1). In 2007 this figure had risen to almost $2 trillion. That’s an 81 percent increase, at a time when prices plus population increased 19 percent. So total revenue increased more than four times faster than inflation and population growth.

Here’s a hypothetical that puts this trend in a more understandable context. In 2002 you and your friend (call him “Mr. State Government”) come out of the recession with jobs paying $50,000 a year. During the next five years you receive cost-of-living adjustments from your employer, so by 2007 your salary is $59,500. Your pal, on the other hand, has jacked his annual earnings up to $90,500.

But the 81 percent increase over five years only tells part of the story. Since 2002 total revenue collections have been well above the levels needed to maintain services each year. This windfall has a cumulative impact. In just five years, taking inflation into account, the states collected $2.2 trillion more than they would have needed to maintain revenues at 2002 levels.

Let’s put this another way. After 2007 we were clearly experiencing an economic downturn. If the states had merely maintained their existing programs between economic downturns, they would have been able to deliver a $2 trillion tax cut at the end of 2007. Imagine the impact that might have had.

General Fund Revenue

Some will argue that total revenue isn’t the appropriate focus. Since a portion of that money is out of the direct control of elected officials, the argument goes, it doesn’t truly reflect the choices they have faced or the decisions they have made.

The general fund better reflects the day-to-day activities of state government. It includes all the programs we traditionally associate with states: education, Medicaid, road building, departments of motor vehicles, etc. Money in the general fund comes mainly from tax revenue and federal funds.

In 2002 states’ general fund collections were $1.062 trillion (see Figure 2). By 2007 general fund revenue had risen to almost $1.5 trillion, an increase of 37 percent, or almost twice the national growth rate of inflation plus population. Of the 50 states, only one (Wisconsin) saw its general fund expand at a rate below the state’s population growth plus inflation. Alaska and Wyoming led the charge with 91 percent and 74 percent, respectively, compared to rates of population growth/inflation of 20 percent and 18 percent. Even in Mark Sanford’s South Carolina, the general fund grew by 45 percent, compared to a 21 percent rate of population growth plus inflation.

Intergovernmental Funds

About 30 percent of state general fund money comes from the federal government. These funds support federal initiatives in education, road building, and Medicaid, among other uses. Given the well-publicized increase in federal spending during George W. Bush’s administration, it is worth examining whether states shared in the windfall.

Interestingly, this is one area where federal spending rose relatively modestly, at least in comparison with other priorities. In 2002 states received $335 billion in revenue from the federal government (see Figure 3). In 2007 they received $430 billion, a 28 percent increase. It is noteworthy that in examining government financing, a 28 percent increase over five years now seems modest. It is worth remembering that this increase is still 50 percent faster than the rate of inflation and population growth.

Comments

High Every Body|4.7.09 @ 12:04PM|#

Love that pic!

Naga Sadow|4.7.09 @ 12:07PM|#

I bet you do you Skynet loving monster!

High Every Body|4.7.09 @ 12:11PM|#

NS,

Nothing wrong with Skynet. Nothing at all.

DO you know Sara Conner and what is her address?

|4.7.09 @ 12:15PM|#

Meh. Conan was the superior movie.

|4.7.09 @ 12:18PM|#

I'm a friend of Sarah Connor's. I heard she's here. May I see her please?

|4.7.09 @ 12:20PM|#

Why certainly! Nice jacket. . .and where did you get those cool sunglasses?

|4.7.09 @ 12:27PM|#

When the good times do inevitably come to a close, governors plead poverty and either ask the federal government for help or raise taxes on their beleaguered citizens.

Local governments are even worse.

As property values soared in Florida during the Real Estate bubble cities and counties got a huge revenue windfall and went hog wild with civic booster projects. It never occurred to anyone to ease the burden on taxpayers with a millage adjustment or to put some aside for the eventual downturn.

Now the mayor of Orlando is sitting looking at half finished condo projects with hundreds of unsold units and wondering how to pay for the new arena and center for the arts he and the Orange County pols promised.

Of course, it never occurred to the silly bastard to wonder where the fuck all the people who were going to pay a million smackers for a two bedroom in downtown fucking Orlando were going to come from.

O-town never been all that exciting but now the place looks like a fucking ghost town. A ghost town of high rises that smells like piss. A big incentive to stay in the suburbs.

|4.7.09 @ 12:27PM|#

Your clothes...give them to me.

Naga Sadow|4.7.09 @ 12:33PM|#

Talk to the hand . . . bitch!

High Every Body|4.7.09 @ 12:41PM|#

I'm a friend of Sarah Connor's. I heard she's here. May I see her please?

Yea, yea, use the movie version rather than the real version that I used.

BakedPenguin|4.7.09 @ 1:02PM|#

Issac - the good thing from all that is that Dyer's going to take it on the head on the next election.

The bad thing is, no one will learn anything from his mistake(s).

|4.7.09 @ 1:23PM|#

Who's going to beat him, Baked, Ken Mulvaney?

Oddly enough, Seminole County has weathered things a little better, I think. But then the civic fathers have tended to concentrate on basic services more than the kind of booster stuff Dyer and Crotty have been pushing.

They keep talking about all the cuts they've made up here but so far the only one I've noticed is the libraries closing on Friday.

|4.7.09 @ 1:25PM|#

Not that i have anything against Ken Mulvaney.

I've always thought an Irish bar owner would be a splendid mayor. :)

Menstrual Retardation|4.7.09 @ 1:52PM|#

"But instead of giving the money back to taxpayers or putting it in a rainy day fund, they pretend the good times will never end."

As governor, Jesse Ventura returned excess tax revenue to the citizens of Minnesota. Twice. Man, did that ever piss off the Democrats. He also put millions into a rainy day fund.

And then he just got weird.

|4.7.09 @ 2:16PM|#

Now the mayor of Orlando is sitting looking at half finished condo projects with hundreds of unsold units and wondering how to pay for the new arena and center for the arts he and the Orange County pols promised.

Oh, I doubt he's really wondering about it. I suspect he knows exactly how they will be paid for, and it won't be charitable donations, either.

24AheadDotCom|4.7.09 @ 2:18PM|#

One of the major problems with CA - one that Reason no doubt didn't disclose because it breaks their way - is that many of its political leaders frequently get confused about who they work for. Specifically, they sometimes think they work for the Mexicangovernment. A good example - not the best, but someone many have heard about - is Los Angeles mayor Antonio Villaraigosa.

Reason would point that out, except they support the same subsidies that people like Tony try to give to those "willing workers".

Paul|4.7.09 @ 2:29PM|#

24AheadDotCom | April 7, 2009, 2:18pm | #

One of the major problems with CA - one that Reason no doubt didn't disclose because it breaks their way - is that many of its political leaders frequently get confused about who they work for. Specifically, they sometimes think they work for the Mexicangovernment. A good example - not the best, but someone many have heard about - is Los Angeles mayor Antonio Villaraigosa.

Reason would point that out, except they support the same subsidies that people like Tony try to give to those "willing workers".

Moving on now...

|4.7.09 @ 2:44PM|#

R C Dean

My point was that it's not going to come from locally paid taxes since that well has been pumped dry. They're trying to get Federal and State funds, but the State's got a "budget crisis" too. So only one avenue left.

I think anyone with half an brain realizes now that "Federal Funding" is the favored vehicle of state and local pols since noone wants to raise taxes. With what is now accepted (by every one except some pesky libertarians and fiscal conservatives) as limitless Federal ability to borrow everyone can have tax-free spending.

Don't you love it?

hotsauce|4.7.09 @ 2:44PM|#

Shut the fuck up LoneWacko!

|4.7.09 @ 4:01PM|#

My point was that it's not going to come from locally paid taxes since that well has been pumped dry.

I suspect you will find out to the contrary. There is no tax so high that it cannot be raised. For Teh Children, of course.

They're trying to get Federal and State funds, but the State's got a "budget crisis" too. So only one avenue left.

Oh, well, if the local pols are trying to figure out which pot of tax money to dip into to help their well-connected buddies, I can understand their angst. I was just making the point that it will be tax money.

|4.7.09 @ 4:48PM|#

I was just making the point that it will be tax money.

Oh, I didn't think that was ever a matter in dispute.

I think the thing is, that while I find "tax and spend" obnoxious, I find "borrow and spend" obnoxiouser.

Somehow "obnoxiouser" does not look nearly as cromnulent on the screen as it sounded to me in my head. :)

|4.7.09 @ 9:06PM|#

Back during the high-flying dot-com days, our local city government was complaining that the State was siphoning away too much revenue and that we voters absolutely, positively had to approve new taxes in order to make it possible to continue "essential programs" and prevent cuts in city employment. I of course opposed the tax hike on general principle, but in this liberal haven it passed handily. I then responded with letters to the City and in online fora associated with our local newspaper that what the city should do with its new revenue is put it away for a rainy day, and proceed with adjustments and cuts as if the tax measure had failed. The good times would not last forever, I wrote, and we needed to arrive at a size and scope of City government that was sustainable. I didn't just argue abstractly: I pointed to a County in the Central Valley, where I once used to live, which had implemented pretty much my same advice and was now doing OK -- not well, mind you, but not passing the hat as my own local poobahs were doing, either. Of course, I was shouted down and called all manner of vile things for publishing that opinion. Some exhorted me to "Go back to that County if you like it so much," and never mind that I lived there only five years, as a kid, while I have lived here adult, taxpaying citizen and observer of the political scene for nearly 20 years.

I suspect that others around the country, who assessed things in the same way I did, and who prescribed the same ant-like remedies, were similarly marginalized and ignored by their local grasshoppers. So when I see such phrases as "It never occurred to anyone" used by Isaac Bertram and others, I have to point out that there were probably PLENTY of people, to whom "it" occurred. The problem is making sure that the opinions of such people carry sufficient weight in the political process. Given the ancient age of the "Ant and the Grashopper" fable, I conclude that the problem has been around for a long, long time and isn't going away anytime soon. How to break the pattern?

JA Merritt
Santa Cruz CA

|4.13.09 @ 1:34PM|#

They should let CA file for bankruptcy so that the outrageous salary and pension contracts can be settled/reduced/eliminated in court. Or since the states are receiving a bailout, state employees should have to pay a 90% tax on their salaries :).