In a historic first, Uncle Sam has supplanted sales, property and income taxes as the biggest source of revenue for state and local governments.
The sales tax had been the No. 1 source of state and local revenue since the mid-1970s, according to the Bureau of Economic Analysis. Before that, property taxes were the primary source. That changed in the first three months of 2009.
Federal grants — early stimulus money plus conventional federal aid — soared 15% in the first quarter to a seasonally adjusted annual rate of $437 billion, eclipsing sales taxes, which fell 2%.
The dominance of federal money is set to expand dramatically this year because tax collections are sinking while the bulk of federal stimulus aid is just starting to arrive. "This money isn't manna from heaven. It comes with a price," says Indiana state Sen. Jim Buck, a Republican. He worries that the federal money will leave states under greater federal control and burden future generations with debt. […]
The early flow of stimulus money helped lift total state and local revenue by 1.6% in the first quarter compared with a year earlier despite a 2.9% drop in total tax collections. Spending rose 1.5%.
If, since 1990, state spending increases had been held to the inflation rate plus population growth, the state would have a $15 billion surplus instead of a $42 billion budget deficit, which is larger than the budgets of all but 10 states. Since 1990, the number of state employees has increased by more than a third. In Schwarzenegger's less than six years as governor, per capita government spending, adjusted for inflation, has increased nearly 20 percent. […]
California teachers—the nation's highest-paid, with salaries about 25 percent above the national average—are emblematic of the grip that government employees unions have on the state, where 57 percent of government workers are unionized (the national average is 37 percent).
Flinching from serious budget cutting and from confronting public employees unions, some Californians focus on process questions. They devise candidate-selection rules designed to diminish the role of parties, thereby supposedly making more likely the election of "moderates" amenable to even more tax increases.
But what actually ails California is centrist evasions. The state's crisis has been caused by "moderation," understood as splitting the difference between extreme liberalism and hyperliberalism, a "reasonableness" that merely moderates the speed at which the ever-expanding public sector suffocates the private sector.
If some of those numbers and concepts look familiar, that's because you can read them and more in our May cover story on Failed States.
