Government Spending

Why State Budgets Are in the Crapper (Hint: It's Not the Economy)


Author's update: An astute reader, which is to say one who, unlike me, had had some coffee before perusing the screen and can tell the difference between a 3 and an 8, points out that this story I posted here is actually five years old. Apologies for that mistake, but in the interest of openness, I'll leave it up while I see if I can find any current stories on the same matter. 

USA Today has analyzed why so many states are in serious budget meltdowns. The answer, it turns out, is not that the national economy has tanked, or even regional economies have hit the skids:

The financial problems racking many state governments this year have less to do with the weak national economy than with the ability of governors and legislators to manage money wisely.

That is the key finding of a USA TODAY analysis of how the 50 states spend, tax and balance their budgets—or don't.

The National Governors Association says states are suffering their worst economic crisis since World War II. But for many states, the analysis shows, the fault is largely their own.

Some states that have enjoyed handsome growth in tax revenue nonetheless have huge budget shortfalls. At the other extreme, some of the best-managed states suffered sharp declines in tax collections but promptly took painful steps to balance their books.

Utah, Georgia and Delaware are the best financial stewards, according to the USA TODAY analysis of the states' financial performance. The key to their success: restraint. During the economic boom of the late 1990s, these states limited both spending growth and tax cuts. After the economy weakened in early 2001, they acted swiftly and decisively to keep their finances sound.

California, the worst-performing state in the analysis, did the opposite.

Don't expect the current situation to change the way most states do business.

State spending keeps growing.

It went up 6.3% for the fiscal year that ended June 30, 2002, and it's on track to rise about 5% in the 12 months that end June 30. The number of people on Medicaid, which pays for health care and nursing homes for the poor, remains at a near-record 40 million. That number is up 30% since 1998, the result of efforts to sign up people who qualify. And despite anecdotal reports of layoffs—Oregon furloughed 130 state troopers, for example—state governments have added 74,000 workers (an increase of 1.5%) in the past two years while the private sector has registered a net loss of 2.6 million jobs (a decline of 2.4%).

Whole thing here.