We Are Out of Money: State Budgets Edition


Another day, another report noting that states are out of cash and worried they'll have to dig through the capitol couch cushions looking for change in order to pay the bills:

The 50 state governments owe more than $1 trillion in unfunded pension contributions and health care obligations to retired public employees, according to an Associated Press survey of state-level budget data.

And the worst may be yet to come. Five states have budget deficits that account for more than one-fifth of the state's general operating fund, and in seven more the deficit amounts to at least 15 percent of expected general fund revenues.

For many states the fiscal doldrums are actually worse this year. Why? 

Adding to the trouble this year is the fact that states plugged holes during last two annual budgets with millions in federal stimulus dollars that are not available this year.

One of two things tends to happen when states rely on "temporary" federal money in order to tide them over during slow times. Either the temporary funding sources become permanent, or the states effectively act as if the additional revenue stream will eventually become permanent and then panic when the money actually runs out. In this case, we've seen a bit of both: The extra Medicaid funding built into the stimulus package has already been extended past its planned end date. Federal assistance is supposed to ease states through hard times. But more often it simply tends to artifically (and expensively) postpone a necessary fiscal reckoning.