What's going on with state budgets
Gov. Scott Walker's proposal to destroy most of the public-employee unions in Wisconsin is being presented as a way to cut state budget deficits. It's not really that, for reasons I've noted previously. Another way to see that point is to look at Virginia, which, as many conservatives have pointed out, doesn't have collective bargaining for public employees. So how's their budget looking right now? Er, bad.
State and local budgets really are facing problems, but their problems haven't been particularly well explained. The best treatment I've seen thus far is "Structurally Unbalanced" (PDF), a collaboration between the Brookings Institution, Arizona State University and the University of Nevada at Las Vegas. The authors look at four case studies -- Arizona, California, Colorado and Nevada -- to try to understand what's gone wrong in state budgets and why.
One of the main points of the paper is that you have to disentangle cyclical deficits from structural deficits. Cyclical deficits are the deficits we're seeing right now, most of them primarily caused by the financial crisis. Remember that before Lehman Brothers fell, states had the largest rainy-day funds on record -- a sign that they were managing their money fairly well by historical standards. Structural deficits are the problems states face over the longer term.
And they vary state to state. The paper concludes, for instance, that "California suffers from more of a spending problem than a revenue problem, a result of permanent spending increases that were introduced during years of economic expansion." On the other hand, Arizona is looking at more of a revenue problem. "From FY 1993 to 2010 the state cut all kinds of taxes, but 58 percent of the total reductions in nominal dollars came from the personal income tax; these reductions gave rise to a structural deficit that predates the current economic cycle." So this stuff is complicated. But "Structurally Unbalanced" is a good place to start trying to figure it out.
| February 18, 2011; 2:06 PM ET
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