States face fiscal crisis

In 2004, states across the country will be experiencing their fourth straight year of budget woes. While the official explanation tends to blame a weak economy for anemic revenues, a closer examination reveals that federal policies are deeply responsible for the fiscal mess the states find themselves in.

According to Iris Lav of the Center on Budget and Policy Priorities (CBPP), state governments have had to close a collective budget gap of approximately $190 billion over the past three years. And in FY 2005 (which begins in July 2004) they will have to deal with a $40 billion shortfall in revenues. This will amount to $230 billion over a four-year period. Bush’s tax-and-spend policies, which have left no millionaire or defense contractor behind, haven’t, to date, jump-started many state economies. But they have reduced state revenues due to the linkage between the federal and state tax codes.

Bush’s tax cuts have also been quite successful in adding trillions to the national debt, creating the perfect excuse to limit revenue sharing and forcing the states to cope with the costs of unfunded federal mandates. To make matters worse, the Supreme Court has ruled that states cannot raise additional revenues to meet the needs of their residents through taxing catalog or Internet sales. Nor are states permitted to put a tax on monthly access fees that people pay for Internet services.

Federal policies, Iris Lav writes, “are costing states and localities about $185 billion [in revenues] over the four-year course of the state fiscal crisis, from state FY 2002 through FY 2005.” To balance their budgets, states have been forced to reduce health care coverage and increase co-payments for eligible low-income families, creating the conditions for a public health crisis. In Texas, for example, 170,000 children from poor families lost medical coverage. Many states have also elected to make deep cuts in childcare subsidies, making it difficult for a low-income parent to seek employment. In addition, states have been forced to make reductions in Temporary Assistance to Needy Families (TANF) grants. Some states have been driven to cut K-12 education aid and sharply increase tuitions at public colleges and universities, as well as to trim their payrolls.

In a report titled “State Budget Deficit Continues to Threaten Public Services,” Nicholas Johnson, also from the CBPP, describes projected state budge shortfalls for FY 2005. Here’s a sample of his projections for state deficits as a percent of general funds:

• Alabama – $580 million (11 percent) • Arizona – $800 million - $1 billion (13-16 percent) • California – $17.6 billion (25 percent) • Georgia – $1 billion (6 percent) • Kansas – $600 million (13 percent) • Missouri – $800 million - $1 billion (12-15 percent) • New Jersey – $4 billion (17 percent) • New York – $5.745 billion (14 percent)

All told, Johnson expects states to experience deficits of $40.3 to $45 billion in FY 2005.

While domestically the Bush plan forces states on a starvation diet, internationally the sky is the limit. Conducting discretionary wars might delight the military-industrial complex and other war profiteers, but they are a disaster for domestic budgets, the primary source of the physical, mental and social health of our nation’s communities.

The author can be reached at daveisenhower@optonline.com.