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(Chart by Center on Budget and Policy Priorities)
Over the four years since the Great Recession began in December 2007, state governments had revenue shortfalls of $530 billion. That, by the way, is the core Pentagon budget for fiscal 2012. Because every state but Vermont is required to balance its budgets each year, states have slashed programs, deferred maintenance and, together with local governments, cut more than 500,000 jobs. Just two states, North Dakota and Montana—with a combined population of 1.7 million, 0.5 percent of the entire United States—managed to avoid revenue shortfalls for the past four years.

Now, together with the hundreds of billions in cuts, modest economic growth has improved the states' fiscal situation for the coming year, but only relatively speaking.

As Elizabeth McNichol, Phil Oliff and Nicholas Johnson at the Center on Budget and Policy Priorities conclude in the most recent edition of their on-going analysis of states' financial woes, they are digging out of a "very deep hole." Tax revenues grew by 8.3 percent in the 12 months ending June 2011, the fiscal year for most states. At that rate, it would take until 2019 before they will be back to the level they would have been had the recession not occurred.

And a steady recovery for the states is not necessarily in the cards even if the economy does continue to improve at the slow rate that it has been. For one thing, not only is there no more federal stimulus through American Recovery and Reinvestment Act passed in 2009, the federal government is also bent on cutting spending on some of the very programs that help states most during "normal" economic times. While income and sales tax revenues are rising, property tax revenues will remain low for years as a consequence of the burst housing bubble. And this is all taking place against a backdrop of more elementary, secondary and higher-education students to educate, more Medicaid patients to cover because of lost jobs and the crumbling of infrastructure caused by failure to invest when budgets were comparatively plush.

Twenty-nine states are seeking to close projected budget gaps of $47 billion for fiscal year 2013 with more cuts and, in a few cases, tax and fee increases. For 2012, 42 states hacked $103 billion from their budgets to avoid shortfalls, according to the CBPP:

The roughly $47 billion shortfall that states are facing for fiscal year 2013 equals about 0.31 percent of GDP. Assuming that economic activity declines by one dollar for every dollar that states cut spending or raise taxes, and based on a rule of thumb that a one percentage point loss of GDP costs the economy 1 million jobs, the state shortfalls projected to date could prevent the creation of 308,000 public- and private-sector jobs next year.
That's not all. Ten of those 42 states that cut their 2012 budgets to stay in the black are seeing an additional $3.2 billion shortfall in a fiscal year that still has four months to run. Those 10 are Alabama, California, Connecticut, Illinois, Kentucky, Louisiana, Maine, New Jersey, New York and Washington.

Aside from moving to progressive taxation, which most states have stubbornly avoided, what's a fix, even if just a Band-Aid?

One way to avert these kinds of cuts, as well as additional tax increases, would have been for the federal government to reduce state budget gaps by extending the Medicaid funds for as long as state fiscal conditions are expected to be problematic.

But far from extending this aid, federal policymakers are moving ahead with plans to cut ongoing federal funding for states and localities, thereby making state fiscal conditions even worse. The federal government has already cut non-defense discretionary spending by nine percent in real terms since 2010. Discretionary spending caps established in the federal debt limit deal this past summer will result in an additional six percent cut by the end of the next decade. The additional cut by the end of the next decade would grow to 11 percent if sequestration — the automatic, across the board cuts also established in the debt limit deal — is allowed to take effect.

What all this means is that what's happening in state and local governments is going to be a drag on the nation's economy for years to come. For those right-wingers gleefully rubbing their palms over seeing more budget whacks, it should be pointed out that these don't just chop off public-sector workers like teachers, firefighters and cops, they also hit vendors and contractors and a plethora of small businesses that depend on government purchases to keep them going. Lousy economics. And not very smart politics either.

Originally posted to Meteor Blades on Mon Feb 27, 2012 at 10:14 AM PST.

Also republished by Daily Kos.

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Comment Preferences

  •  Tip Jar (12+ / 0-)

    Don't tell me what you believe, show me what you do and I will tell you what you believe.

    by Meteor Blades on Mon Feb 27, 2012 at 10:14:08 AM PST

  •  This is so important. (5+ / 0-)

    Right from the beginning of this crisis, replenishing state coffers has been the best thing a stimulus could do, saving good jobs and maintaining quality of life for everybody.

  •  Makes me think of CA losing so much revenue (1+ / 0-)
    Recommended by:
    Eric Nelson

    because of lost value to collect property taxes on. All the way down to cities. Some places are starting to regain value but because of Prop 13 that revenue may take a longggg time to return to previous levels. It occurred here in Oregon but not to the same level because house values didn't scream up weeklyalmost.  I can't imagine what Nevada is suffering. I know I looked into buying anotehr house in Vegas because they had listings of condos for 40K and houses for  70K but in the end I walked away because of the water situation which I believe will get dire in another decade. We will stay in Oregon because it is actually getting warmer and drier.

    This is really what has made recovery so slow... state budgets, county budgets and city budgets. They have been hampered by the republicans who shortsightedly think that they should simply shut stuff down or pay the workers peanuts (who then should continue to work to make thier lives more comfortable while making the workers lives more miserable. Reminds me of that jackass on Top Gear who said about strikers that they should be shot if they don't go back to work... like they are obligated to take whatever some rich jerk wants to pay them and should shut up.

    The Feds can take care of leveling things out but it is at local levels that most things that affect daily lives are run. I was reading about the tea baggers now aiming at the gas tax which has not been raised for a long time and that they now want to cut. That tax pays for our infrastructure that benefits us all by keeping the national highway system in good condition as well as meeting future green changes. And the idiots want to cut it so that they can drive thier caddies on gravel and watch bridges fail  so that thier business can't transport goods or buy supplies. Even the BBB wants it raised to $1 a gallon. Ready to do 4 wheeling?

    Fear is the Mind Killer

    by boophus on Mon Feb 27, 2012 at 10:46:35 AM PST

    •  property taxes suck (2+ / 0-)
      Recommended by:
      boophus, LarryNM

      the elderly can't afford them and eventually have to give up their homes.  they have no relation to ability to pay as the housing bubble proved.

      they go up EVERY year regardless of the value of the house, as if that was a reasonable metric in the first place.  We have had two straight years of drops in valuation and property taxes still went up FASTER than inflation.  That's right, a 3% increase on a declining home value with inflation running 2%.

      the city fired a sh*tload of employees, i.e. cut services AND MY PROPERTY TAXES WENT UP, AGAIN, for the 20th straight year.  and you should see some of the sh*t we're paying for.  only 25% of my property taxes go to schools ! As far as I can tell the rest of it is a slush fund for city and county commissioners.

      Absolutely hate them.  And that is precisely how you end up with things like proposition 13.

      income taxes can be made progressive.  A sales tax taxes consumption which is a feature, even though they are regressive (and there are ways to mitigate that).  property taxes are something that cities and states seem to go out of there way to use to absolutely piss people off.  It's amazing.

      big badda boom : GRB 080913

      by squarewheel on Mon Feb 27, 2012 at 09:36:51 PM PST

      [ Parent ]

      •  You are right. Ours went up even though the value (1+ / 0-)
        Recommended by:
        LarryNM

        dropped. The city of Eugene tried to pass an income tax on top of property taxes. I voted against it because we would still have the same property tax rates.  I can see a city and county income tax where a deduction goes to them to finanace specific things like city libraries, police, FD, schools, parks, infrastructure with major bills coming as a specified pay off period.  

        Prop 13 wasn't for the elderly... It was for the corporations and large landowners who were unlikely to move for decades and so would watch thier property taxes go up a pittance as the normal homeowners watched thiers sky rocket. You could have neighbors with one paying less then a 1K and another paying 5K as well as having certain costs buried in thier mortgages... schools, roads, parks, sewage system, water system etc. I worked as a wasterwater/ water Chemist and saw hook-up rates for sewer and water literall multiply by 300% in 10 years. It is a terrible way to handle keeping elderly in thier homes.

        My husband was a firefighter in CA and the property tax bill included a fire tax. But only 30% actually went to the FD. Mainly because FFs were seen as a necessity in CA and people would generally vote yes and then away they would run buying trips and cars for mayors and supervisors. Then they raised the sales tax 1/2 cent ... suppposedly the money was going to go to the fire Depts and the Courts (as well as the sherriffs) None of it went to the FD. I admit FF got paid well in CA but I also watched many of them die by 50 of rare cancers and heart attacks despite rigorously excercising. Mine is 63 and I worry about him.

        Fear is the Mind Killer

        by boophus on Tue Feb 28, 2012 at 12:18:51 AM PST

        [ Parent ]

  •  And GOP core cry for tax cut harms not helps (4+ / 0-)

    ..Nicholas Johnson refutes Arthur Laffers False Claim That State Income Taxes Impede Growth
    That's Reagans - Economic Policy Advisory Board (1981–1989)"Laffer curve" Laffer - when the national debt sky-rocketed

    My list of “dos and don’ts to improve state economies” earlier this week advised states to ignore wild-eyed claims that broad-based tax cuts would strengthen state economies.

    The Institute on Taxation and Economic Policy (ITEP) has a new report debunking one such claim:  the assertion by economist Arthur Laffer and the American Legislative Exchange Council, recently echoed by the governors of Kansas and Oklahoma, that states with high income tax rates have fared worse economically over the last decade than other states — particularly states with no income tax.

    In reality, writes ITEP, the reverse is true:
    :[R]esidents of “high rate” income tax states are actually experiencing economic conditions at least as good, if not better, than those living in states lacking a personal income tax. … [T]he nine “high rate” states identified by Laffer have actually seen more economic growth per capita over the last decade than the nine states that fail to levy a broad-based personal income tax. - emphasis added
    As ITEP explains:
    Simply put, the Laffer analysis is hugely distorted by its failure to acknowledge the importance of population changes to the variables it presents.
    Jeez ALEC is everywhere - and wrong for everyone but the 1%ers, as usual
  •  I have no idea (1+ / 0-)
    Recommended by:
    Americantrueandblue

    who these business owners are who think that low taxes and small government are in any way good for business.

    I mean, I don't particularly care if my clients' money came from private sector jobs, government jobs, or government "handouts."  Money is money.

    27, white male, TX-26 (current), TN-07 (originally)

    by TDDVandy on Mon Feb 27, 2012 at 07:35:05 PM PST

  •  Progressive taxation... (0+ / 0-)

    ...beyond a certain point makes high earners leave the state.

    Friends of mine that make six figure incomes in NH have moved to NH to make a 5% raise that comes from not living in MA.

    (-5.50,-6.67): Left Libertarian
    Leadership doesn't mean taking a straw poll and then just throwing up your hands. -Jyrinx

    by Sparhawk on Mon Feb 27, 2012 at 07:42:11 PM PST

    •  NH has no sales tax (0+ / 0-)

      Massachusetts has a sales tax and a flat income tax.  Are you sure NH has less progressive taxation?  (There are other revenues, obviously - I honestly don't know.  MA probably has a bigger state government, too, with health care and all, but that's a separate issue.)

      •  NH has zero sales and income tax (1+ / 0-)
        Recommended by:
        squarewheel

        It has high property taxes, but if you rent you don't care.

        On $100k income, the income tax alone saves you $5k a year directly in your pocket. That's paying $100 a week, just for the privilege of living in Massachusetts! Not to mention the sales tax which probably knocks you another $10/week.

        If I live in Tyngsboro and work in NH, I make $100/week less than I would in Nashua. Why would anyone live in Mass?

        (-5.50,-6.67): Left Libertarian
        Leadership doesn't mean taking a straw poll and then just throwing up your hands. -Jyrinx

        by Sparhawk on Mon Feb 27, 2012 at 07:59:24 PM PST

        [ Parent ]

  •  California Community Colleges (3+ / 0-)
    Recommended by:
    Steveningen, Meteor Blades, LarryNM

    are taking a hit and they are a mess.  My son - who graduated from high school in 2010 but has been waylaid for a year by illness, cannot get a class.  Kids in California are being thrown under the bus, and I haven't a clue why anyone can imagine this being good public policy.

    The most violent element in society is ignorance.

    by Mr MadAsHell on Mon Feb 27, 2012 at 07:43:48 PM PST

    •  Not just the community colleges... (2+ / 0-)
      Recommended by:
      LarryNM, Mr MadAsHell

      ...my stepdaughter has four quarters to go at Cal State LA, assuming she can get the classes she needs when she needs then, no longer a sure thing. One bit of fallout from this is that students must take longer to graduate, which puts more strain on their budget and delays their entry into the work force to pay off those student loans.

      Don't tell me what you believe, show me what you do and I will tell you what you believe.

      by Meteor Blades on Mon Feb 27, 2012 at 08:50:16 PM PST

      [ Parent ]

  •  link (0+ / 0-)

    Just Win, Baby. -- Al Rodgers, Feb. 24, 2012

    by OLinda on Mon Feb 27, 2012 at 08:02:12 PM PST

  •  debt limit deal (0+ / 0-)

    The additional cut by the end of the next decade would grow to 11 percent if sequestration — the automatic, across the board cuts also established in the debt limit deal — is allowed to take effect.

    Iirc, listening to Geithner one day, I believe it is the thought of the White House that the automatic cuts established in the debt limit deal will not take place because the parties will reach another agreement. (Hey I just report. :) ).

    So, they don't believe there will be additional cuts like the 11% mentioned here.

    Just Win, Baby. -- Al Rodgers, Feb. 24, 2012

    by OLinda on Mon Feb 27, 2012 at 08:05:01 PM PST

  •  What about the foregone property recordation fees? (0+ / 0-)

    If you read Naked Capitalism, you will be aware of the fraud that the MERS system has done on our property recordation system.  MERS is a privatized recordation system that [somehow] allowed owners of mortgages and notes to avoid filing transfers of property ownership at the County Recorder level, in an an effort to circumvent the payment of recordation fees to local governments.

    This fraud has cost local governments millions of dollars, (hundreds of millions in aggregate) and clouded the titles of millions of foreclosed properties.

    Only a few County Recorders have had the resources (or the political support) to do studies to assess the damage. A few have, and the conclusion they reach is clear--albeit not flattering to federal officials.  In short, this thing is just messed up.

  •  The Chester, PA., school district ran out of money (1+ / 0-)
    Recommended by:
    LarryNM

    That's right, a public school district in one of the poorest cities in the nation was allowed to run out of money and teachers kept working with no guarantee they'd be paid.  Now the district is running month to month with a federal court ordering the state to cough up a month's worth of funding at a time.
    And much of Chester's public school funding is going to its charter schools for "special education" to the tune of $24,000 a student. A kindergartener enters a charter school with a slight lisp and, wham, that kid needs special education.  Not that the school spends $24,000 on that kid.  And the charter school owner -- I mean the CEO of the nonprofit school's management company -- drives a very fancy Mercedes and has a multimillion home in Florida.
    In the meantime, Pa's governor is away the store to Marcellus shale natural gas drillers.  It's always about the money and who gets it, isn't it?

    Get your facts first, and then you can distort them as much as you please -- Mark Twain

    by OnePingOnly on Mon Feb 27, 2012 at 09:18:07 PM PST

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