The State Budget Crunch

Welcome to Politics Bites, where every afternoon at It's A Free Country, we bring you the unmissable quotes from the morning's political conversations on WNYC. Today on The Brian Lehrer ShowTracy Gordon, fellow at Brookings studying state and local public finances, looked at the question of whether state finance problems require short-term or long-term solutions.

State budget crises can seem to come out of nowhere. We hear about unsustainable deficits over and over again, but when a situation like the one in Wisconsin boils over and people take to the streets, we're taken by surprise.

Tracy Gordon isn't, however. Our tendency is to think of a recession as a short-term challenge with an ending and a beginning, but she said that the problems created by plummeting revenues can echo for years. At its worst, a recession exacerbates the basic structural cracks in the spending we've committed ourselves to.

The recession walloped state revenues, which declined 30 percent in fiscal year 2009. States are still climbing out of that revenue hole. In the meantime, spending pressures have continued; people still wanted to see cops on the street, to send their kids to school, and at the same time you had people demanding services because they were falling on hard times themselves, going onto Medicaid or unemployment insurance. So states had a short-term problem with the recession, but also longer term problems that are becoming apparent now.

Government for the people, by the people, tends to act like people—we put off the hardest part until tomorrow. That's exactly what happened with state budgets, according to Gordon.

Like individuals and businesses, when times are tough you try to do the easy things first and hope you can ride out the storm. A lot of states did that, but now those solutions are off the table, and they have to get down to business.

One of the best questions regarding state spending is why costs are ballooning without many discernible improvements in the lives of individuals. For all the money we spend on education, for example, we're always hearing about how the education system is going broke. Gordon said that there's a lesson in these gaps between investment and return: we can spend all the money we want, but bigger budgets are meaningless without addressing the specific issues that drive costs.

The federal government is good at sending out checks to people, but state and local government is where the rubber meets the road, and it's not immediately obvious where spending goes to a lot of voters. They look around and see roads deteriorating, class sizes getting bigger, but the thing that's hard to explain is there are a lot of things that drive spending. It's not just dollars per taxpayer, but how many students do we have? Maybe the student population is growing in such a way that you've got more kids that are more expensive to teach because English is their second language. You might pay teachers more because you live in a high-cost state. 

Another great question: what about that $787 billion stimulus? Wasn't that supposed to stem the tide and keep local governments afloat? If states are facing even worse budget deficits than they were two years ago, does that mean President Obama's plan didn't work?

"People think it did work," said Gordon, "because it did at least prevent those layoffs in the short term." But...

State budget gaps were really quite huge. If you add up all those numbers during the recession, budget gaps totaled about $500 billion. The stimulus offered about $280 billion to states, including things like grants for building roads. The part that was really just to plug state budget holes was only about $150 billion. It was a modest portion of the total problem, and temporary. A lot of governors on both sides of the aisle will say that they really saw it as an essential lifeline. The issue is that now it's going away.

And it's going away at a particularly inopportune time for the Obama administration. With all the government turnover from state and local elections last fall, there's a whole new batch of local politicians who have no memory of helping federal hands, and no reason to expect any more charity on the horizon. Gordon said that when you consider what a state's budget looks like from the perspective of a new governor, (like Wisconsin's Scott Walker), it's easier to understand the seemingly brutal tack they're taking.

The new crop of governors is really coming into a much bigger problem when you think about the solutions that are no longer available, like federal stimulus funds. You have to give them credit for taking a real whack at the problem in terms of revenue and spending solutions, but this question of looking at wages, salaries and benefits—it's not surprising, in a sense, that that's where the governors are looking, because that's about 50 percent of state and local spending.