Financial crisis hits the states hard

Winter came early this year to the U.S. Many states and cities have run out of money to keep the roads plowed the way they should be to keep goods and people moving and to provide ambulance and other emergency services. In some hard-hit areas, all that the road crews can do is plow hills and curves.

If the financial crisis hadn’t squeezed the state budgets past the breaking point, money would just be reallocated, and plowing to bare asphalt with salt or sand on the roads would be the norm. But the states had a collective budget deficit of nearly $146 billion heading into fiscal 2010, which for most began on July 1. (www.ncsl.org)

Many states are attempting to cure these budget deficits with cuts in services like health care, education, mass transit, welfare and snowplowing, along with mass layoffs and furloughs of tens of thousands of state workers, tax hikes and additional fees.

New gaps totaling $28.2 billion have since opened up in 36 states in the current fiscal year, and more cuts will be imposed because most states are constitutionally prohibited from running at a deficit. Principal revenue sources — personal income, general sales and corporate income taxes — continue to erode, according to the National Conference of State Legislatures.

One long-term pressure on the states comes from the policy, begun under President Ronald Reagan, of replacing direct federal funding of services like Medicaid and welfare with block grants to the states. The states gain flexibility but when the federal government wants to downsize, federal money is cut.

For example, by combining Aid to Families with Dependent Children, food stamps, child care and child nutrition into a single $222 billion grant, the federal government was able to cut welfare funds by 30 percent, or $89.5 billion, from 1996 to 2002. (www.govtech.com)

Both Gov. Arnold Schwarzenegger of California, the state with the largest population in the country, and Gov. David Paterson of New York, the state with the third-largest population, gave state-of-the-state addresses on Jan. 6.

Given that one is a Republican and the other is a Democrat, and that they come from states with vastly different political styles, their speeches were remarkably similar.

Schwarzenegger’s California faces a $19.9 billion deficit — $6.6 billion for the rest of this budget year and $13.3 billion for the next budget year. His budget calls for deep reductions to health care, social services and public transit, while maintaining the state’s current level of support for public higher education. He proposed a tax increase that would significantly impact the middle class and cuts, particularly to 11 percent of California’s prison budget.

State Senate Democratic leader Darrell Steinberg said of Schwarzenegger’s speech, “It would have been even a better speech six years ago because during the governor’s tenure, prison spending has increased 32 percent and higher education has declined 9 percent.” (www.time.com, Jan. 9)

Paterson’s basic message was: “We need fiscal reform. We need ethics reform. And we need an economic plan that will put New Yorkers back to work.”

Earlier in October, when he announced his 2010 budget, Paterson proposed a cut of $3.0 billion in 2009-10 and $2.0 billion in 2010-11. (www.state.ny.us, Oct. 15) He wants to cut administrative spending by 10 percent, for a saving of $500 million, and a $1.3 billion cut in assistance to the cities, towns and counties in New York. Since he is an “education” governor, he would only cut aid to education by 4.5 percent, instead of the 10 percent he intends to impose on every other expense.

The absence of snow removal has historically caused mass anger in the U.S. As hunger grows, and the filthy rich grow more conspicuous, anger over other cuts is also going to grow.