Contrasting Reports on State Revenues and Spending Tell Us Who’s Paying the Price for Harmful National Economic Policy
An article in today’s New York Times tells us about two new reports, one from the Rockefeller Institute (RI), the other from the Center on Budget and Policy Priorities (CBPP), which together tell us about the fiscal health of state and local governments. The RI report gives us data on the amount of tax revenues state and local governments have been collecting — they’re up in many states — while the CBPP report tells us what the states have been doing on the spending side to balance their budgets.
For some reason, the Times chose to highlight the RI report on tax revenues, leaving a brief reference to the more important CBPP report near the bottom. So we learn in the first few paragraphs, citing the RI report, that in “most states,” state tax revenue are now slightly above what they were in late 2007, just before the economy crashed. That might suggest states are in good shape to resume providing the public services the country needs, right? Uh, no. To learn that, you have to read the CBPP report.
First, the Times summarizes findings from the RI report (full report is pdf):
The total amount of tax revenue collected by the states was 3 percent higher than it was during the last quarter of 2007, when the recession hit, according to the report, by the Nelson A. Rockefeller Institute of Government, in Albany. But the recovery has been uneven: 17 states collected less in taxes in the last quarter of 2011 than they did four years earlier. [to see which states are up or down, see Table 3 in the RI report]
Surpassing the 2007 peak in collections was an important milestone for the states, which have struggled mightily to balance their budgets in recent years. But huge challenges remain, as their populations and the cost of providing services have continued to rise, and the growth in tax collections has begun to soften.
That’s fine as far as it goes. The RI report itself, however, notes that those numbers aren’t adjusted for inflation:
However, if we adjust the numbers for infla- tion, nationwide tax receipts show 3.4 percent decline in the fourth quarter of 2011 compared to the same quarter of 2007.
The Times and RI report also note the serious problems at the local level:
While the outlook for states has improved, local governments continue to struggle as property tax collections are hurt by declines in home values. The report warned that “services and functions that are largely funded by local governments, such as education and public safety, are likely to be under severe fiscal pressures for some time if current trends continue.”
Even if revenues are catching up to where they were, you’d want to ask whether the population has grown, and then ask whether the revenues from a slowly recovering economy are actually keeping up with the state’s need for public purposes. And the answer from the CBPP report is a resounding “NO.” From the CBPP report, Out of Balance: Cuts in services have been the states’ primary response to budget gaps, harming the economy:
The state budget gaps of the last five years led to $290 billion in cuts to public services and $100 billion in tax and fee increases. Those actions lengthened the recession and delayed the recovery. Because spending reductions were dominant, hundreds of thousands of jobs were lost; undermining education, health care and other state priorities, which likely will cause future economic harm to states. Federal aid mitigated the harmful effects of the spending cuts in the early years of the budget crunch, but its expiration last year had a catastrophic effect, making 2012 the worst year since the downturn began for cuts in funding for services. More federal aid and a more balanced response, with an equal reliance on revenues and on service cuts, could have mitigated these effects.
So in 2012, matters aren’t getting much better; they’re getting worse. The initial severity of the spending cuts on public services was mitigated and delayed by the 2009 stimulus, but since that emergency stimulus funding is mostly gone [see Figures 2 and 3], 2012 is turning out to be the worst for the states in having to make severe spending cuts on even basic programs, even though the need for them has not declined, while the need additional spending for public safety net programs remains at very high levels. And it’s dragging the economy down:
Continued heavy reliance on spending cuts to close budget gaps will slow the recovery and weaken the nation’s economy over the long term. State and local governments already have shed 641,000 jobs since August 2008; additional rounds of cuts will lead to further job losses in the months ahead. The cuts have also led states to cancel contracts with vendors, reduce payments to businesses and nonprofits that provide services, and cut benefit payments to individuals — all steps that remove demand from the economy. There are long-term effects as well: By diminishing the quality of elementary and high schools, making college less affordable, and reducing residents’ access to health care, the cuts threaten to make the U.S. economy less competitive in coming decades.
So remember the next time the national parties and media babble on about how important “the economy” and “economy policy” are to American voters and how much the candidates and parties are focused on measures that would actually improve the economy and/or relieve the suffering this economic crash is still causing. It’s all gibberish.
Team Romney and the GOP have proposed to do exactly nothing useful, but they are working on deeper tax cuts and cuts in spending and have no plans to provide addition funding to states and local governments to help them preserve essential programs or replace what was lost. Team Obama and the Dems proposed some additional state/local funding for a bit — remember the “Jobs Act”? — lost a vote and gave up. No one is telling the public what a disaster they’re tolerating or that they plan to do something about it if they win.