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States Teach Washington a Lesson

During the worst days of the recession, many warned of coming catastrophes in state and local governments, whose massive revenue losses were supposed to force draconian cuts in employment and services. Only Federal aid could avert disaster in America’s states and cities.

Maybe Washington should hold on to its money. A new story in USA Today reports that cities and states have actually weathered the recession fairly nicely, even taking into account the recent drop in Federal stimulus money.

According to the report, states have managed to stabilize their financial situations mainly through cutbacks in overburdened services. Contrary to fears, these cuts have not been draconian: USA Today estimates that state spending is down by only 1.2 percent on average. With rising tax revenues helping to boost budgets even higher, it looks like most states will be able to avoid the predicted catastrophe without resorting to money from Washington. For all the worrying during the height of the recession, state solutions to the crisis have been rather simple. Modest, thoughtful change and a bit of common sense can make a big difference. The states facing the biggest problems are those with powerful, entrenched interest groups and dysfunctional political cultures.

There are some more serious long-term issues—namely pension costs, often off the books, and runaway medical costs. But in the short term, the states seem to be managing their affairs rather well. Maybe they could teach the folks in Washington a thing or two.

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  • Jim.

    Could it be that the existence of balanced budget amendments at the state level give state legislators experience with responsible budgeting? Or that electing a large number of Republicans in the last cycle turned their spending cultures around to something more responsible?

    No doubt Krugman and his acolytes will be releasing some propaganda about this trend soon. It will be interesting to see what he says, an even more interesting to see what he doesn’t say.

  • Anthony

    “The belt-tightening coincided with a cut in federal stimulus aid and reflected lower spending on health care for poor” – the price of civilization. “States budgeted for just a 1.9% bump in general fund revenue this year” – the growth of fairness and sustainability under free-market fallacy perhaps.

  • Jacksonian Libertarian

    I think you are speaking to soon, property taxes are going to start taking a huge hit, as people realize that their property value has dropped 30% or more, but the tax assessor is still raising their property valuation. I also think that the budget cutting has just begun, and that lay offs and public union busting is still in it’s infancy. We are in Great Depression 2.0 and it will not end soon.

  • Raymond R

    The best line: “Modest, thoughtful change and a bit of common sense can make a big difference.” If only more politiicans took that course of action

    Thanks Walter

  • Jbird

    Here in Maryland it’s looking like big fat tax & fee increases are coming our way with this legislative session. Hopefully the Feds won’t learn anything from us.

  • Mark Michael

    Prof. Mead seems to be saying, “We were fed a storyline of doom-and-gloom by the media, echoing the state officials that was rather exaggerated.” Hmm. Why would that be? The “state officials” feeding info to the reporters have an obvious reason to blow it out of proportion: pressure the feds to hand over more stimulus dollars so they don’t have to cut services or raise taxes. Pols hate to do that.

    But, more importantly, why would the media repeat that bs without verification – without “checking the books” first?

    Maybe that’s why so many R’s and Tea Party types don’t trust the media. Something like 80% of them vote D and fall into the 20% of the population that self-identify as “liberal” or “very liberal.”

    I see that Wisconsin’s alleged $3.6 billion deficit disappeared with Gov. Walker’s “Budget Repair Bill,” which was a rather modest cutback in expenditures.

    Here in Ohio, the alleged $8 billion state budget deficit also disappeared with modest cutbacks in state expenditures (that’s a 2-year budget, it should be noted). And that happened even though Senate Bill 5 was repealed at the ballot box by the voters last November, canceling those additional budget savings at the local level (mostly).

    What’s important is to see how the voters in WI and OH react this November. Will they vote for the Rs as heavily as they did in 2010 when both states turned over total control to the R’s at the state level? Will they vote for more “austerity” or say, that’s enough, lets go back to our more profligate ways? Walker’s poll numbers have turned positive last I saw (51- 47), but Gov. Kasich’s are still in the dumper (maybe 32 – 50ish). Kasich has 3 more years before he’s up for reelection. Only the OH House has any chance of going back to the D’s, though, I’d guess.

  • Kenny

    “Maybe Washington should hold on to its money. … According to the report, states have managed to stabilize their financial situations mainly through cutbacks in overburdened services.”

    Mr. Mead, one of the main purposes of the Obama sending so much stimulus money to the states was to feed the Democratic Party’s base, especially the bloated government unions.

    If Washington wanted money in the hands of people, it could just have cut taxes. Instead it directed money to the government unions. Fact.

  • Corlyss

    Perhaps the spirit of the Johnstown Flood victims is alive and well after all.

  • Luke Lea

    For a more complete picture:

    Scroll down to the tables at the bottom.

    It isn’t clear to me we are out of the woods.

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