Thursday, January 24, 2008

STATE BUDGET CUTS: SHADOW OVER OUR FUTURE

STATE BUDGET CUTS: SHADOW OVER OUR FUTURE
© 2008 Washington Post Writers Group
By Neal Peirce

The grim news is pouring in from across the country: state budgets, buffeted by the bursting of the housing bubble and the gathering winds of economic recession, are in increasingly terrible shape.

In a fiscally toxic brew of declining home sales, deflated property values, mounting foreclosures and reduced sales tax receipts, state deficits are mounting fast. Among the 21 states that have already made estimates, 14 expect shortfalls totalling $29 billion in the next fiscal year, according to the Center on Budget and Policy Priorities.

Poster child of the new hard times is California, where Gov. Arnold Schwarzenegger suggests cutting (even in the face of rising costs) virtually every state program by 10 percent -- K-12 education to child care subsidies, public parks and beaches to doctors who care for the poor.


















The hard times are sending governors scrambling for fast fixes. With New York’s shortfall pegged at $4 billion, Gov. Eliot Spitzer is weighing a plan to securitize, or sell off, part of future state lottery proceeds. In Massachusetts, Gov. Deval Patrick is considering counting some $900 million in proceeds from license fees of three new casinos that the legislature hasn’t even authorized.

And in New Jersey, which faces a $3.5 billion shortfall and has accumulated a staggering $32 billion debt over recent years, Gov. Jon Corzine wants to increase fees on toll roads and issue up to $38 billion in bonds against future toll revenue.

But there’s a limit to revenue gimmicks -- in time all of the bills have to be paid. And the coming recession may be harder than ever to reverse because property taxes, a point of stability before, are now declining with foreclosures and declining value. What’s more, rising energy prices are taking a big bite out of the economy.

Check the spending side and there’s cause for alarm, too. Many states have never fully recovered from the sharp cutbacks they made in education, health coverage and child care in response to the economic slump of 2001-2004 that was triggered by the technology stock slump and the 9/11 terrorist attacks. And inflation is driving up the cost of government services.

So should governments just slash their budgets willy-nilly, hoping for a better day?

No. That’s the firm opinion of Stephen Levy, director for the Center for Continuing Study of the California Economy in Palo Alto. Levy focuses his argument on California, but it fits most of the country. We have strong growth sectors in Internet services, biotechnology, trade, finance and entertainment. But with a tidal wave of skilled baby-boomers soon to retire, our workforce will include fast-rising numbers of Latino and Asian immigrants, their children and grandchildren -- many of them lagging in the critical educational skills needed in a high-tech, intensely competitive global economy.

So California, Levy suggests, shouldn’t take the huge risk to its schools of a $5 billion cut under the Schwarzenegger budget. California can only compete successfully, he argues, if it invests more -- not less -- in education. Plus, like the entire U.S., California needs to invest in badly lagging infrastructure.

“The battle for economic growth is not a civil war among the states any more,” note Katherine Barrett and Richard Greene in Governing magazine. Rather, it’s competing with fast-rising, low-wage nations such as India and China. Which means our only chances are in innovation, productivity, marketing and entrepreneurship -- all requiring top level educational skills.

But look what California has done. From 1984 to 2008, it let its per capita spending on prisons increase 126 percent, while its per capita spending on its public universities -- once its claim to world fame -- declined 12 percent. “Prisons,” the Sacramento Bee editorializes, “are sucking the life out of higher education in this state -- and thwarting the aims of economic advancement and social mobility.”

So what’s Schwarzenegger’s solution? Shorten sentences of 28,000 prisoners, saving $1 billion by the next budget year -- but still go ahead with his program to build 53,000 new cells at a numbing cost of $15 billion for construction and debt service.

Even while California State Treasurer Bill Lockyer suggests eliminating all state support for the University of California system!

A sane California, Levy argues, would raise taxes $7 billion this year, recession notwithstanding. The increase would be about one penny out of every $2 that Californians -- whose aggregate income is some $1.5 trillion -- actually earn. The collective family of California, he suggests, can take the one cent from eating out or buying a fancy car and put it into education -- a small enough sacrifice compared to the kinds of tough decisions our grandparents had to make during the Great Depression.

Talk about going against today’s political grain! But if there’s to be a promising California (and American) future, sufficient funds to invest in the future aren’t just some nice idea. They’re indispensable.

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