State and Local Governments Continue to Have Fiscal Problems – Not As Bad As It Used to Be

But No Real Improvement in Sight

The somewhat success story of the U. S. economy has its dark side, the finances of state and local governments.  Revenues at the state and local level plummeted in the recession, and while they have recovered somewhat state and local government are still under enormous pressure to cut spending and fire employees.

State governments are confronting a combined $47 billion gap between projected revenue and costs for the fiscal year that starts in July, according to the Center on Budget and Policy Priorities, a left-leaning think tank. While that figure is high historically, it is less than half the budget shortfall that states confronted a year ago and down from $191 billion three years ago. For the coming year 29 states have projected deficits; that is down from 42 a year ago and 46 the year before.

So what does this mean in practical terms?  It means this for Florida.

The Florida legislature on Friday approved a $70 billion budget eliminating 4,355 jobs and reducing funding for hospitals and colleges to close an estimated $1.7 billion shortfall in the fiscal year that begins in July. The plan is expected to be signed by Republican Gov. Rick Scott in coming weeks.

And it means this for Pennsylvania

Pennsylvania lawmakers are preparing to take up Republican Gov. Tom Corbett's proposed budget, which calls for cutting state funds for colleges by as much as 30% to close an estimated $746 million gap.

And no, this is not just a Republican issue, it means this for Democratically controlled New York state.

New York's Democratic Gov. Andrew Cuomo has proposed cutting aid to local governments, eliminating cost-of-living increases for some state employees and extending a temporary tax on the wealthy to help close an estimated $3.5 billion gap.

A nice bi-partisan solution has been proposed by Paul Krugman.  A new federal stimulus program could be enacted that would send monies directly to state and local governments, thus averting layoffs, preventing service cuts to the very poor and raising employment.  But no such program can pass the Republican controlled Congress, even though the recipients of the aid would be largely Republican Governors who could then run for re-election on the record of having saved services and jobs. 

Job losses are the major Republican platform, and so nothing must be done by Republicans to save jobs.  And the difference between Republican policies to cut state programs and Democratic policies to do the same thing is that the Republicans actually enjoy the process while Democrats are doing so reluctantly.