Fiscal Crisis in States Will Last Beyond Slump, Report Warns
By MARY WILLIAMS WALSH and MICHAEL COOPER
Published: July 17, 2012
WASHINGTON — The fiscal crisis for states will persist long after the economy rebounds as states confront financial problems that include rising health care costs, underfunded pensions, ignored infrastructure needs, eroding revenues and expected federal budget cuts, according to a report issued here Tuesday by a task force of respected budget experts.
The severity of the long-term problems facing states is often masked by lax state budget laws and opaque accounting practices, according to the report, an independent analysis of six states released by a group calling itself the State Budget Crisis Task Force. The report said that the financial collapse of 2008, which caused the most serious fiscal crisis for states since the Great Depression, exposed a number of deep-set financial challenges that will grow worse if no action is taken by national policy makers.
“The ability of the states to meet their obligations to public employees, to creditors and most critically to the education and well-being of their citizens is threatened,” warned the two chairmen of the task force, Richard Ravitch, the former lieutenant governor of New York, and Paul A. Volcker, the former chairman of the Federal Reserve.
The report added a strong dose of fiscal pessimism just as many states have seen their immediate budget pressures ease for the first time in years. It also called into question how states will be able to restore the services and jobs that they cut during the downturn, saying that the loss of jobs in prisons, hospitals, courts and agencies had been more severe than in any of the past nine recessions. “This is a fundamental shift in the way governments have responded to recessions and appears to signal a willingness to ‘unbuild’ state government in a way that has not been done before,” the report said, noting that court systems had cut their hours in more than a dozen states, delaying actions including divorce settlements and criminal trials.
The report arrived at a delicate political moment. States are deciding whether or not to expand their Medicaid programs to cover the uninsured poor as part of the new health care law — an added expense some are balking at even though the federal government has pledged to pay the full cost for the first few years and 90 percent after that. Many public-sector unions feel besieged, as states and cities from Wisconsin to San Jose, Calif., have moved to save money on pensions. And Washington’s focus on deficit reduction — and a series of big budget cuts scheduled to take place after the fall election — has made cuts to state aid inevitable, many governors believe.
If federal grants to the states were cut by just 10 percent, the report calculated, the loss to state and local government budgets would be more than $60 billion a year — which it said would be nearly twice the size of the combined tax increases that states enacted from 2008 to 2011 in response to their deepest fiscal crisis in more than 50 years.
Things are worse than they appear, the report contends.