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Sunday, November 22, 2009

On finances in the states

Almost a week ago I ran across this Wall Street Journal column at Instapundit regarding the dire straits of state finances in both Michigan and California. Both of those states have well reported problems. In Michigan we see some evidence of how well that state is doing by looking in part at Detroit as we did on Friday.

I wasn't going to excerpt, but let's look at California:
As of July 2009, California's budget shortfall was 49.3% of its general funds. States have considered drastic options to fill such gaps.

"I looked as hard as I could at how states could declare bankruptcy," said Michael Genest, director of the California Department of Finance who is stepping down at the end of the year. "I literally looked at the federal constitution to see if there was a way for states to return to territory status."

There were no bankruptcy options, and the legislature chose to cut back sharply on education and health care to fill the gap. Mr. Genest already predicts the 2011 shortfall will outpace the projected $7 billion gap. It is a smaller deficit than this year's gap, but the choices will be more difficult because so many cuts have already been made.

Mr. Genest estimated that, eventually, 40% of the state's budget would go to the state Medicaid program, 40% to education, 10% to debt service and 6% to retiree medical services and pension—leaving little left for anything else, such as the state's corrections system.
You know I've heard this a lot of states are putting a lot of money into Medicaid or Medicare and it's literally eating budgets.

What about Michigan:
Mr. Bean described a similarly depressing scenario for Michigan, which could end the recession with 25% fewer jobs than in June 2000 and a total of one million job losses. Michigan's unemployment rate in September was 15.3%.

He suggested that strict term limits often lead to political gridlock that prevents large-scale changes, such as overhauling the tax code so it is broad-based with lower tax rates. Mr. Bean said lawmakers will likely have to trim the budget at least 12.5% this year after closing a $2.8 billion gap last year.

"Citizens don't quite understand yet the implications of some of the cuts that we've made," Mr. Bean said. "A lot of it has fallen on local governments. I am very concerned that we're going to have a lot of insolvencies in local governments."
Via Newsalert there was a Rasmussen report on how New Yorkers view their budget deficit:
New York voters aren’t very optimistic about the financial solvency of their state, but they're also sending their elected representatives mixed signals. They oppose budget cuts in a couple key areas but are against tax hikes even more.

A new Rasmussen Reports telephone survey in the state finds that 56% of voters say it is at least somewhat likely that New York will be bankrupt by the end of the year. Twenty-one percent (21%) say it is very likely.

Thirty-seven percent (37%) believe that outcome is unlikely, but only nine percent (9%) say it is not at all likely.

An overwhelming 81% of say the bigger problem in New York State today is not that voters are unwilling to pay enough in taxes but that politicians are unwilling to control government spending. Just eight percent (8%) think the bigger problem is voter unwillingness to pay enough taxes.
Sometimes it's great to look at what other states are doing to work with this current economic environment. There are some states who are managing better than others, but it's also important to note the political conditions.

We see some evidence of that in Michigan, term limits lead to gridlock according to that state's finance director. In California, it may be state leader's unwillingness to do anything about their generous public pensions.

To be sure public pensions are an issue here. Illinois is either too generous with the pensions or it's underfunded. Of course that's not the only issue here. The bottom line is politicos this could be any state or even in the Federal government are unwilling to make the very difficult decisions.

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