04 December 2008

For a peek at the near future, look at STATE budgets...

When the media address the subject of "the economy" they invariably (and understandably) discuss the national situation. But for a more incisive view of what's really going on right now, it may be better to look at the news from state legislators. Many (perhaps most?) states are required by their constitutions to have balanced budgets. For the most part (and in total contrast to the federal government) they cannot have deficit spending. So when things go bad, the shit hits the fan first at the state level.

Last week Arnold Schwarzenegger was blunt about the prospects in California:
"Without immediate action, our state is headed for a fiscal disaster, and that is why ... I am wasting no time in calling a fiscal emergency special session..."
The state is facing a $28 billion revenue gap. But, of course, that's California. One of the epicenters for house price declines. All those hippies on welfare out on the beach. Surely it must be an aberrant situation.

For an answer, look at Minnesota.
Minnesota is headed toward a historic budget deficit that could rock state government -- and the people who depend on it -- down to its core.

State budget officials will release a two-year economic projection today that is expected to show Minnesota facing a deficit of anywhere from $4.5 billion to as much as $6 billion. At the upper end, the red ink would equal nearly 17 percent of the state's total budget.

"This is without question going to be the worst deficit in modern history... We're heading into a terrible storm, and we have nothing left to face it with."

Understand you're hearing this from a state that has historically been fiscally conservative - fairly high taxes (property taxes, sales tax, income tax), modest expenditures for welfare etc compared to most states, some extra costs re roads (and bridges that fall down if you don't maintain them).

But the "perfect storm" of the economy is hitting Minnesota. Less income from house-related property taxes, less personal income to tax, fewer purchases generating lower sales taxes. Costs rising, especially for social services as people lose homes and jobs.

"We can't tax our way out of this problem," said Senate Taxes Chairman Tom Bakk, DFL-Cook. "You cannot raise taxes by that much. You can't cut the state budget by that much, either. I would argue that everything -- every spending program, every tax -- has to be on the table. This will require a major reprioritization of programs."

Health care, schools, prisons, road projects, local government aid, all could come under the budget knife in the coming months.

The state is considering every possible new source of income (state-run casinos, user fees, privatization of state resources). In previous years people would have stuck red-hot needles under their fingernails rather than decrease K-12 education spending - but now it may come to pass. States cannot pass deficits on to future years. Minnesota has to balance its budget by June 30 of this year.

The only state I've closely examined has been MN, because that's the online newspaper I read each day. Readers of TYWKIWDBI may hear other news from other states, but I'll bet there are more similarities than differences among the states.

Perhaps most ominous for the long term is the selling of state (read: public taxpayer) resources to the private sector. The airport, the zoo, parks. Sold to private individuals, corporations... or to foreign investors. In Chicago, Mayor Daley is proposing to lease the city's parking meters to a private corporation, which would then raise prices to $6.50 per hour. And of course there has already been talk on a national level of privatizing national resources - ports, interstate highways, etc. Expect to hear much more in this vein in the near future.

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