Louis Uichetelle writes that the states are about to be in trouble:
State and city governments have yet to shrink the economy; indeed, they have even managed to prop it up. They have quietly maintained their spending at pre-crisis levels even as they warn of numerous cutbacks forced on them by declining tax revenues. The cutbacks, however, are written into budgets for a fiscal year that begins on July 1, a month away. In the meantime the states and cities, often drawing on rainy-day savings, have carried their share of the load for the national economy.That share is gigantic. At $1.8 trillion annually in a $14 trillion economy, the states and municipalities spend almost twice as much as the federal government, including the cost of the Iraq war. When librarians, lifeguards, teachers, transit workers, road repair crews and health care workers disappear, or airport and school construction is halted, the economy trembles. None of that, or very little, has happened so far, not even in California, despite a significant decline in tax revenue.
“We are looking at a $4 billion cut to public schools and deep cuts that will result in thousands of Californians losing their health care,” said Jean Ross, executive director of the California Budget Project, offering a preview of coming hardships. “But the reality is we have not pulled money off the streets yet.”
Quite the opposite, the states and municipalities have increased their spending in recent quarters, bolstering the nation’s meager economic growth. Over the past year, they have added $40 billion to their outlays, even allowing for scattered spending freezes and a few cutbacks in advance of July 1. Total employment has also risen. But when the current fiscal year ends in 30 days (or in the fall for many municipalities), state and city spending will fall, along with employment — slowly at first and then quite noticeably after the next president takes office.
This story is not exactly an evergreen--more of a counter-cyclic perennial that blooms every time the economy slows down. At each turn, the news that tax revenues fall during recessions is greeted first with surprise, and then with indignation. This is perhaps why no one has expected the states to anticipate this bewildering state of affairs by building up their reserves to levels adequate to weather the really rather moderate financial storms that beset them during lean times.
Too, these articles rarely see fit to mention the other ways in which these wounds have been self-inflicted--the habit of making ever more lavish pension promises to the public sector unions, for example. Public pension funds are now officially a disaster. Politicians promised benefits without funding them. The befuddled fund managers seem to have mistaken beta for alpha, pouring their assets into riskier asset classes because they couldn't make up the deficit on a safe, modest appreciation every year. If these were private companies, most of those managers and their bosses would be under indictment. The problem is about to get worse, of course, because when do pension funds need the most topping up? During downturns, when asset values decline.
The pension funds illustrate why, contra the opinion of most of those journalists, states should have to balance their budgets. If they could borrow during lean times, they would never get their financial houses in order.
In a weird way, state governments are like banks: they have a fundamental and inevitable duration mismatch. Banks loan money long and borrow short (a demand deposit, aka your bank account, acts in crises like a renewable daily loan); under the right (wrong) conditions, the short lenders flee and the bank collapses.
This is not a perfect analogy with state governments of course. But they make long promises with only short funds, and when long and short durations collide, disaster can occur--just ask John Lindsay. Plus both have an implicit guarantee from the Federal government that allows them to be less fiscally responsible than they ought.
If I'm not mistaken, aren't sales tax revenues more consistent than income taxes? I trust someone to correct me if I'm horribly, horribly wrong about this, but I believe that the budgets in no-income tax states like TX, NV, WA have tended to weather recessions better.
If I'm not mistaken, aren't sales tax revenues more consistent than income taxes?
Yes, I believe so, and usually, property taxes are even more consistent during downturns. But not this time -- property tax revenues are declining, which doesn't necessarily hit state government revenues, but it does hit city and county governments and public school systems.
From here in Connnecticut (highest taxes after New York) the fact is all surpluses are eaten up by continuing rises in public sector union pay, benefits and total membership. Secondary users are public university building programs, nonsensical transit projects, and trendy green projects.
Only the building projects can cycle back during down times, but as these are bonded the time constants are long.
The previous commenter was correct in that sales tax based receipts tend to capture basic spending that is more uniform than salary/bonus based income taxes. As the Northeastern states move more to finance based economies they are more boom and bust than any oil patch state ever was.
The issue with public sector pensions is messy and has no good outcome. On one hand, these are promises made to employees who made good faith employment decisions based upon them. On the other hand, the sheer magnitude of underfunding in places like San Diego was astonishing.
All my instincts aside, this might actually be a rare case where more regulation is actually needed. After all, politicians are short term creatures and there is a strong temptation to make promises now that give credit to the current administration but will end up as somebody else's problem.
Yep, California's hurting. But at least we have our very own NIH funding agency to support stem cell research (aka slush fund for connected researchers) and, of course, to embarrass George Bush, so it's $600 MM well spent.
The pension problem, particularly in the public sector, is invidious. A modest proposal for dealing with it: ban pensions connected to workplace. Take the cash, and invest it on your own. Otherwise, it might just be jam tomorrow, as the autoworkers are finding out.
"This is perhaps why no one has expected the states to anticipate this bewildering state of affairs by building up their reserves to levels adequate to weather the really rather moderate financial storms that beset them during lean times."
IIRC, a big part of the argument for California's Prop 13, back in the day, was that the state had been accumulating surplus rather than lowering taxes. The state building up reserves was considered by the anti-tax crowd to be a source of outrage.
"Public pension funds are now officially a disaster. Politicians promised benefits without funding them. The befuddled fund managers seem to have mistaken beta for alpha, pouring their assets into riskier asset classes because they couldn't make up the deficit on a safe, modest appreciation every year."
Okay, everyone, take a deep breath and repeat after me:
Social Security should not be invested in the market. Social Security should not be invested in the market. Social Security should not be invested in the market...
I don’t buy the “good faith” argument when it comes to people who vote themselves benefits from the public treasury. As I see it, they and their unions threw their political support behind candidates who gamed the system to their benefit and promised them all sorts of goodies at the public expense in exchange for the support around election time. Now that those benefits have come due, I feel no obligation moral or legal to give them a dime anymore than I would feel an obligation to continue farm subsidies for an agribusiness who invested in an ethanol plant based on a “good faith” expectation that the public would always subsidize their boondoggle.
LaFollette, the problem is not the market; the problem is unfunded pensions. Fully funded pensions don't need to take flyers in the subprime market.
My recollection (which could be faulty) was that property taxes had been steadily rising, which in turn encouraged more spending by the state. The idea was to enforce some fiscal discipline on the state in at least the property tax area, something that could be addressed by voter initiative (unlike, e.g., the state budget as a whole).
LFP: the problem at the moment is that tax revenues are too low. I fail to see how this is an argument for keeping SS 100% dependent on tax revenues.
I'm not saying you're wrong, just that the OP doesn't support your point.
In the long run, there is only one solution to huge public sector pensions and rising public sector pay. And, thanks to the current downturn, we are starting to see it. Cities are starting to go bankrupt -- for example, Vallejo, CA just last month. Their unions seem to suddenly scramble to accept salary cuts to try to avoid it, but usually too little too late. So instead, staffs get cut, salaries get cut, and pensions get cut.
Will counties be next? Followed by a couple of states? The longer the economy stays rocky, the more likely it looks. Well, at least it will be good practice for when Social Security and Medicare trash the Federal budget beyond recovery.
"At $1.8 trillion annually in a $14 trillion economy, the states and municipalities spend almost twice as much as the federal government"
Really? The federal government only spent (about) $1T in the most recent year?
Two second research shows FY06 expenditures of $522B for Defense; $848B for discretionary; $226B for interest; $510B for Medi-care/caid and $548B for Social Security.
I can't figure out what doesn't get counted to get a total below $1.3T--that is, making the state/local expenditures less than 50% more than federal, rather than "almost twice".
I wonder what Republicans (and pseudo-libertarian Republicans) would prescribe for this? How about more regressive tax cuts! Yeah, that's the ticket.
zaleriana,
I would guess that they don't count transfer payments and interest as spending, but I still can't square the math to the statement in the article.
As for the pensions problems, bankruptcy may not be an option. I seem to recall many court cases that don't allow states to escape benefit promises- tax payers always have assets.
I wonder what Republicans (and pseudo-libertarian Republicans) would prescribe for this? How about more regressive tax cuts! Yeah, that's the ticket.
How about less wasteful spending and reduced government!
There's just no way a "reserve fund" is politically viable. Politicians can't stop themselves from spending money they don't have. Why on earth would we think they wouldn't spend money they did have?
The reserve fund would be thrown at the first budget shortfall, and there would be more and more budget shortfalls if people knew there was such a fund. It's just not workable.
Less wasteful spending is easy to agree on, what constitutes "wasteful" not so much. But as a liberalish Democrat I would like to see much tighter controls on the my Democrat dominated local town council, who seem to have converted Reverend Ike's blessing plan into a philosophy of public budgeting: "if we spend it, it will returned manyfold via higher tax receipts."
I sometimes wonder if there's a process of adverse selection for economic literacy that intensifies as one goes lower and lower along the legislative body food chain. A few manage to squeak through at the national Congress level, fewer yet at state level, and it's a disqualifyinbg feature at the local level.
LaFollette Progressive,
Perhaps you didn't see the part about investing in "riskier" asset classes.
If your social security money was limited to Triple A rated securities, you'd be outperforming the SS system.
The only way SS will be saved is to gradually transition it over to individual savings accounts, where you can give investment choice to the savers, BUT ONLY FROM A LIMITED NUMBER OF CHOICES. The Ponzi scheme that is SS will not last forever--the demographics in the U.S. are against it. We are simply not growing fast enough to continue the pay-as-you-go feature of SS--and raising SS taxes will only postpone the day of reckoning, not eliminate it.
And in the entire SS savings accounts discussions, I never heard anyone suggest unfettered investment choices on the part of the people.
Ah yes, states are running out of money and the old union scapegoat is dragged out and flogged. Once again the intellectual dishonesty is rampant. "If they could borrow during lean times, they would never get their financial houses in order." Of course they wouldn't, because Republicans would squander that money. Just like they did in Michigan, where Republican governor John Engler and the Republican lead state legislature cut taxes consistently during the 90s boom, leaving no rainy day reserves and a flat tax that is unable to raise the revenue necessary to pay for basic services. Now the state is forced to balance the budget on declining revenues, and the schools and roads are crumbling as a result. Or in other words, history has shown libertarian ideas to be worthless piles of excrement -miserable failures- and of course libertarians take that as evidence of their truth.
Ah, pensions. We've been having a lot of fun with pension shenanigans out here in San Diego. An inadequately funded city worker pension system that was regularly raided for special projects, and which was set up to encourage early retirement from one city position, then gaining employment in another. Wound up with something like a 1 billion dollar short fall.
This in a town where replacing old water mains is determined solely by where the last water main break occured.
I wonder what Republicans (and pseudo-libertarian Republicans) would prescribe for this?
Five ideas for California:
Across-the-board spending cuts.
Abolition of all public-sector unions. Don't like the way the your government boss treats you? Quit and get a real job.
Elimination of programs (such as California's asinine stem cell research program) which are not related to core government roles.
Denial of government assistance to illegal immigrants.
Flattening of the ridiculously progressive state income tax. California's budget is dangerously reliant on a small pool of high-income citizens. When those folks have a bad year -- for example, if there's a recession -- tax revenues plummet.
Here in the corrupt state of Obamastan, teachers' pensions are starting at the %50-$70K threshold (gamed by a final 4 years of increases up to 100%), yet the sad fact of the matter is they're not even paying into Social Security.
Good contracts, or really bad socialism?
California's notorious boom-n-bust budget cycle can be directly traced to its insanely progressive income tax. Roughly 75% of all income tax revenue comes from people with AGIs over $100,000 and 33% from people with AGIs over one million dollars.
What this steep progressivity does is hugely magnify the variations in personal income from year to year. (The reason is fairly obvious if you've mastered grade 8 algebra, i.e. are not a politician: in good years Joe Sixpack earns slightly more, e.g. 10% more. You'd think that means he pays 10% more income taxes, but of course not in California, since the income tax rate rises steeply with income. In fact, Joe pays considerably more income taxes, e.g. a 10% rise in his income means a 25% or more rise in the amount of income tax he pays. It works the reverse, too, if in bad years Joe takes a 10% hit on his income, the state takes far more than a 10% hit on the income tax it gets from him.)
Basically, California depends for its income tax revenue on the fortunes of a very small fraction of its populace. Not surprisingly, the income tax revenue fluctuates fairly wildly. It didn't used to fluctuate so much because more of it used to come from sales taxes ("regressive" i.e. flat, where 10% more income means 10% more tax revenue and 10% less income means 10% less tax revenue, period) and property taxes, also flat.
But the amazing thing is that when California has a budget crunch, the inevitable solutions proposed we have to tax the rich harder are guaranteed to make the problem worse by increasing the wild swings in the future. It's like some law of maximal perversity in human affairs. What seems to be the "irresponsible" solution (borrowing) is less dumb than the "responsible" solution (making the tax structure even more progressive).
Perhaps the basic problem is that Californians have been so brainwashed by umpty years of Progressive illogic -- apparently you need to have certain circuits in the brain defective to adhere to this philosophy -- and now they just can't wrap their minds around the ugly fact that the only serious cure for California's budget madness is to decrease taxes on the wealthy and increase them on the poor. Only be spreading the burden out more equitably among California's huge population can the fluctuations in the income tax revenue be smoothed out.
I wonder what Republicans (and pseudo-libertarian Republicans) would prescribe for this? How about more regressive tax cuts! Yeah, that's the ticket.
So, yeah, ed, speaking of brainless fools entrapped by ideology, that would indeed be the correct solution. But no Republican who wants to keep office in California would dare to suggest it. Look for more desperate measures, bonds floated, wasteful service cuts (followed by hiring frenzies in the boom years), and so forth.
Wait a minute. Is she trying to say that politicians don't predict downturns and spend accordingly? Surely she jests.
I love the comment about "regressive tax cuts." I'm not even sure what that means. Those who pay higher taxes (because they make a higher income) get to keep a higher amount of their own money when taxes get cut. Wow, that's got to be a conspiracy or something. If only they'd give a bigger tax cut to the lowest income bracket, it would be fair. Well, it'd be fair if their were any taxes to cut, but the lowest income groups not only don't pay any net income taxes, they often get more back than the put in.
If only Circuit City and Best Buy worked like that instead of being the heartless corporations they are. Buy a DVD and get a rebate that would buy a TV. Buy a full home entertainment center, and you get a rebate of 50 cents and a pack of bubble gum. Well, at least that'd be fair.
shorter Dan: end up like Michigan, the flat tax libertarian paradise.
Freddiemac, don't you think Michigan's budget problems have ANYTHING to do with job losses in manufacturing, population losses to low-tax sunbelt states, and the pay raises I and my fellow state employees have recieved at the expense of our taxpaying neighbors? Engler was a jackass, sure, but he's been gone for a few years now. Can't keep blaming everything on him forever.
Freddiemac, don't you think Michigan's budget problems have ANYTHING to do with job losses in manufacturing, population losses to low-tax sunbelt states, and the pay raises I and my fellow state employees have recieved at the expense of our taxpaying neighbors? Engler was a jackass, sure, but he's been gone for a few years now. Can't keep blaming everything on him forever.
Regarding the idea of a "Reserve Fund," let me float an idea I had several years ago. It was obvious that there was a big bull market (hello Nasdaq) that caused a surge in California revenue, which, in retrospect, was temporary. Unfortunately, the California State Government raised a bunch of spending and added new programs, as if that increase were permenant. This was a bad thing that should have been moderated. OTOH, the countercyclic benefits of having States *not* cut the nominal budget in a down-turn are real. So my proposal is a State Constitutional Amendment. The State has to try to maintain a reserve fund (by saving revenue in excess of spending). Sometimes the fund may be flush, and sometimes the fund may go negative. BUT, the State may only raise nominal spending in a year by some fraction (e.g. 1/4) of the size of the Reserve Fund. When the Reserve fund is negative, there's no requirement (or even expectation really) that the nominal budget will be cut. Obviously whatever debt the State builds up during the deficit years must be paid back before the State can start piling up a surplus in the Reserve Fund (and then raise nominal spending). State may only sign contracts that allow cost-of-living or other increases in the future in compliance with this constraint. No total spending obligation in excess of this constraint is binding.
Regarding the pension problem, I have no good answers. I do think, however, that everyone should be under implicit notice that if and when in the hypothesized, glorious future where technology can elemenate the negative physiological effects of aging, tax-funded Pensions for people who use that technology, and thus who could live indefinitely, will be cancelled.
Scottybill - liberals have been blaming Prop 13 for California's budget problems for more than 30 years - the only barrier to blaming Engler for that long is that people won't remember his name that long.
Tom - we tried to pass a constitutional amendment which would limit spending increases, but it's been ignored. The schools are going to take at least half the hit, because they're constitutionally guaranteed about half the budget. This, also, surprises everyone.
"end up like Michigan, the flat tax libertarian paradise."
At first I thought this was some sort of satire. But I think he's serious!
Notice how freddiemac doesn't mention Michigan's business value-added tax. It's the most "regressive" corporate tax in the nation, taxing businesses regardless of whether they make a profit or not. By some measures, it's the highest corporate income tax in the country. And by any measure, it strangles job growth and wealth creation in the crib.
But even though Michigan workers aren't getting richer thanks to their government's insane corporate tax policies, they keep paying the taxman on their meager earnings. A libertarian paradise? More like a workers' paradise...of the North Korean variant.
Ah, so the "recession" is all about declining tax revenue. Well, I suppose this explains why nobody else is able to see it. Should we be surprised that when the government illegalizes various activities, like building new oil refineries or developing oil shale, that the first and most immediate consequence is a decline in tax revenue? If you want to tax the free market, then you have to let the free market operate. Failure to do so will inevitably result in pain, first to the parasites and in the long run to the working citizen.
Here we have one side of the mouth complaining about rising gasoline prices while the other side of the mouth is busily acting to make sure that there is no development of oil resources.
We will not run out of oil. Humanity has never run out of anything. Oil will become obsolete if we develop new methods of exploiting the abundant energy resources at our disposal, just as gas lighting was rendered obsolete by the development of electricity. Trying to focus on known losers, like solar and wind energy, is a complete waste of time and effort. We'll get through it, just as we always have in the past, with no help from the self-appointed elite. For now, we could do better with nuclear power.
the above comments miss 2 important points
1) government bureaucracy, at all levels, in all forms, under all ideologies, expands to the point where it is in crisis. If, at that point, it gets more resources, it expands further, if it gets less, it contracts.
2) In any sane system that recognizes the folibles of human nature, municipalities and states that make spending promises to the point of bankruptcy are a useful and absolutely necessary constraint on the others. Their example should be published, proclaimed, studied, and mocked, to better encourage the rest.
Every state (and municipality) is different -- my city experienced layoffs most recently only a few years ago, has contracted the workforce every year for a while now (I got my job after someone retired; many of our upcoming retirees likely won't be replaced,) doesn't manage its own pension fund (at least for regular workers; I'm not 100% sure about police/fire,) is required to balance its budget every year, and has at least two rainy day funds that I know of (one for the "27th pay day" problem and a general rainy day fund.) Oh, and I get information from our pension program -- I'm in a "member-directed" investment account -- reminding me that the pension was never meant to supply a full income to retirees and that I should put more money into deferred comp, at least once a month.
Admittedly there are issues out here -- there are always news stories about police, fire, and snow removal overtime (a few police workers -- not patrol officers -- made almost as much as my annual income just in overtime in the first fiscal quarter of this year.) But that's to be expected when your public safety budget takes up 70% of your total budget, and should probably be discussed concurrently with our county's "lowest number of highway patrol cars per capita in the nation, almost" status. And hey, we'll get partially reimbursed for some of the emergency snow removal by FEMA, weirdly enough (a lot of local waste, and spending in general, can be traced back, ultimately, to federal spending.) Plenty of jobs in my city end when the federal money stops flowing; they're called "funding-limited," and unlike a lot of private non-profits, it's a very straightforward process: we're out of money, thanks for the help, have a great life.
So, yeah, painting all the states and cities with two rhetorical brushes (apparently today's are labeled "Michigan" and "California") is a bit silly.
(But feel free, if you've figured out which city I'm talking about, to criticize the state on all kinds of other criteria... we're looking at at least our fourth incompetent and corrupt gubernatorial administration, and at the moment the Democrats are trying very hard to be as stupid and evil as the Republicans proved themselves to be and in general are justifying the strategy of writing in "Bugs Bunny" for all elections at the state level. And I don't honestly know whether our state has to balance its budget. Though they use our same pension program.)
Sooner or later, states that have unfunded mandates *will* collapse financially. What are the bloated, pampered public employee unions going to do then? Demand that *other* people's much smaller pensions, from private companies, be outright seized? At what point do the common people become fed up with these incredible, selfish public employee jerkoffs demanding far more than they themselves get for paying their ever-rising bills, and abruptly demand that public pensions and benefits be simply cut in half, retroactively?
When the politicians whine that they can't, meaning that they won't, what then? A night of the long knives? I foresee extreme unpleasantness one way or the other.
All states, contrary to an assertion above, are the same. There has been enough evidence compiled in recent years that all states are bankrupt when promises to current and retired employees are taken into account.
In other words, state and local governments have huge and unreported unfunded liabilities, mostly related to generous retirement benefits bestowed over the years to every conceivable type of employee. The pols benefit because the grateful employees contribute to their campaigns individually and through the AFSCME and the like.
The federal government is in a similar pickle. Do not expect anything to be done about it until the whole house of cards collapses, which likely will not occur until 2025 or thereabouts, concomitant with the forthcoming Medicare/Medicaid collapse.
I think we are seeing the end result of unfettered democracy, hardly the system envisioned by James Madison and his mentor, Geo. Washington.
"population losses to low-tax sunbelt states"
Michigan's personal income tax is in the lowest 5% of all states. So when libertards like Carl Pham claim that California's problems lie in having a progressive tax structure, and their solution is to simply move towards a flat tax, one need simply look at states with a flat tax and see how they are doing against states with a progressive tax. I'd take California over Michigan any day.
"But even though Michigan workers aren't getting richer thanks to their government's insane corporate tax policies, they keep paying the taxman on their meager earnings. A libertarian paradise? More like a workers' paradise...of the North Korean variant."
Yes, they keep taxing them with insanely low flat taxes. Corporate taxes are a declining source of revenue for the state.
http://www.allbusiness.com/accounting-reporting/corporate-taxes-corporate/371078-1.html
Once again conservatives demonstrate their intellectual dishonesty by ignoring facts that disprove their precious theories.
Freddiemac, you're deliberately avoiding my points. Michigan's business taxes are higher than average, and some sunbelt states have no personal income tax at all. Manufacturing jobs have been leaving MI for my whole lifetime. State spending hasn't been dropping proportionally with tax revenues. Aren't these facts sufficient to explain the budget problem? Or is Steve Forbes somehow sneaking into the treasury and making off with big sacks of cash?
And now NYC is in a $500 MM hole because the actuary they used to calculate new pension benefit costs was a "bought and paid for" hack for the public service unions. Sure, letting city employees retire at 50 will not cost the city anything. Heat up the tar and get out the feathers!
For a mid-career person in the private sector, their Social Security is collectible at age 67. That means the combination of their age at eligibility and total years contributing will likely add up to 112, unless they are blue collar in which case its 116. In Rhode Island, our oh so busted system has many people collecting with a number of 80 to 85. I think thats true of other states, too. 401Ks you can collect with a number that looks like 99 to 103. That huge spread between the public sector plans on one hand, and private plans and SS on the other, is the root of much of the evil. The difference in years not contributing and simultaneously collecting is unsustainable. Many of us are voting with our feet, as the ballot box provides no relief, but where to go?
Scottybill,
You say some things that are rather incongrous.
"Michigan's business taxes are higher than average, and some sunbelt states have no personal income tax at all."
Is it the personal income tax that is the problem, or the business tax? Because it seems that, with the evidence I've presented, the personal income tax isn't the source of Michigan's economic woes or budget shortfalls. Michigan has a very low and flat personal income tax. My point is that it is disingenous to deride California's progressive income tax as the culprit for their budget shortfalls when clearly low flat taxes are not a panacea.
"Manufacturing jobs have been leaving MI for my whole lifetime."
And? Unemployment in Michigan has been up and down. It has been above the national average for almost 8 years. However in the mid to late 90s it was below the national average.
"State spending hasn't been dropping proportionally with tax revenues."
Can you quantify this in any way? Because it is my understanding that the state must balance its budgets every year, meaning that as tax revenues decrease state spending is also decreasing.
Republicans ran Michigan pretty much unimpeded during the boom of the 90s, and their legacy was tax cuts that prevented the state from saving up a sufficient rainy day fund, much like Bush's plan to cut taxes back in 2000 - as opposed to the "lock box". Which is exactly my point; Megan derides the idea of states saving up a rainy day fund, but it is the Republicans and their libertarian cohorts who sqander rainy day funds and pass on infrastructure investments. Hey, let's deride the biotech investment.
Michigan could have invested some of that surplus capital in infrastructures that would encourage new businesses and industries. California and Wisconsin are investing in biotechnology. Not surprisingly, some of the leading biotech is coming from those regions. Some exciting stem cell research was pioneered in Wisconsin, and biotech companies in Wisconsin are prospering. I'd rather be in Wisconsin or California than Michigan right now.
A simple law/amednment would say that the state cannot spend (including borrowing) more than it collected in the previous fiscal year (or perhaps an average of the previous X years).
But you want to see a shortfall? Massachusetts residents are pushing to abolish the income tax, which accounts for 40% of state revenues. The first poll had 45% for, 46% against.
"Republicans ran Michigan pretty much unimpeded during the boom of the 90s"
Posted by freddiemac | June 3, 2008 1:53 PM
Interesting. Then the Dems took control and the economy has gone to h*ll, eh? Kind of like the national economy this century. Republicans ran the show and the US had the highest economic growth and lowest unemployment in the developed world. The Dems take over both houses of Congress almost 1.5 years ago and now we're on the edge of recession.
Funny, that.
Freddiemac, this is proving to be a very interesting conversation.
About the tax rates, Michigan's personal tax rate of about 4.35% is about 3%-4.35% higher than rates in Georgia, Texas, Florida, South Carolina, Tennessee and Alabama. Personal tax rates therefore (combined with weather) encourage people to move south. With them go their sales, cigarette and vehicle taxes. Michigan's business tax is 4.95%, not exceedingly high, but when combined with the Single Business Tax and the high wages demanded in a strong union environment, manufacturing companies also see the wisdom of moving to the sun belt. With them go their taxes, their job opportunities and Michigan's young people looking for work out of state. Michigan has for far too long relied on heavy manufacturing, to our detriment. The current governor is pursuing biotech, alternative energy and other new industries, but they won't be producing much tax revenue for years to come.
Can I quantify that government spending cuts haven't kept pace with falling tax revenues? I can point to a simple metric. Michigan used to have a budget surplus and a rainy day fund, now we don't. State government used to fund school districts and municipalities, and now doesn't. Where state government used to live within its means, now it spends every dime available while simultaneously shorting counties, cities and school districts that were encouraged in years past to count on state funding.
Did Engler and his GOP cronies spend a ton of money they shouldn't have? Yep. Did Democrats build underfunded and unsustainable state employee pension plans and welfare programs? Yep. Did anybody look at the offshoring of American industry and start trying to diversify our economic base 20 years ago? Nope. I'm equally disgusted with both parties for creating this mess, and I'm puzzled why a person as obviously intelligent as you would try to fix all the blame on one side of the aisle.
And as for the idea of a "lock box" of money secure from Congressional spending priorities... well, that's just laughable.
The mayor of our small city just north of Boston made a big deal a few months ago that he was able to negotiate a new contract with the DPW workers that "limited" the raises for the next 3 years to 2% per annum (not including COLA's, of course). To someone in the private sector who hasn't had a sniff of a wage increase in 5 years, this strikes me not as foolish, but as a total disconnect from reality! And that's the issue I have with the public sector; where is it written (other than in your contracts) that an annual salary increase is a God-given right?
8--don't worry about the citizens of the People's Republic, sorry, the Commonwealth of Massachusetts getting any satisfaction on the income tax issue. The referendum to scale back the "temporary" income tax increase instituted way back when under Dukakis passed overwhelmingly a few years ago, but the arcane laws under which the state is governed has allowed our 80% Democrat legislature to use underhanded but legal tricks to thwart the will of the people.
By the way, according to a report from the local NPR affiliate, tax revenues in MA last month were ahead of last year! Some recession...