April 23, 2011
State Budgets and the Misdirected Ire of DemocratsBy George Scaggs
Across the nation, as states struggle fiscally, Republican-led legislatures are reining in spending to balance state budgets. What a refreshing sight to behold: government actually spending less today than it did yesterday, eliminating government programs, and reducing the number of public-sector workers where necessary.
A complete contrast to the way in which government works at the federal level, such measures are foreign to many Americans. We are conditioned to the standard operating procedures of the runaway beast in Washington where government never actually gets smaller, but instead instinctively raises taxes, makes promises to reduce spending someday, or perhaps goes so far as to reduce the rate of future spending growth and calls it a "spending cut."
As a result, just as we recently witnessed in Wisconsin, Republicans at the state level are being excoriated by Democrats, the media, public-sector unions, and liberal constituencies.
For those who spend their time demonizing the sensible belt-tightening measures of Republican-led legislatures, such ire is misdirected. They might consider taking out their frustrations elsewhere; how about Democrats in Washington D.C.?
While there are a myriad of factors behind the budget woes of various states, careful examination finds federal policy as a root cause over and over again.
Here in Texas, for example, the state faces a $12-15 billion shortfall in the upcoming two-year budget cycle. With a constitutional obligation to balance its budget and large Republican majorities swept into power last November on the promise not to increase taxes, state spending is being dramatically reduced and the left is livid.
First, it should be noted that the current spending reductions being debated in Texas have been inflated by the Obama "stimulus" package of 2009. According to CNN Money, the state used $6.4 billion of federal stimulus money to cover its shortfall in the 2010-2011 budget cycle.
Another way of looking at this would be that previous state budgets were enlarged to spend money state governments typically do not have at their disposal. Federal stimulus dollars served as an additional source of revenue beyond what was available in state coffers -- when government gets its hands on money you can count on it being spent.
The trouble is Washington didn't have the money to spend either. In essence, the federal government borrowed money to provide temporary funding for spending that states could not afford otherwise. If not for the existence of these one-time borrowed dollars, surely, Texas lawmakers would have produced a smaller budget than the $182 billion budget they eventually passed in 2009.
Subsequently, state legislatures are now making necessary structural adjustments, resulting in spending cuts that are stricter than they would have been without the infusion of federal dollars.
Mind you, that temporary stimulus funding from the feds was all new debt, every last penny of it. Since today's deficit spending inevitably results in tomorrow's tax increases, in the end, that irresponsible federal spending will likely result in higher taxes for all citizens. For leftist protestors who think the solution to state budget deficits is paying higher taxes, they can rest assured, we all will eventually.
An ever growing number of economists agree that the nation's dramatic growth in deficit spending is hampering economic recovery. When Washington spends borrowed money it takes capital from the private sector, dampening economic activity in general. Consequently, state and local sales tax receipts have suffered across the nation. In sum, federal policy is having a direct negative impact on the revenue side of state budget equations.
While there is no doubt that spending in Washington has been out of control for quite some time, under the one-party rule of Obama, Reid, and Pelosi, deficit spending accelerated into hyper-drive. What the feds could not borrow, they merely printed, consequently devaluing our currency and in turn shrinking the buying power of all Americans.
As Washington's actions have shrunk the worth of the dollar they have driven up the price of oil, a globally traded commodity, resulting in higher gasoline prices. As consumers necessarily spend more on gasoline they have that much less to spend on everything else, only further depressing sales tax receipts.
Let's not forget, in their zeal to pass the onerous ObamaCare scheme, not to mention threatening tax increases for a year and a half, Democrats in Washington effectively froze investment and hiring throughout the country. Though GOP victories last November stopped Democrat dreams of raising tax rates, ObamaCare continues to be tied up in courts and its high costs continue to be exposed, further preventing business owners from investing and expanding.
But the federal government's negative impact on revenues in Texas and other Gulf states doesn't stop there. The on-going "permatorium" on oil and gas production in the Gulf of Mexico is another drag on Gulf states' economies. As thousands of jobs have been affected, the resulting lack of economic activity can only mean less revenue coming into state coffers.
Texas and other states carry a number of additional burdens as well. Most notably, as revealed in a Tax Foundation 2006 study, for every dollar Texans send to Washington, the state receives 94 cents in return. Effectively, the central government has put the state in an inequitable situation, disproportionately harming the prosperity of her citizens and straining its ability to pay for services at the state level.
As destructive as Washington's actions are to the revenue side of some state balance sheets, they have also had a tremendous negative impact on the expenditure side.
Unfunded federal mandates, particularly Medicaid, are driving some states to the brink of financial ruin. ObamaCare only upped the ante. The state of California, for example, projects they will have to come up with an additional $500 million a year in increased Medicaid payments due to the new law.
Last month, Nevada State Senator James Settelmeyer summed up the frustration of many state legislators stating, "Nevada can no longer afford the federal mandates that are coming down...the national programs that are forced upon our state's taxpayers that we have to bear, we just can't afford."
Due to the federal government's refusal to secure the border with Mexico and genuinely deal with at least 12 million illegal squatters, state law enforcement, public school, and healthcare service systems are being severely strained. The burden is particularly heavy in border states, with as many as one million undocumented aliens estimated residing in Texas alone.
According to an extensive report by the Center for Immigration Studies released just last week, 70% of illegal immigrants in Texas receive some sort of public assistance.
If Americans want to ensure that government can provide the basic services that citizens feel they deserve, then the first order of business should be to ensure that we are not paying for services for those who are in the country illegally. Oddly enough, none of the groups you'll find protesting budget cuts at state capitols are calling for this commonsense measure.
Ultimately, if Washington is going to insist that all immigration matters are their exclusive domain then individual states should be sending the feds the bill for dealing with the aftermath of their failure to effectively control immigration.