Megan McCardle: Surprise! The states are out of money again

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.

Read it all and I found many of the comments worthwhile as well.

Update: In South Carolina the Governor and the state Government are aggressively fighting over exactly this problem:

Harry E. Bolick, who owns a Greenville-based consulting and engineering firm and who came to hear [Governor Mark] Sanford speak in Greer, said he was “amazed” when the governor said the Legislature proposed borrowing $100 million from Medicaid.

Sanford said he found it necessary to veto expanded health care for children under Medicaid because he doesn’t think it’s sustainable.

[State Senator John] Land said the $100 million wasn’t borrowed, but was unspent funds from last year.

Sanford said the state budget approved by the Legislature doesn’t include higher costs for gasoline and builds in a $20 million shortfall in education and an $8 million shortfall in the Corrections Department. Land said agencies can’t spend more than the Legislature allocates.

Land said expanding the health care for 70,000 poor children under Medicaid by $21 million would return federal monies fourfold. “That is just poor business to turn down that money,” he said.

Sanford said this is the last chance to “hold the line on spending.”

Posted in * Economics, Politics, Economy, Politics in General

23 comments on “Megan McCardle: Surprise! The states are out of money again

  1. libraryjim says:

    Every department in our county has been ordered to take cuts on their budget from 20 to 30 percent. The Library has been ordered to take an 18% cut, since we are among the lowest funded departments in the county already, and since some of our funding comes from State Aid (also being cut — by 50%!).

    I need to say that a big reason for this is the State Legislature ‘fixing’ the property tax inequity. Our county is poor, rural, with not much in the way of commercial property, so most of our funding came from property taxes. The county budget is going from 5,000,000 to just over 4,000,000.

    So, yes, we are feeling it, too.

    Jim Elliott

  2. John Wilkins says:

    This is sad. Of course, when the religion of the people is tax cuts, you pay the consequences. Perhaps the oil companies, out of the charity of their hearts, might build schools or otherwise step in. Of course – why read when people have televisions?

    Everyone wants the benefits. Nobody wants to pay. If you don’t want taxes, then perhaps we’re saying we can live with sick illiterate, persons who will never have retirement. If that’s the kind of country people want, God bless them.

  3. libraryjim says:

    Frankly, I’d be happy to have the government cut some of the programs that are not essentials (Libraries are essential, and have been since the beginning, with Ben Franklin and T. Jefferson recognizing this).

    With one cut pork project (like a) the Woodstock Museum or b) the bridge to nowhere or c) waterless toilets in non-government office buildings), we could easily fund every library in the nation for ten years. Well, maybe not TEN years, but it sure would help.

    Tax cuts are good for the economy — it’s rampant spending that hurts the government and the services which it legitimately provides.

    Jim Elliott <><

  4. Sarah1 says:

    RE: “Of course, when the religion of the people is tax cuts, you pay the consequences. ”

    Of course, when the religion of some people is The State, others pay the consequences.

  5. Clueless says:

    I don’t see why the Government needs to provide anything other than military defense, fire, police and judiciary.

    We should have vouchers for health care and education with folks finding their own.

    Folks should make their own pension arrangements instead of either looking toward business or the State (it might keep families together if they did).

    Libraries, parks and museums are not essential, and should be privatized.

    We should get rid of social workers, psychiatrists, counselors, I seriously think they do more harm than good. (I mean a WHOLE LOT MORE HARM and almost no good at all).

    Folks in the “compassion industry” should do so for free as a charity or should be subsidized by the private funds of folks who think they do good work. (and we should get rid of all tax breaks for charity. Let folks pay for stuff if they think it is worth supporting.

    Finally, churches should stop acting like they are engaged in “mission” or “charity” when they lobby government for tax breaks or subsidies for folks. If a church thinks that education is important, let them start a free school. If a church thinks that health care is important, let them open a free clinic. It is not charity to lobby Caesar to tax Paul to pay for Peter’s benefits. If the church thinks that Peter needs their charity, let the church provide it, and ask Paul for his assistance, rather than simply going through a third party to coerce Paul.

    Me I tithe. (And I like the tax break since my church is tax priviledged like most churches). However I give as much to causes that don’t get me tax breaks, simply because I think they result in more good getting done, to folks whom I know personally who are likely to benefit from this. If I gave through the usual tax protected channels, it would result in less good, and a great deal more harm and waste.

  6. libraryjim says:

    Frankly, the only thing the U. S. Government is required to do is what is spelled out in the Constitution. All else is or should be considered the duty of the individual states.

    Libraries have a long history of government sponsorship, under the freedom of the press and for individual freedom to information. The way libraries are set up in the United States, free for all regardless of class or income, was unique in the world when they were set up.

    That said, without individual sponsorship, such as that of Andrew Carnegie and Bill Gates, many public libraries would have either never gotten started or shut their doors long ago.

    I think the operation of libraries should continue to be a partnership between government and individual/corporate sponsors.

    Instead, we have to play hide and seek to find grants to keep us in books!

    JE

  7. Clueless says:

    I think that libraries, museums, concert halls, parks are all good objects for corporate or individual sponsorships. I think there are a lot of folks who would be willing to shell out for that. However I see no reason to tax the illiterate to pay for libraries, nor to tax the unmusical to pay for concert halls, or to tax those who consider a trip to the museum a penance to pay for the pleasure of those who enjoy such fare, but don’t wish to have to pay for it.

    I see no reason why I should pay for what passes for Art or Music these days. I would be eager to pay for museums or libraries.

  8. John Wilkins says:

    Sarah- I’m in full agreement, especially since our state is run by a bunch of incompetents who don’t believe in it either. I never thought I’d be more a patriot than you are, though, as I’m willing to pay the dues to help other Americans through the government. I think if you want the rights of being a citizen, you have to show where your treasure is.

    Of course, you’re right: the Iraqi people seem to be paying the consequences of our badly managed state.

  9. Andrew717 says:

    Of course, that’s the difference between your views and most of us John, is that you are vastly more willing to give the State power to help others, or do whatever it wills, rather than trusting people to do things themselves. It isn’t neccesarily “being more of a patriot” to favor to use of the coercive power of the State to extract economic rents more than another person does, John. And some of us value the constitutional rights of being a citizen (equality before the law, freedom of speech & assembly, etc) more than the “right” to a certain economic outcome.

  10. them says:

    If you are hungry or need an operation you can’t afford or your insurance company won’t pay for, the libraries or museums don’t seem so important.

  11. Irenaeus says:

    “”We should have vouchers for…education with folks finding their own”

    Fine, but remember that voucher represent a different means by which taxpayers finance education. The government would not run the school but would still pay for the student to attend. Financing K-12 education would remain a governmental responsibility.

    As it should. Education (like national defense, police protection, and clean air) is in many ways a “public good.” We all benefit from living in a society in which literacy is nearly universal.

  12. Irenaeus says:

    “Surprise! The states are out of money again”

    This sad development helps make various points, including points about politicians’ and voters’ shortsightedness and lack of self-discipline.

    It should also stand as a warning to any responsible person tempted by the charlatans who want to abolish income taxes and instead fund itself from sales taxes. Reliance on sales taxes produces the revenue side of this boom and bust; human folly takes care of the spending side.

  13. Andrew717 says:

    In the short term, no. But over the long term I think the libraries are vitally important in creating and perpetuating an educated populace, something vital both economicaly and for a democracy. I have learned vastly more from library books than ever I did in school. The public library allows anyone, of any economic standing, to give themselves a well rounded education if they so wish. It is a wonderful tool for economic mobility. I have known several individuals who had wretched public schools, but through use of the libraries were able to study and do very well in college. One was my college room mate, who used the library to teach himself computer programming, which led to a partial scholarship and a part time job in IT that together paid for school. It can also be a wonderufl tool for simply spreading beauty in the world. I used to work with a forklift driver who left school after the 8th grade, but could quote more poetry than anyone I’ve known, and discuss it too. There is a place for this, spreading knowledge and beauty to anyone who wants it. It helps keep culture spread throughout the populace, and works against a tendency towards the development of a class system. It may be the single best social program you can have.

  14. Andrew717 says:

    #12, Irenaeus, we are in rare political agreement there. I like consumption based taxes in theory, but in practice we cannot trust the politicians to handle such uneven income streams responsibly at the national level. It’s a bit different localy, since the County Commision can’t print money to make up for shortfalls it helps keep them honest.

  15. Clueless says:

    I agree that education should be a governmental concern. What it should not be is run by government. This has brought us the sorry schools most cities have filled with incompetants, and indoctrinating rather than educating young people.

    I would rather trust parents to choose an appropriate education for their children (yes even the folks from that compound in Texas) than the folks who run education in Washington.

    The difference is that the parents actually care about their kids, while the folks in Washington simply care about their jobs.

    Same goes in Medicine. Once we have a nationalized medical system, our hospitals will be about as good as our schools. Folks will be rewarded for not rocking the boat rather than for trying to actually make a difference. Costs will sky rocket as more and more bureacrats will be hired to measure docs the way teachers are measured. (Docs are actually fairly rigidly measured as it is, thanks to Medicare and Medicaid).

    But most patients can tell you if their doc is any good, and most parents can tell you if their kids teacher is any good. Given a choice , they would vote with their feet. Bad teachers would have no pupils. Bad physicians would have no patients.

    As for libraries, they are indeed useful. Schools will need them. They may charge the public fees to share them. Those fees are likely to be low, if there is competition (which there would be, by definition).

    The libraries would not be free, but why should they be? Right now, they are free, and there are only a handful of mostly retired people there during the day, together with a bunch of homeless people.

    If there were a charge, the libraries would be open from about 3pm to midnight, and would be filled with folks studying for their GED or taking college courses on line at night.

    Libraries are indeed highly useful. They would be a great deal more useful if they were not subsidized and corrupted by the government.

  16. libraryjim says:

    They would be a great deal more useful if they were not subsidized and corrupted by the government.

    I’m afraid I don’t understand this comment. How has the government corrupted the library system? I have great freedom in choosing what goes into the collection, no one tells me ‘no, you can’t have that’. Unless it’s a complaint from a patron, then there is a review process.

    As to mostly retired, some, but not many. I get a lot of working class people who have little computer knowledge working on classes from the local community college, filling out job applications, etc.

    Many parents with small children, too. Mostly pre-schoolers. (Most of whom let their children run wild, disrupting other patrons, until we HAVE to ask them to control their children or leave — something we don’t like to do, but for the sake of the other users, we have to do.)

    After school, hoards of teens to check their myspace and play games or watch BET videos.

    at night, not so much. In fact, due to budget cuts, we are having to cut out our one night (until 8) and close at 5:30, the same time as the other nights. Our use surveys showed only about half-a-dozen users, most playing computer games. That’s a hard decision, too, though.

    Now that there are fewer local government office branches, people have no choice but to come to the library for applications, forms, etc. which suddenly have to be filled out online. Most of these can’t afford a computer at home, let alone a monthly internet fee. (Although you would never know it from the fancy cell phones some are using!) But anyway, there are those who have no choice but to use the free internet access the library provides.

    Believe me, it’s more than just the retired and the homeless. But even the homeless have e-mail accounts that they use to connect with family members ‘back home’. Which is worth the price of admission all by itself.

    JE

  17. Clueless says:

    I might add that medical care (like education) is also useful. However it too would be better, and cheaper under a voucher system.

    Right now, government subsidies warp what is called Medicine. You can’t say that a child has central auditory processing disorder (CAPD) because even though this has excellent treatment and is curable, because CAPD isn’t considered a medical illness. You have to say that a kid has “autism” instead, so that the kid gets some kind of assistance (though it would not be the most useful kind. (actually I don’t play that game, but most people do).

    If there were vouchers then parents could buy whatever care they felt was helpful. Would it be abused? Would some folks set up as “aromatherapists” treating medical illnesses?

    Sure.

    However if I can’t compete with aromatherapists, or colonic irrigators, or homeopaths, then maybe I need to leave medicine, and find a job more suited to my talents.

    State mandated corporations, like government schools, hospitals and the like are the refuge of the mediocre or the abysmally bad. Suffice it to say that I have plenty of business and I am not afraid of competition. Bring it on.

  18. libraryjim says:

    Oh, one more thing:

    [blockquote]True literacy is becoming an arcane art and the United States is steadily dumbing down. When I read about the way in which library funds are being cut and cut, I can only think that American society has found one more way to destroy itself.
    –Isaac Asimov, [i]I, Asimov[/i][/blockquote]

  19. Clueless says:

    Government libraries are forced by their nature to be a sort of bland, middle of the road, please everybody regardless of their education or abilities community center.

    If one had private libraries, there would be private “study halls” where teenagers, students, folks getting their GED would come and get help with their courses.

    There would be community centers where kids could run around and play video games and do myspace.

    There would be specialty libraries where folks who were interested in astrophysics could actually get something useful out of the library, folks who were interested in medicine could, ditto, folks whose bent was history could study the historical periods they cared about etc.

    There is none of that currently. There is only a vast puddle of mediocrity, whose history section is a good deal worse than my private library, whose kids section is worse than my kids libraries, and whose “health” section sucks compared to my hospital’s library.

    Same in education. Because it is government, it needs to fit all. If one had vouchers, you could send your bright but undisciplined 11 year old boy to a military style school, your shy 9 year old with difficulty with phonemic awareness to a Montessori with a language program, and your superstar 13 year old to the local college extension program. That is what wealthy folks do for their kids. Normal folks could have it also, we pay as much in taxes as the wealthy do for their children. We ought to be able to have it, given the cost of what we pay for pitiful results.

    We have mediocrity because we worship the state.

  20. Clueless says:

    Back when the only car manufacturer was Ford, every car was a “Tin Lizzie” and Henry Ford joked that [we] could have any color we liked as long as it was black.

    Now we have much more choice.

    Back when Ma Bell ran the phones, all phones were black, rotory dials.
    Now we have a thousand colors and textures, not to mention the internet, cell phones, ipods and countless others.

    Monopolies are not dreadful, but they do rarely lead to excellence. Even when they do (and Bell Labs was quite good) such excellence is rarely sustained more than a single generation. This is true of private monopolies like Ma Bell. It is even more true of public monopolies, like Medicare, public schools or government library.

  21. Andrew717 says:

    We’ve had very different experiences with public libraries, “Clueless.” Mine (admittedly the central library) is rather like the hypothetical private one you describe. Where their collection lacks (as of course it sometimes does) the staff has always been eager to help me with interlibrary loan. And the computer system has literally thousands of scholarly journals (it’s the same database we had at Ga Tech). There are classrooms and study rooms, as well as desks liberally spread through the stacks, and free wi-fi for my laptop. All in all, it’s not far from the university libraries I’ve used, apart from having children’s play areas (thankfully on a different floor, along with audiovisuals, so the kids are less likely to disturb). It’s almost a nerd’s paradise. 🙂

  22. Andrew717 says:

    I should point out that the library where I used to live was about as bad as what you describe in the central location (basement where about half the history section was kept flooded by broken pipes several times, for example, numerous books were ruined by a leaky roof but left moldering in the stacks, and the place was pretty frightening at times) but the branches tended to be quite nice, and they recently opened a new central library which is clean, modern, well lit, clean, has all manner of meeting and study rooms, clean, and did I mention they keep it clean? 🙂 We’ll see how they maintain it, of course.

  23. Clueless says:

    #21 Well, it sounds as though your library will have no trouble competing on the open market 🙂 Bell Atlantic also survived the loss of her monopoly, though not in the same form. So did Ford (thus far). More people have access to both cars and phones due to their deregulation.