States: Don't look to Washington for help
State capitols are abuzz with nervous activity.
In 31 states, legislatures are working to close a combined budget
gap of $17.5 billion. What created these crises? Overspending. Even
after two years of what many call "the worst fiscal crisis since
World War II," state tax revenues are up almost 40 percent over
1990 levels. Yet state general-fund spending is up 50 percent. The
total amount spent by state governments topped $1 trillion for the
first time ever in 2000 and has continued to rise.
Sounds like a good opportunity for these states to reign in the
runaway spending that's plunged their budgets into the red.
Senate Minority Leader Thomas Daschle, D-S.D., apparently
disagrees. He proposes a $40 billion federal bailout of the states.
But since the same taxpayers who fund state budgets also fund
federal budgets, this would hardly help. Like a family responding
to unaffordable Mastercard debt by running up its Visa instead, a
federal bailout would run up families' federal tax bill in order to
reduce their state tax bill. You've solved nothing.
Worse, Sen. Daschle's plan doesn't encourage states to live within
their means. When the economy fell into recession in 2001, families
nationwide tightened their belts. States, meanwhile, grew their
budgets by 8.3 percent -- the largest one-year spending jump in
over a decade.
Federal spending has grown 29 percent since 1990, but state
spending has grown even faster. Had state lawmakers exercised as
much restraint as the federal government, they could have balanced
their 2003 budgets and had enough money left to cut taxes by $525
per household. Keeping new spending in line with the inflation rate
would have increased that tax relief fund to $1,372 per
Instead, states spent all of their new revenue -- and then
California exemplifies this mindset. Blessed with a 28 percent
increase in tax revenues between 1999 and 2003, Golden State
lawmakers responded by hiking spending by 36 percent -- turning a
$10 billion budget surplus into a deficit. And they still haven't
learned. When Gov. Gray Davis announced a $35 billion budget
shortfall for 2003, his projection included not just the cost of
funding current programs, but also billions in additional new
spending. Not even the largest budget deficit in state history has
slowed his appetite to expand government.
Meanwhile, a handful of states such as Wyoming, Michigan and
Colorado generally resisted adding extravagant programs over the
past decade. As a result, their shortfalls are far smaller than
those of, say, California and New York. Is it fair for California
lawmakers to go on a spending binge and then send the tab to
Wyoming taxpayers, via Congress?
Basic accountability demands that the unit of government that
spends the money should have to collect the taxes. If state
spending is financed by state taxes, elected officials shouldn't be
able to spend beyond their constituents' willingness to be taxed.
Yet when states can simply withdraw whatever money they need from
the federal ATM, the incentive to weigh benefits against costs
Some state lawmakers say accountability means Washington should
remove the "unfunded mandates" that require them to spend some of
their tax dollars on Washington's priorities. They're right. But
the mandates enacted since 1996 account for less than 1 percent of
state budgets, so they can't be blamed for the recent state
spending spree. Besides, many of the recent "mandates" in education
and homeland security aren't mandates at all; state participation
is voluntary, meaning they can opt out if federal funds don't cover
Granted, the largest unfunded mandate -- Medicaid -- isn't
voluntary. States must split their Medicaid program costs with
Washington, and those costs have soared 165 percent since 1990.
While Washington deserves much of the blame for designing such an
expensive and inefficient program, much of the recent increase was
driven by states that expanded eligibility and offered new
benefits, such as weight-loss and substance-abuse treatment. States
that want to continue operating gold-plated Medicaid programs
should be willing to foot the bill themselves rather than expect
out-of-state taxpayers to pick up the tab.
Spending restraint never comes easily. It demands leadership and
discipline. And it's not achieved by shifting the cost of
government from one level to another. Indeed, bailouts can only
exacerbate the real problem: that too many politicians spend every
dollar they're entrusted with -- and then ask for more.
Riedl is the Grover M. Hermann fellow in federal budgetary
affairs in the Roe Institute for Economic Policy Studies at The
Heritage Foundation (www.heritage.org).
Distributed nationally on the Knight-Ridder Tribune wire