We have read a lot this year about state and local budget shortfalls, much of which has been blamed on the recession. Governments have responded by issuing furloughs and, in some cases, cutting back days of operation. Yet they’re not even close to facing the central challenge, and, as a result, budget problems will continue into perpetuity unless serious changes are made.
When revenues started falling, states predominantly took half measures to temporarily control their costs. Cutting back work days proved to be a stopgap answer. More importantly, they went crying to Congress and pleaded for money to keep state and local operations going. The feds responded by doing exactly the wrong thing – they included money in the Stimulus Bill to cover the shortfalls. Because it is actually illegal for most states to run deficits – a limitation that obviously doesn’t apply to Washington – the budget problem just continued up the food chain. While private companies have been forced to reevaluate their operations due to the recession, governments have been unwilling to do the same. Both private firms and public entities face the same challenges, but their responses are totally different because governments have a warped sense that they will always be able to extract greater revenues from their constituents through fear and coercion.
The states need to face reality as their revenues keep falling. Their highest priority should be a reassessment of the breadth and operations of governmental services. Five months ago, I looked at the deal that balanced the California state budget – a “balance” that lasted for about three days as decreased revenue and unwillingness to cut spending quickly created a new $20 billion shortfall. It became shockingly apparent that there was far too much being done by the state government. Though there is certainly a constituency for each and every “vital” function, they cannot all be funded by a shrinking revenue base. Choices need to be made, with priorities placed on public safety, transportation and education. Legislatures have to act as grownups and slash programs that don’t meet the essential mandate.