In August, more than half the states were already facing severe financial problems that together amounted to a staggering $48 billion budget shortfall for 2009. The Center on Budget and Policy Priorities says the 29 states in trouble range from California — which is $22.2 billion in the hole, nearly a quarter of last year’s general fund — to Vermont, which is $59 million in the red. The spending disease afflicting Washington is rapidly spreading among state capitals coast-to-coast.
Most states are constitutionally prohibited from running deficits or borrowing money to cover operating expenditures, so public fficials now face a limited number of options: draw down “Rainy Day” reserves, cut spending or raise taxes. But even before the national economy tanked, politicians in many state capitals had been following Washington’s lead and spending tax money as fast as it was coming in. For example, Maryland’s budget more than doubled from $15 billion to $31.2 billion during the last 10 years. But even the state with the highest per-capita income in the nation is on the ropes after its decade-long spending spree, which expanded the size and scope of state government far beyond what was required by population increases or inflation.
After spending a billion-dollar surplus and Gov. Martin O’Malley’s $1.4 billion tax hike last fall, the largest in Maryland’s history, the legislature still had to drain $100 million from the state’s Transportation and Chesapeake Bay Trust Funds four months ago. Even doubling the size of state government was not enough for the big spenders in Annapolis. The same pattern can be seen in state after state, where spending has far exceeded increases in personal income or corporate profits. It’s no wonder that more than half of them are now in danger of going under. The federal bailout package is expected to unstuck credit markets, but that won’t fix the underlying problem: overspending.
And spending addicts usually don’t recover without an intervention.
There are solutions to such financial madness. One is the Taxpayers Bill of Rights (TABOR), a constitutional amendment that limits spending increases to those necessitated by population growth plus inflation. In flush years, when revenues exceed the spending limit, surpluses can be used for major infrastructure projects or socked away to pay for core services during leaner times. Had those 29 states followed this common sense prescription, they wouldn’t now be in the messes they are.
