State Budget Crises?

Cato's Chris Edwards blasts the Wall Street Journal (and other media outlets) for their uncritical coverage of state budget "shortfalls."

The Times "treats any needed spending restraint as a crisis."

Oddly, the Journal undercut its own crisis tone in places, with reporting such as: “In Minnesota, the city of Duluth plans to stop operating its Fun Wagon—a free trailer stuffed with games and cookout supplies for a neighborhood party.” Geez, what a tragic loss for the city. ...

When state budget “shortfalls” arise, state policymakers are almost always treated as innocent victims of uncontrollable events.

Are state governments in a fiscal crisis? Let’s look at a few hard facts, not reported in these two stories. Data from the U.S. Bureau of Economic Analysis show that total state and local tax revenues increased 8.4 percent in 2004, 8.9 percent in 2005, 6.6 percent in 2006, and 4.9 percent in 2007. Data for the first quarter of 2008 show that tax revenues are up 3.2 percent over the first quarter of 2007. Thus, government revenue growth has slowed from the large increases of recent years, but that is hardly a fiscal crisis. Indeed, it indicates a needed respite for overburdened state and local taxpayers.

Alternately, consider data on state government general fund spending from the National Association of State Budget Officers. Spending across the 50 states increased 6.5 percent in 2005, 8.7 percent in 2006, 9.3 percent in 2007, and 5.1 percent in 2008. Spending growth is projected to slow to 1 percent for 2009, but that is certainly no crisis after the orgy of budget expansion in recent years.

Nonetheless, there a real state fiscal crisis. But it is the longer-term problem of exploding spending on Medicaid combined with the huge growth in debt and unfunded retirement promises made to the nation’s 16 million state and local employees. Because of those problems, the real crisis in coming years might be headlined ”States Slam Taxpayers with Huge Hikes.”