The states continue to go deeper into fiscal holes. The Wall Street Journal reported today:
The combined deficits of the states for 2010 and 2011 could hit $260 billion, according to a survey by the liberal Center on Budget and Policy Priorities. Ten states have a deficit, relative to the size of their expenditures, as bleak as that of near-bankrupt California. The Golden State starts the year another $6 billion in arrears despite a large income and sales tax hike last year. New York is literally down to its last dollar. Revenues are down, to be sure, but in several ways the stimulus has also made things worse.
Federal bailouts for states merely enabled them to continue their profligate ways. The stimulus was akin to providing a gift of booze to a recovering alcoholic. Instead of downsizing, many states used the funding to expand programs that cannot be supported in the future:
… the stimulus enticed state lawmakers to spend on new programs rather than adjusting to lean times. They added health and welfare benefits and child care programs. Now they have to pay for those additions with their own state’s money.
In typical Washington fashion, the Federal funds came with strings attached. Prohibitions prevented states from using the funds wisely and restructuring. In effect, the recovering alcoholic was ordered by law to drink the booze:
Many environmental grants have matching requirements, so to get a federal dollar, states and cities had to spend a dollar even when they were facing huge deficits. The new construction projects built with federal funds also have federal Davis-Bacon wage requirements that raise state building costs to pay inflated union salaries.
… at the behest of the public employee unions, Congress imposed “maintenance of effort” spending requirements on states. These federal laws prohibit state legislatures from cutting spending on 15 programs, from road building to welfare, if the state took even a dollar of stimulus cash for these purposes.
Distortions and mal-incentives are omnipresent whenever Washington intervenes in either the private or public sector. Political motivations always produce attached strings, in the form of laws or mandates designed to preclude rational economic behavior. Chicanery, not common sense, rules. It is only taxpayer money. Why worry about spending it wisely?
In a post on How’s all that Stimulus cash working out for the states?, Rick Moran describes the real motivation:
Remember – it’s not about the economy. It’s about control. The federal government wants to emasculate the states, making them beggars and wholly dependent on Washington.
In a post, Political Cannibalism Democrat Style, the problem of state funding was discussed. Ironically, the states with the biggest deficits are hard-core Democrat states. In coming elections their needs will continue to be huge. Political considerations will dictate that monies be re-directed away from them to uncommitted states, where votes can be mined. The prospect of bitter internecine feuds should be enticing for all political observers. Will Democrats end up eating their own? Is it possible that the 2010 and 2012 election cycles are so vicious as to destroy the party?
On top of all this political intrigue and whining is the prospect of the Federal Government running out of money. Politicians with unbounded appetites are about to find out that they too are subject to finite resources. While many believe they can legislate away such basic laws as the Law of Gravity, others are starting to understand the extent of the predicament.
Perhaps someone in Hollywood should consider this unfolding Washington drama as the basis for a new reality show.