Date:   5/4/2003 11:00:46 AM ( 22 y ago)
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Bush's role in state fiscal crises

By Robert Kuttner, 4/30/2003

HE STATES ARE facing their worst budget crisis since the Great
Depression. They face a collective deficit of about $100 billion during the
coming months, a gap that must be closed by cuts in public services, hikes in taxes,
or both. Two things are remarkable about this crisis. First, the national government,
which is substantially implicated, is getting away almost scot-free. The fallout is
hitting mainly governors, mayors, and state legislators, while the cuts are hitting
citizens. Washington is AWOL.

Second, the cause of the state fiscal crisis is widely misunderstood. To read the
conservative press, you would think that states had gone on a spending spree in the
1990s. One of Bush's close allies, conservative political strategist Grover Norquist,
has positively gloated about the states' plight. ''I hope a state goes bankrupt,'' he
told The New York Times, suggesting an object lesson to other states to rein in
their big-spending ways.

This conservative claim is malarkey. During the 1990s, state spending adjusted for
inflation and population was basically flat. The slight net state spending increase
over a decade -- from 8.0 percent to 8.4 percent of personal income -- was more
than accounted for by net cuts in federal aid and state increases in Medicaid costs.
Other net outlay declined.

States didn't increase Medicaid services. Rather, Medicaid costs went through the
roof. Medicaid pays for nursing home care, and the population is aging. Medicaid
underwrites basic health care for the poor at a time when low-wage jobs don't
provide health coverage. Medicaid costs have increased by about 50 percent since
1997 alone.

The other two causes of the state fiscal crisis are the current economic downturn
and the foolish decisions promoted by conservative politicians during the boom
years to legislate permanent cuts in state taxes.

If, like Grover Norquist and George W. Bush, you want to plunder public services,
starving government is clever policy. But if you want states and cities to deliver the
usual services that voters want, it is not smart to shred the tax base. However,
between 1996 and 2001, states legislated permanent cuts in their tax codes of
some $40 billion a year.

The states, unlike the federal government, cannot print money. Every state but one
(the exception is Vermont) is constitutionally prohibited from borrowing to cover
current deficits. So recessions mean cuts in services -- just when demands for
services increase.

In past state fiscal crises Washington has helped in a variety of ways -- with
emergency revenue sharing, extended unemployment benefits, public works
projects, and increased aid to specific sectors such as education and health. This
time, Washington -- which is to say George W. Bush -- has made things worse for
the states in several respects.

For starters, the president is cutting federal domestic spending, much of which goes
through the states. Most governors are begging Washington for additional aid, but
the Bush administration would rather use federal resources for more tax cuts.

The Bush tax cuts of 2001, in addition to diverting needed federal revenue, cost the
states some $10 billion a year in lost state tax receipts because of the linkage of
state and federal tax systems. (Some states have acted to delink their tax system
from the federal one; that will stanch this particular revenue hemorrhage but
complicate tax filings.)

Further, the Bush administration has imposed extensive new costs on states without
providing the funds. The most burdensome of these is Bush's mistitled No Child
Left Behind Act, which imposes new standards on the states and mandates higher
test scores as a condition of federal education aid but actually cuts by several billion
dollars the funds needed to upgrade teaching.

For years, conservative Republicans railed against ''unfunded mandates'' -- costs
imposed on states and localities by Washington absent the money to carry them
out. George W. Bush, oddly, is emerging as the king of unfunded mandates.

One can also fault Bush's failure to address the structural crisis of the health system,
which is the larger cause of the Medicaid budget disaster.

The man leads a charmed life. He sits in Washington, crowing about the benefits of
his tax and spending cuts as if states were part of another planet. Meanwhile,
governors, legislators, mayors, and local officials joust with one another over brutal
choices that shouldn't have to be made -- shall we reduce child care or cut aid to
the mentally ill? Gut what's left of housing assistance or close schools?

The Bush administration bears the responsibility for much of this, and George W.
Bush needs to be held accountable.
 

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