Yesterday, California lawmakers reached an agreement to close the state’s $26 billion deficit, primarily through deep budget cuts. Education took the biggest hit by far: $6 billion in cuts to K-12 education, with another $2.8 billion from the state’s colleges and universities. While Gov. Arnold Schwarzenegger and Democratic legislators alike have tried to paint the deal as one of “shared sacrifice,” it’s clearly the state’s students and recipients of government services who will pay the price for California’s broken budget process. Cuts in education are particularly crippling for a state that already has its share of troubles in that department. An article today by California Lt. Gov. John Garamendi argues that California's economic future depends on investments in education, suggesting that the state cannot hope to move forward unless it reverses these trends. In many districts, California’s high school dropout rate is over 20 percent. The “slow starvation” of the state’s community colleges and universities has gotten so bad that the California State University system (CSU) will turn away 35,000 qualified students this year. California spends $5,000 less per student today in constant dollars than it did 20 years ago, while student fees at the state’s colleges have doubled or tripled. Research shows that if the state does not act soon to graduate more students, by 2025 California will have one million college graduates fewer than required to keep pace with economic growth. “In all my decades of public service,” Garamendi writes, “I've never seen a situation so dire.” All this underscores the perverseness of the budget rules under which most states operate, which force them to balance budgets, no matter what the cost to their residents. In this case, lawmakers were forced to make impossible choices to cut essential services, not only by a short-sighted governor who refused to raise taxes, but by budget rules that push the state to take steps that will amplify the effect of the recession and inhibit its ability to crawl out of the hole. As James Surowiecki points out in this week’s New Yorker, states’ budgetary crises are the result of fiscal federalism run amok. Fiscal policy on the national level is counter-cyclical (as the economy contracts, government spending increases to counteract the effect). But states must be pro-cyclical to balance budgets during a downturn, cutting services and/or raising taxes, which magnifes the effect of the recession. This “push-me, pull-you” approach to the recession is completely self-defeating. No wonder Surowiecki considers state governments to be the 50 most serious obstacles to economic recovery. --Marie Diamond
