Broadcast October 30, 2002
Now is probably the worst time in living memory to be a state governor (which gives me some small comfort now that I've lost my bid to become Governor of Massachusetts). Most states are broke. Altogether they're in the hole $58 billion this fiscal year. And because most state constitutions don't allow them to go into the red, states are busy cutting services and raising taxes. Now, voters don't particularly like fewer services and higher taxes, which is why a lot of governors are either retiring this year, or just about to lose their bids for re-election.
It's much worse for states this time around than during the last recession. That's because since the 1980s the federal government has continued to push responsibilities back down to the states -- especially for education, social services, and health care. Congress has piled on additional mandates for state spending on healthcare for the poor. And state courts have required more spending on schools in poor districts. In other words, the era of big government may be over in Washington,, but it's just shifted to state capitols.
And then there's the recession. This year's state personal income-tax receipts have plunged 22 percent from last year's. And state capital-gains tax receipts have all but disappeared. You don't have to be an economist to see why the states are in such a hole.
Of course the people who are hardest hit by state spending cuts tend to be the same people who are hardest hit by job losses and pay cuts -- blue-collar families and the poor. Here in Massachusetts, 50,000 long-term unemployed have lost their health insurance, destitute families are being turned away from homeless shelters, and the mentally disabled are doing without care they once had. It's much the same across the country.
We're not hearing about this in the national media because these are considered state and local matters, but they add up to a national calamity.
Bad for the American economy, too. With so much underutilized capacity in the nation, the last thing we need is for government to cut spending and raise taxes. Yet that's exactly what the states are doing. The cumulative impact is a fiscal drag on an already anemic recovery.
If Washington had any sense it would bail out the states -- let them restore their spending and roll back their tax increases. If this means adding to the federal deficit, so what? With interest rates almost as low as they can go, a larger federal deficit right now may be the only way to give the economy the boost it needs.
