State budgets in fiscal danger, task force reports
By TOMER OVADIA | 7/17/12 2:58 PM EDT
A task force co-chaired by former Federal Reserve Chairman Paul Volcker sounded alarms over the fiscal futures of state governments Tuesday with a comprehensive report showing, in the words of fellow co-chair Richard Ravitch, “that it’s going to be a hell of a lot more costly to deal with this problem five years from now.”
While the State Budget Crisis Task Force report admits that “what we found will not be surprising to many knowledgeable observers,” it provides a new trove of data and analysis from more than a year of research of six states: California, Illinois, New Jersey, New York, Texas and Virginia, which represent approximately 40 percent of the U.S. population.
“Our basic effort here is not to say the apocalypse is around the corner, but to say that it’s going to be a hell of a lot more costly to deal with this problem five years from now than it is to try to deal with it today,” Ravitch, the former lieutenant governor of New York, said at an event announcing the report.
The task force, which is funded by non-governmental grants, set out in June 2011 to determine the extent to which state fiscal challenges are due to the recession or to structural issues.
“The conclusion of the Task Force is unambiguous,” a summary of the report states. “The existing trajectory of state spending, taxation, and administrative practices cannot be sustained. The basic problem is not cyclical. It is structural. The time to act is now.”
The report pointed to rising expenditures, particularly Medicare and retirement obligation costs, as well as states’ restricted ability to raise revenue.
The task force also emphasized that cuts at the federal level trickle down to state and local governments, possibly shedding light on the broader implications of automatic cuts set to take effect at the end of the year if Congress does not act. U.S. states depended on the federal government for 32 percent of their revenue in 2009, according to the report.
Obama tried to highlight the effect of state and local government cuts in a June 8 press conference in which he famously said that the “private sector is doing fine,” immediately adding that “where we’re seeing weaknesses in our economy have to do with state and local government.”
The report stops short of making specific calls to action, stating that “such decisions are properly subject to the values and politics of a democratic society.”
Speakers at Tuesday’s event, which was held at the Newseum in Washington, D.C., also took aim at what they said was a lack of transparency on the part of state governments, as well as faulty accounting practices that downplay the severity of their situations.
Ravitch said the problem is exacerbated by a preoccupation with the federal budget, an evolving media industry, state capitals being in “cocoons” and a Congress that’s “deaf” to the issue.