The state budget crisis made big news over the weekend.
No, I’m not talking about North Carolina’s impending fourth-straight year of projected deficits. At least, not only about that. I’m talking about the nationwide phenomenon that has two-thirds of state governments experiencing a decline in revenues and more than half facing gaps in their 2002-03 fiscal years. According to a new report by the National Conference of State Legislatures the current-year deficits will amount to a collective $17.5 billion.
Believe it or not, North Carolina is not among this group of states. Last year, one of the few good things that Gov. Mike Easley and the state legislature did was to use a very low (less than 2 percent) estimate of year-to-year revenue growth. We appear to be tracking pretty close to that number through the first six months of the fiscal year. Our next fiscal problem comes in the year beginning July 1, 2003, when politicians will be hoping to spend at least a billion dollars more than you and I are going to be giving them at current tax rates.
The states’ woes have become a major story in Washington. Governors of both parties are calling on President George W. Bush and Congress to bail them out. On ABC’s “This Week,” newly elected governors Janet Napolitano, an Arizona Democrat, and Mark Sanford, a South Carolina Republican, explained that they saw the federal government as having the responsibility of providing more funding for programs foisted on states, like Bush’s new education bill.
There may be some truth to this, but the major cost-drivers at the state level are not being mandated by Washington. North Carolina and other states have expanded eligibility and services under Medicaid. North Carolina and other states have refused to invest wisely and prudently in public education, preferring instead to escalate dramatically the funding per pupil through increases in average teacher salaries and excessive construction costs. North Carolina and other states continue to dole out cash subsidies to politically connected corporations and lavish taxpayer dollars on public universities that fail to graduate more than half of their students, a clear sign of waste and misdirection of resources.
There are many useful things that the federal government could do to alleviate the states’ distress. It could liberalize Medicaid rules to allow governors and state legislatures to get control of this runaway program. It could eliminate the Davis-Bacon Act that drives up the cost of state infrastructure projects by imposing union-scale wages whenever a federal dollar is involved. And it could clarify the states’ legal right and responsibility to withhold welfare services from illegal immigrants.
What Washington should not do is simply indulge state governments in their ravenous appetites for spending. That’s the main problem, here and elsewhere.