REPORT: How Conservative And Progressive State Governments Are Dealing With Their Budget Crises

One of the major problems facing the nation’s economy is the budget crises being experienced by states all over the country. Ethan Pollack, an analyst at the Economic Policy Institute, estimates that “the combined shortfalls for state and local governments [is] $469 billion over the next three fiscal years.” Additionally, a new report from the Pew Charitable Trusts finds that states are looking at a budget gap of nearly a trillion dollars for state worker pensions and other benefits.

State legislatures faced with these crises have a choice. They can choose the path of the “deficit peacocks,” who demand cutting social spending while ruling out tax increases on those who have benefited immensely from years of conservative policies.

However, at a time when the tax burden between the wealthy and the middle class is “narrower than at any time in modern history” they can instead look for ways to responsibly raise revenues while protecting their states’ spending on vital programs. Conservative and progressive state-led governments are approaching their problems with different policy solutions.

Conservative-led state governments are choosing the deficit peacock path, refusing to responsibly raise revenues and instead slashing their states’ social and infrastructure spending:


VIRGINIA: Virginia faces a $2.2 billion budget shortfall over the next two years. In early January, during his first speech after being sworn in, Gov. Bob McDonnell (R-VA) stressed the need for “compromises” between Virginians of different political beliefs in order to deal with the state’s budget crisis, yet promised to veto any legislation that would raise taxes. As a result, McDonnell’s budget proposal amounts to a full-on assault on the state’s top domestic spending priorities. He has proposed cutting almost $730 million in K-12 education spending, freezing enrollment in the state’s health insurance program for low-income kids and pregnant women, and requiring state workers “to take as many as 10 unpaid days off and contribute more to their pensions.” These cuts would end the school breakfast program, lead to the layoffs of “thousands of teachers,” and close five major state parks.

MINNESOTA: Minnesota currently has to deal with a $1.2 billion budget deficit. Gov. Tim Pawlenty (R-MN) has unveiled a massive series of cuts that will gut the state’s social services. The governor “proposes cutting $347 million from health care and human services programs. Most significantly, he wants to limit the enrollment of single adults in MinnesotaCare to people earning less than 75 percent of the federal poverty level,” which would leave an additional 20,000 Minnesotans without health care coverage. He also has proposed cutting $250 million in aid to municipalities and $50 million in higher education aid. Yet at the same time, he has failed to propose ways to raise more revenue and has even called for a 20 percent cut in the corporate tax rate, effectively rewarding the most prosperous Minnesotans while punishing some of the poorest. Unfortunately, Pawlenty’s Democratic opposition has not shown much creativity in responding to his plans; Senate Majority Leader Larry Pogemiller (D-Minneapolis) has indicated that his party plans to “propose cutting at least as much as the governor from higher education and health care.”

CALIFORNIA: California is enduring the most extreme budget crisis in the nation, with a $20 billion budget shortfall in the current year. Gov. Arnold Schwarzenegger (R-CA), who has ruled out any sort of tax increases, has submitted $8.5 billion in budget cuts for 2010, which even he admits are “draconian.” Under just one of the cuts, taking aim at the state’s health care budget, more than 200,000 children would lose their eligibility for state health insurance. The governor has also proposed “permanently [lowering] state workforce salaries by 5% without returning to the bargaining table with public-sector unions.” These cuts come on top of $7.4 billion in cuts last year, which caused double-digit tuition increases at public universities and laid off thousands of teachers, increased class sizes, and slashed academic programs.” Due to Proposition 13, “which requires that a two-thirds majority of the state legislature approve any tax increase,” conservative legislators have repeatedly been able to block tax increases on the wealthiest Californians.

Meanwhile, progressive-led state governments are asking their states’ most prosperous citizens to sacrifice a little so that spending on the most vital programs can be protected:

NEW YORK: New York was expecting a $16.2 billion deficit for 2009. Despite hesitancy from Gov. David Paterson (D-NY), progressive legislators chose to raise taxes on its wealthiest citizens rather than simply punish its poorest. It boosted the state income tax rate from 6.85 percent to 8.97 percent for households with over $500,000 of taxable income, and raised the rate one percent for “those with taxable income below $500,000 but above $200,000 for single individuals, $250,000 for heads of households, and $300,000 for married couples filing joint returns,” raising more than $5 billion and staving off the need for deeper cuts in social services.

WISCONSIN: After approaching the “largest budget shortfall” in the state’s history, Wisconsin legislators under the leadership of Gov. Jim Doyle (D-WI) raised taxes on wealthy Wisconsonians to help blunt the need for budget cuts. The state “enacted a new 7.75 percent income tax bracket on all income over $300,000 for married couples and $225,000 for individuals and heads of households. And the exclusion for capital gains income was lowered to 30 percent from 60 percent.” Altogether, these measures generated an extra $280 million for fiscal year 2010. Thanks to these progressive steps, Wisconsin was able to limit cuts on public school funding to 2.5% (rather than the 6.1% without the tax increases) and actually increase funding for Wisconsin’s technical colleges and children’s health insurance programs.

OREGON: With a $2.5 billion projected budget shortfall between 2009 and 2011, Oregon was on the verge of having to make deep cuts to education spending, freeze public employee salaries, and end forest protection rules. Alongside support from Gov. Ted Kulongoski (D-OR), Oregon progressives organized and triumphed over a corporate-backed propaganda campaign to successfully convince voters to “handily” pass ballot measures that increased taxes on the wealthiest Oregonians and increased the corporate minimum tax rate from a paltry $10 a year while not raising taxes on 97.5% of taxpayers and 93% of businesses — protecting $1 billion in services.

Budget cuts that states are facing “could lead to a loss of 900,000 jobs, according to Mark Zandi, chief economist of Moody’s” Although it’s important for state legislators to balance their budgets in progressive ways, the federal government has a role to play as well. The Senate’s version of its jobs bill has chosen to not include aid state governments. The House’s version includes billions in support for cash-strapped states. The New York Times has noted that including aid to states in the Senate bill is essential because it is “among the surest ways to preserve and create jobs because the money is pushed through quickly to employees, contractors and beneficiaries. The alternative is recovery-killing spending cuts…on the state level.”