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The Fiscal Crisis in the States
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18798 |
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Section : |
CURRENT ISSUES
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| Issue
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12 / 1991 |
2,545 Words |
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Steven D. Gold
Steven D. Gold is professor of public administration at the
State University of New York in Albany, and director of the
Center for the Study of the States at the Nelson A.
Rockefeller Institute of Government. |
State governments from coast to coast (in fact, especially on the coasts) had a great deal of trouble balancing their budgets this year. While this is widely known, the causes of their fiscal distress are controversial:
·Are federal aid cutbacks responsible?
·Is it just the recession?
·Did the states cause their own problems by spending recklessly?
All of these factors have played a role, but they are not equally important. Besides, other developments also had major impacts, including crime policies, health care costs, and federal mandates.
The outlook is for persistent fiscal stress in the 1990s because many state budgets have structural deficits, with the spending needed to maintain current services exceeding revenue from the existing tax system. States will be in a much better position to cope with their fiscal problems if they reform their spending and tax policies. If they continue with a "business as usual" approach, it's really going to be grim.
The Federal Role
Federal grants to state and local governments (excluding payments for individuals, which are mainly programs for the poor) fell sharply between 1980 and 1989--38 percent in inflation-adjusted dollars. This is undeniably a big reduction. Nevertheless, it is not a primary source of recent state fiscal problems. For one thing, the sharpest cuts came at the start of the first Reagan administration. They occurred too long ago to be a major cause of recent problems. Besides, cuts in federal aid hurt cities and counties much more than they did states. Aid to localities is less in absolute dollars than it was a decade ago, while aid to states has grown, though not as fast as inflation.
The figures cited above are rejected by some analysts because they exclude payments to individuals. If they are included, aid has increased substantially. But that perspective is wrong-headed. The explosive growth of the Medicaid program--health care for poor people--is the main reason why federal aid has risen. Medicaid now comprises one-third of the total aid to states and localities. But Medicaid increases are one of the biggest budget problems for states. As Medicaid spending expands, states receive more aid, but they must increase their own contribution (which varies from a fifth to a
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