Cows without Milk

Just as the federal government is figuring where to cut the deficit and where to let the Federal Reserve continue to buy that portion of the national debt that we cannot find buyers for (which is often referred to as "printing money," even though no new currency notes are issued), the state coffers are rattling empty. Bottom line is that with plunging property values and rising foreclosures, property taxes are falling off the cliff; with high unemployment taxing state benefits, the source of income tax is withering away; and with folks reigning in consumer spending, sales tax revenues are contracting fast. In short, virtually every state is under some sort of deficit cloud, but states don't have the ability to "print money." Even as the federal government is thinking about saving cash by shifting burdens to the states, taxpayers still wind up with the bill.

As the newly-sworn governors (37 – 26 of whom are new) take their places among incumbents who didn't face reelection in 2010 (13 of them), they are all coming to grips with the impossible task of managing state and local budgets that have a lot fewer resources with lots of sustaining demand for services and payments. Some states, notably California and Illinois, have huge problems; others, like North Dakota have manageable issues, but cash impairments nonetheless. Education budgets are falling victim just as the nation needs more skilled labor to compete in a world where emerging nations are upgrading their teaching facilities and their students' performance levels. And just about every governor is facing unions who are prepared to go to the wall to protect the rich pension benefits they have won for state and municipal retirees, when everybody knows those retirement benefits simply cannot be paid for anymore. Folks living on those pensions, who chose a state civil service jobs that paid less at the time because of those benefits, are both worried and angry that they have become the focal point of just about every state and municipal effort to get their budgets under control.

Add to this mix the very conservative anti-tax-increase results of the last election and you have an ugly confluence of "impossible meets improbable." States are still doing a lot of "in the sand head-burying" and denying all but the most obvious shortfalls; they are claiming $26 billion currently and expecting $82 billion when they look at their next fiscal year; experts predict larger numbers. The January 17^th New York Times addressed (in italics) how some of these governors are dealing with their little piece of impossible:

· In Wisconsin, the new Republican governor, Scott Walker, says that any prospect of a tax increase is off the table, and that he wants to “right-size” state government, meaning, he says, that it would provide “only the essential services our citizens need and taxpayers can afford.”

· In California, the new Democratic governor, Jerry Brown, lists as one of his guiding principles (second only to his tenet to “speak the truth”) support for new taxes only if voters want them. And he says it is time to examine the state’s system of public pensions — an increasingly vitriolic political issue in states around the country — to ensure that they are “fair to the workers and fair to the taxpayers.” Symbolically, he ordered 48,000 cell phones (half of the total) furnished to state workers to be handed back to the state.

· [I]n Illinois, a state that has wrestled with some of the most dire financial circumstances in the country, including some $8 billion in unpaid bills to social services agencies and others and a desperately underfinanced pension system, Gov. Patrick J. Quinn, a Democrat, pledged after renewing his oath of office simply to “stabilize our budget.” Three days later, on [January 13^th], he did the reverse of what so many governors are urging, and signed a 66 percent increase in the state’s income tax rate.

· [I]in Minnesota, where Gov. Mark Dayton, another Democrat, faces a $6.2 billion deficit and a Legislature controlled by Republicans, he has advocated for a tax increase on the wealthy… After being sworn in this month, Mr. Dayton told the crowd, “To those who sincerely believe the state budget can be balanced with no tax increase — including no forced property tax increase — I say, if you can do so without destroying our schools, hospitals and public safety, please send me your bill, so I can sign it immediately.” Otherwise, Mr. Dayton said, he hoped his colleagues would work with him on “this challenging, complicated and essential” budget process.

· “Some of our sister states and some cities within them face the very real possibility of bankruptcy because of their mountains of deficits and debt,” said Dennis Daugaard, the newly inaugurated Republican governor of South Dakota, who has asked departments in his state to cut spending by 10 percent and has announced that he would cut his own annual salary to $98,000 from the $115,331 his predecessor collected… “They have promised their citizens something for nothing,” Mr. Daugaard said of other states during his inauguration in Pierre this month, “and created a society where everyone wants to be carried and no one wants to pull their own weight.”

· In New York, Gov. Andrew M. Cuomo, another Democrat, sounded a similar call. “We must right-size the state government for today,” said Mr. Cuomo, who added that New York had no future if it intended to be “the tax capital of the nation.” Emphasis added.

In the end, these dry cows are experiencing the "udder failure" of decades of exponential spending growth and are now forced to slice and dice needed services to pay for those services with vested contractual benefits we know we must live without… but are forced to pay for anyway because these benefits have already vested.

I'm Peter Dekom, and I think I've milked this metaphor for all it's worth!