Tuesday, November 18, 2008

Our Spendthrift States Don't Need a Bailout

Lately you've been seeing a sort of consistency with my recent posts here on Illinoize. Most of these stories aren't entirely Illinois-centric, but surely they have an impact on the state all the same. Perhaps the thing about this is Illinois might also suffer some of the issues indicated in the article from the Wall Street Journal:

Last year at this time, many governors and state legislators were imploring Congress to let them spend more money by expanding the State Children's Health Insurance Program. Since the states share the cost of the program with Washington, the expansion would have allowed them to cover families with incomes up to 300% of the poverty level (more in some cases). It also would have meant hundreds of millions in additional state spending, and an estimated $24 billion in additional federal spending. President Bush vetoed the bill.

Today, governors and state legislators are singing a different tune. Unable to pay their bills as tax revenues shrink, they're imploring Washington to bail them out. California Gov. Arnold Schwarzenegger, who had been grappling with a $15 billion budget deficit, wrote to Congress on Oct. 21 applauding plans for $14 billion in aid for states in the latest proposed federal economic stimulus plan. New York Gov. David Paterson has twice traveled to Washington, most recently on Oct. 29, to ask for federal aid. The Empire State's budget deficit is now estimated at $12 billion over the next two years.

This zigzagging -- beseeching the feds to let them spend more money one year, begging for a bailout the next -- is what passes for long-term budgeting in many state capitals. From the end of the last recession in 2003 until this year, states collectively boosted general-fund budgets by an annual average of some 6.4%. In just 2006 and 2007 alone they added about $100 billion. During the period from 2003-2008, states also took on 38% more debt, increasing their collective indebtedness to $2.19 trillion.

Now it's cold-shower time. Earlier this year, in the spring, more than half of the states grappled with budget deficits amounting collectively to nearly $50 billion. Since then tax collections have fallen short of projections, producing further midyear budget holes in nearly two dozen states.
Oh there is a section that mentions the state...

Illinois has attempted to deal with a nearly $2 billion budget deficit in part by slowing down payment of its bills (its backlog of unpaid invoices was recently $1.8 billion) and hoping tax collections would revive. Instead, they are declining and the state's budget gap is widening. In Pennsylvania, Gov. Edward Rendell hoped a hiring freeze would help solve the state's budget woes. Just a few weeks after announcing the freeze on Sept. 16, the budget gap grew by nearly $300 million because of declining revenues.
And here's the crux of this piece why this article might claim that states don't need a bailout...
This is not the first time states have been caught in this trap. One reason is because many fail to address their deep, structural budget problems during the good times, preferring to use booming tax revenues to start or expand politically popular (and often costly) programs. Another, deadlier issue is their failure to deal with huge and growing employee pension and benefits liabilities.

This is a very good piece to read.

To get back to the state it seems Illinois had a big spending governor with some very ambitious spending plans, especially on health care. Of course now not about expanding health care for the uninsured, the name of the game at the moments seems to be cutting as Gov. Blagojevich announced today. And the pensions, public employee pensions figure in this piece as well.

ADDITION: Here's more about the governor's plans for cuts and borrowing from the Federal Government...

Blagojevich intends to approach state lawmakers for permission to cut spending within state agencies by 8 percent, a move that undoubtedly would result in major savings but lead to more state layoffs and service cuts.

The governor said he is working with Treasurer Alexi Giannoulias and Comptroller Dan Hynes to do short-term borrowing akin to the $1.5 billion loan obtained by Blagojevich’s administration in 2003 to reimburse Medicaid providers and nursing homes and to make state aid payments to schools.

Blagojevich also wants the federal government to put Illinois on the list of states seeking relief under any kind of economic stimulus package. Specifically, the governor wants more than $1 billion annually from Washington over the next three years.

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