The LABI Report: The wailing and teeth-gnashing

Published 12:00 am Tuesday, January 28, 2003


As 2003 begins, there is a huge cry of “desperation” from state and local governments across the nation. Many are faced with severe budget problems, and already the demands are starting for a federal bailout for these governmental entities. Before Congress rushes to heed those cries, it may want to look at what caused those deficits, as well as the fiscal policies of those governmental bodies.

According to an analysis recently conducted by USA TODAY, much of the huge budget “cuts” being proposed in many of the states are not truly declines in spending from previous budget years. Instead, they are reductions in already-approved budget increases. The analysis shows that, during the first nine months of 2002, state and local government spending actually rose by 4.2 percent (3.3 percent if adjusted for inflation).

Are state and local governments reducing employment first before calling on Congress to bail them out? As the car rental commercial says, “Not exactly!” According to “USA Today,” state government employment actually rose 0.6 percent in the last year, and local governments grew their workforces by 1.4 percent – both totals representing historic high levels of total employment. In fact, during the 1997-2001 interval, state population growth rose by only 4.5 percent, while state government employment grew by 5.8 percent. Even as state and local government employment was rising to record levels during the past year, the private sector workforce was plummeting.

Before Congress gives any serious thought to state government bailouts, it should clearly examine the source of the problem. The crux of this “crisis” has its genesis in the huge spending orgy that state and local governments indulged in during the boom years of the 1990s. State and local government spending has not fallen in any year since 1944 and has outpaced inflation every year since 1982. A hot national economy fueled a governmental spending spree unparalleled in our history. No thought was given to how the huge additions to state and local budgets would be financed if the economy faltered. State and local officials measured their success in dollars spent, but now they would like to change the criteria for how they are judged.

Should the federal government send federal tax dollars to state and local governments to help bail them out of budget problems? Not according to some economists who feel such assistance would be like rewarding bad behavior in children. Writing in “Investor’s Business Daily,” Jason M. Thomas opines: “Today’s record cumulative state budget deficit of 7.8 percent of aggregate general fund revenues did not just happen. It’s the product of irresponsible budgeting and overly sanguine revenue forecasts. By rewarding states’ fiscal negligence, the federal government would encourage – and get – more of the same.”

Actually, the federal government can do something to help the states with their (mostly self-inflicted) budgetary problems: It can remove the myriad of federal mandates on state and local governments that tax citizens indirectly and drive up the cost of doing business all across America. That would be a much more promising solution to their problems than giving them a bailout with encouragement to continue their poor fiscal policies.

There is too much government at all levels in this country. One answer for state and local governments is to take out their erasers for once and start eliminating the most recently added programs. If they set proper priorities in their budgets over the years, older programs should generally be more critical than newer ones. If they didn’t set priorities properly in the past, now is a good time to start.

DAN JUNEAU is the president of the Louisiana Association of Business and Industry.