Dismal, dire, grim, unprecedented. These were the adjectives being used at this year's annual National Conference of State Legislators (NCSL) to describe the condition of state budgets across the country. While state budgets are always a major topic when state legislators gather for their annual confab, this year they were the topic of discussion — the unavoidable elephant in the middle of the convention center throughout the week long conference.

David Cohen, executive vice president of Comcast Corporation summed up the predicament of state legislators and financial bureaucrats best, during his appearance in the Wednesday morning general session. He pointed out that the impact of the economic crisis is different for state and local governments being hit hard by falling property, income and sales taxes, because, "unlike the federal governmet, they do not have the authority to print money."

What Cohen did not go on to say however, was that the lack of authority to print money does not preclude states from going on the federal dole to spend freshly printed money. In fact, this year states were more than happy to develop a variety of novel ways to close their fiscal 2009 budget deficits with freshly printed "stimulus" money being doled out through the American Recovery and Reinvestment Act of 2009 (ARRA).

The injection of billions and billions* of federal ARRA dollars into the late stages of the state budget making process this year made it difficult for the analysts working on the NCSL staff to provide undistorted comparisons for the financial health of the various states. Twenty-five of the thirty-five states reporting survey data back to NCSL used federal ARRA funds to help balance their budgets. For example, Texas, due in part to historically high oil prices, is in better shape than most states, yet, it claimed to fill 96.7 percent of its budget gap with ARRA money, rather than pursue the usual mix of raising taxes and slowing the growth of spending. (Author's note: throughout the week of hand wringing over budget deficits we can't remember any of those making presentations calling for reductions in overall spending.) While Texas looks to be sitting good for FY2009 things could look more bleak for FY2010 and FY2011, as the funds from what was first sold as a one-shot stimulus package peter out.

Other states like California have dug themselves so deep that using ARRA simulus money is just throwing money down a gaping hole. But, while Califorinia's state budget woes are regular national news, other less glamourous states might be as bad or worse off. A flamboyant favorite of NCSL gatherings, Chicago area State Senator Donne Trotter called the condition of Illinois' state budget, "A story best told around a campfire." He asked the standing room only crowd for the state budget update and round table discussion to, "think of Illinois as the California of the Midwest." And this was after a budget analyst for Michigan opened the discussion by noting that state revenues in auto-industry crippled Michigan this year, adjusted for inflation, were at 1960's levels.

The news from Michigan had brought a gasp from the crowd, in which many must have glimpsed a fleeting vision of having to live a backward era, when government was a consideralbly less significant part of people's daily lives. For his part though, Senator Trotter kept his bad news up tempo delivering it with a John Stewart type flair. For those who might have missed the news in Illinois politics, he offered: "We've got a new governor." Trotter then confessed that with only bad choices to work with, the state legislature took advantage of the situation and simply passed a "lump sum budget," leaving all the tough spending decisions to the the likely dead duck governor. "We made him the guy, the king," Trotter averred. He then invited his collegues in state government to, "Join me with a big drink and I'll tell you how not to run a state."

As for the Republican rebuttle to how the budget deal was put down in Illinois, the Democrat Senator said, "There is none. We were in cahoots." He closed his engaging monologue by noting that the new governor in Illinois was currently in Kuwait, "Probably taking commando training ... He's going to have to watch out for roadside bombs when he gets back."

Throughout the panel discussion, gallows humor was the comic relief of choice admist retailing of state budget woes. The numbers are big and bad. NSCL estimates that cummulative budget deficit gaps that needed to be closed for states in FY2009 reached $113.2 billion. The estimate was an even bigger $142.6 billion for FY2010 budgets that for the majority of states started on July 1st. And, state collections of property, income and sales taxes, which always lag economic recovery, are still going down. In the case of erroding property tax bases, an anecdotal example was provided by a representative from the Reno, Nevada area. She claimed the house she bought three years ago for $350,000 was now appraised at $120,000.

While creative fixes to plug budget gaps range from delaying payments to school districts in Minnesota to shutting down interstate highway rest stops in Virginia, the most common fix, after sucking up short term ARRA stimulus dollars, looks to be broadening and raising sales taxes. The state of Maine is a good example of this. Going into their financial crisis "ah-ha moment," approximately 34 percent of Maine's sales tax base was from new car sales. The next biggest category was from the sale of construction materials. Obviously, this was not a winning plan going forward for the next few years.

In reviewing the sweeping tax law changes in Maine, state representative Thomas Watson remarked to the audience, "This recession gave us the political will to do this — the things we've been trying to do for 20 years." (This was actually a kinder, gentler restatement of President Obama's Chief of Staff Rahm Emanuel's quip about  wanting "a serious crisis go to waste.") Thanks to thinking erroneously in Chinese and imagining opportunity in crisis, what Maine now has are many new sales taxes in exchange for the carrot of lowering its whopping 8.5 percent state income tax down to a still high but more marketable 6.5 percent.

The dangerous process of finding opportunity in crisis was also not without its patronage. For example, Maine's new tax on recreational entertainment covers mini-golf parks (all 4 or 5 of them in Maine I suppose). But, owing to the intervention of the state's governor, the new tax will not apply to bowling alleys.

Outside of strong state legislative support for a federal bill now being pushed in Congress to tax all purchases on the Internet to support state spending budgets, the trend for new sales taxes does seemed to have been sold on the concept of taxing the outsiders. Those who read their rental car and hotel bills already know this too well. If you are a member of the dwindling stock of tourists out there, prepare to see your taxes go up. The running joke around the table of state legislators was, please visit our great state, so we can tax you to help pay our bills.

If we would all buy more lottery tickets that would help too!

This is the first in a series of articles based on The John Birch Society's participation as a exhibitor at this year's National Conference of State Legislators in Philadelphia the week of July 20th. In our next article we will review what was said at the NCSL regarding the time bombs of state unemployment insurance funds and pension plans. Hint: prepare now for state legislator calls to invoke federal stimulus round II.

*Remember when Carl Sagan made that phrase sound like a big number when talking about all the stars in the universe?

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us and them said:

	... whew more good news
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July 31, 2009
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danwhitehead1 said:

	Why not make a huge cutback - - - - - - on the income of all the political swine and the bureaucratic pigs? Reduce their income to minimum wage (ALL of them) and cut out the undeserved and unearned extras. Why should the pigs and swine live better than the people who are supporting them? I never did understand that one.
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July 31, 2009
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Burticus said:

	... We now return to the regularly-scheduled elephant & jackass show...
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August 01, 2009 | url
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