Tuesday, June 12, 2012

State Revenues Increasing and Not Shrinking ... Fiscal Sanity Ahead?

States Remain Cautious Even as  Finances Improve suggests a subdued future spending atmosphere for state legislatures:

"States' finances are getting healthier with the slowly improving economy, but governors, leery of the recovery, have kept a lid on spending increases as a result.

State tax revenues are projected to rise 4.1% in the 2013 fiscal year, which starts July 1 for most states, according to a report Tuesday from the National Governors Association and the National Association of State Budget Officers. State spending is projected to rise at roughly half that rate—2.2%—suggesting governors don't have a lot of faith in the economy's strength.

The long recession and slow recovery have led to big cuts in government services and employment. The job cuts have slowed but budgets, like the broader economy, are better but still not great. About 25 states are forecasting lower general fund spending in fiscal 2013 compared with the peak year in fiscal 2008, meaning half of states have recovered to prerecession levels.

In a sign that states are coming to terms with a new reality of slower growth in tax receipts and spending, only eight states have had to make midyear budget cuts in the current fiscal year. That compares with 19 states last fiscal year and 39 the year before that."

What It Means

The larger meaning concerning all this "state level austerity" is twofold: (1) state spending in total will be restricted by state income; and (2) state income growth will be restricted by a lack of solid U.S. economic growth.

And solid overall economic growth won't occur as long as the leadership of our debt ridden society elects not to focus on enabling the private sector to invest and grow by all means possible. And that switch in focus won't take place as long as government knows best politicians keep trying to do things that don't work.

And there's another problem, too. State spending now will be higher simply due to the fact that higher retirement and health care benefits for public employees will require greater cash outlays going forward than has historically been the case.

And state income will be lower due to the need to service our humongous debt levels which came about as an inevitable byproduct of the spendthrift ways of the past several decades.

Choices Ahead For We the People

Chad's post today "Young Voters Up for Grabs?" captures the essence of the dilemma. At various levels of government, we're continuing to spend money we don't have by borrowing it from other nations, and the various U.S. voting constituencies, including the younger workers, will now choose to register their preferences about priorities at the ballot box.

In simple terms, we can't spend the exact same dollar on both the young student and the old retiree.  Neither can we spend it on the public sector worker and the public sector retiree. 

Painful choices concerning spending priorities will have to be made at the state level, as well as elsewhere, but it won't be because states are strapped for funds. Actually, their revenues are increasing. Just not enough for all the promises that have been made by the politicians.

Here's a question. Is a good common sense We the People approach about (a) spending less than politicians would like to spend, or is it instead about (b) spending our limited funds responsibly?

And if it's about spending responsibly, wouldn't it seem logical that we'd also want to do everything possible to help our economy to grow, so there would be more money to spend responsibly?

Summing Up

In any event, most of We the People would feel pretty good about a 4.1% increase in income for 2013. We wouldn't think of that as austerity or cutbacks at all. We'd think we received a 4.1% raise. And we'd be right about that.

But many state and local politicians, cheered on by President Obama, apparently don't feel that way. To them there's never enough OPM to sepnd. Thus, even with a 4.1% increase, they'll still have plenty of trouble making ends meet. It's probably because they haven't had much "responsibility" practice lately.

But with all that being said, there's one more thing for certain.

The state politicians won't be able to please everybody. There's never enough money to do that.

So be prepared to hear many state and federal politicians loudly crying out the words "unfair," "austerity" and "cutbacks" during this fall's election season.

As for me, here's hoping that We the People don't listen to all that crap. As Abraham Lincoln famously remarked, "You can fool some of the people all of the time, and all of the people some of the time, but you can not fool all of the people all of the time."

Not even our U.S. politicians will be able to fool all of us. And hopefully, not even most of us. At least not this time.

Thanks. Bob.

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