Thursday, April 10, 2008

Ben Franklin Report: States Paying Bills

What is an annual or bi-annual exercise in frustration in good times, has become a nightmare for many states across the union, as legislators tangle over spending priorities. An equally alarming trend is that some states were only able to reach their decisions behind closed doors, away from the probing eyes of the concerned public. And how concerned should the public be about the problems behind budget shortfalls? Well, the public is already cutting back on their expenditures, so there's little reason to further bemoan the plight of Main Street. To provide some background context, here are the BEA's GDP Figures by State. Government spending is a major factor in GDP calculations, and with states being forced to spend less, there will be further downward pressures on GDP for 2008.

In Kentucky, the budget process is getting bogged down as State Legislators use money in special funding pools to spend millions of dollars on efficient and not expenditures, such as infrastructure little league equipment. However, to add more funds to the state's General Fund, lawmakers are planning to seek at least $25 million through the sale of bonds. Even with the modest amount requested, one would hope that the State Government would seek to diversify their income sources to allow for more flexibility. The deadline for final action on the budget is April 15th, the last day of the 2008 General Assembly.

In New York's new budget, the final version of the budget allots education funding in a similar pattern to previous state budgets, with appeals to certain constituencies, such as Westchester. Nine days late, the budget was decided in last minute closed door talks between legislative leaders and Gov. Patterson, who has reportedly been marginalized throughout budget negotiations. However, depending on $1.5 billion windfall funding begs the question of whether or not the state has overspent.

In another case of infrastructure projects falling under the axe of deficits caused by falling receipts and increased costs, South Carolina's budget is facing a $90 million shortfall that appears to be stifling long-term economic growth and short-term development opportunities. Water and sewage aside, the proposed fiber optic system, Light Rail, designed to connect the state's three research universities to national and international colleagues probably would have created numerous extraneous benefits beyond the possibility of drawing private investment.

Nevada's situation seems much more drastic, or in the words of Senate Minority Leader Dina Titus, Democrat from Las Vegas, "We're down to the bone." As all of their traditional revenue streams have dried up, the state is facing at least $350 million in budget shortfalls, aside from unfunded liabilities in the State Pension system which will cause problems in future years.

In California, the Governator is on a tour of Republican strongholds to drum up support for an amendment to the state constitution required by his sytemic fix of the state budget process. In an effort to tie the hands of legislators, Arnold is trying to limit increases in legislative spending to 5.4%, the average increase in revenue in the state, an effort to average out the boom and bust years.

In Florida, the downturn in tax revenues has gotten so bad, that the Florida House has proposed suspending Hospice funding for the next two years. Lawmakers argue that the programs can be supplemented by localities and hospitals. It stands as just another lesson of the problems that stand to be created as states reduce the services they can offer as they aren't able to make Benjamin Franklin stretch in quite the way he used to.

, too, is facing shortfalls, with the state legislature predicting that only 54% of the second-tier Class B spending will be funded in the coming year.

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