Almost all states were hit hard by the recession and are recovering very slowly, but a few — most notably Alaska, North Dakota, and Texas – experienced only a mild recession and/or are recovering more rapidly. Do these states’ tax and spending policies explain why they avoided the same economic fate of other states, as some have suggested? Actually no, according to a new analysis by Goldman Sachs.*
What really mattered, the analysis found, were three things:
As our survey of states’ new 2012 budgets explains, many states are making unnecessarily harsh cuts this year in services like education and health care. In five states — Louisiana, New Mexico, South Carolina, South Dakota, and Texas — those cuts are particularly unwarranted because these states are sitting on substantial “rainy day” budget reserve funds, equaling at least 5 percent of last year’s spending (see graph). The result? More sweeping budget cuts that will weaken public services and slow economic growth.
Federal budget negotiators are considering sizeable cuts to Medicaid as part of a deal to raise the debt limit, but some states are beating them to the punch.
The gloomy employment report for June included the news that state and local governments laid off 25,000 workers. Since shortly after the recession began, they have cut 577,000 jobs — the largest loss since the Labor Department started keeping track in 1955. These devastating layoffs are slowing the economic recovery. ...
About two-thirds of states have enacted budgets for the 2012 fiscal year (which begins on Friday in most states), and the news to date isn’t encouraging: most states are making substantial cuts to services that will slow the economic recovery and undermine efforts to create jobs.
The Wall St. Journal editorialized yesterday in favor of a bill that would renege on the federal government’s commitment to provide unemployment insurance (UI) benefits through December to Americans who have been looking for work for more than six months. That would impose added hardship on those families and slow the economic recovery by reducing overall consumer demand.
Police, firefighters, nurses, teachers, bridge inspectors and agriculture specialists have one thing in common besides making the quality of our lives better. They are part of a state and local government workforce that is losing jobs at a distressing rate.
Struggling to balance their budgets in the face of record revenue declines and rising needs, states have been making tough choices about raising taxes and slashing services ranging from education to public safety. Many states, however, are making these painful changes while leaving a huge share of the budget — up to half in some states — off the table.
My colleague Phil Oliff has outlined the damage caused by Texas’ cuts-only approach to its large budget shortfall. Fortunately, there’s an alternative: while the Texas Senate was releasing its cuts-only plan, Connecticut lawmakers closed their state’s shortfall using a balanced approach that includes new revenue as well as significant spending cuts.
House Ways and Means Committee Chairman Dave Camp and Senate Finance Committee Ranking Republican Orrin Hatch have introduced a bill that, they say, would improve the unemployment insurance (UI) system by “forward funding” federal UI payments to states. That sounds good and, in fact, “forward funding” is a worthy goal, as explained below. But, their bill actually would let states take federal funds that are supposed to help the long-term unemployed and use them for other purposes. That not only would hurt some of the most vulnerable Americans but also would slow the economic recovery.
