Dire states: in the eighties most state governments imitated the federal government; now they blame it for their problems

DIRE STATES

Tax, Tax, Spend, Spend

In the Eighties most state governments imitated the Federal Government; not they blame it for their problems. In truth, they have only themselves to blame.

IF THE 1980s were the best of times for state governments, the 1990s have so far been the worst. When Governor Mario Cuomo announced earlier this year that New York is "broke to the marrow of its bones," he could have been describing the sorry financial plight of thirty other states as well. Latest forecasts suggest that state governments may spend $30 billion more than they collect in taxes this year. Compared with the Federal Government's $350-billion deficit, this figure may seem like a rounding error, but for the states, which have historically had balanced budgets, it is unprecedented.

The one point that nearly all the governors and state legislators from Albany to Sacramento seem to agree on is that the fiscal deterioration is not their fault. The real villain, they say, is Ronald Reagan. Reagan is to blame because his economic policies -- particularly deep cuts in federal aid to states and cities -- have placed state governments in a fiscal straitjacket. The New York Times stated the conventional wisdom this way: "The seeds of the states' fiscal crisis were sown over the last decade or so. . . . The Federal Government has shifted a heavy financial burden to the states and cities, cutting or eliminating federal grants for housing, education, mass transportation, and public-housing projects."

Would that Mr. Reagan had been half as successful in cutting such programs as his critics give him credit for. The reality is that, like most other social spending, federal aid to states and cities was cut back temporarily in the early 1980s, but has subsequently rebounded. Since 1987, payments to the states and cities have leapt from $108 billion to $159 billion -- a 20 per cent real increase. Today's state budget deficits can hardly be blamed on the Reagan reductions in federal aid that occurred eight to ten budget cycles ago.

Where the governors do have a legitimate gripe with Washington is in the area of mandated spending. Increasingly, states are being required by Congress to spend money on a wide variety of social problems from illicit drug use to homelessness to inadequate health care. Last year's budget-summit agreement dictated some $10 to $15 billion in spending by the states. This has become Congress's new form of "off-budget spending": since the feds can't afford to pay for new programs, pass the costs on to the states. But as onerous as these federal mandates are, they do not account for more than a fraction of the red ink pouring out of state capitals today.

No, the states spent their own way into the current budget crisis. According to the most recent Census Bureau data, state spending between 1982 and 1989 grew at an annual rate of 8.5 per cent, or almost twice the rate of inflation--a spending pace that almost makes the Reagan defense buildup pale in comparison.

How did governors get away with such profligacy? In truth the spending spree went virtually unnoticed in a decade when economic growth yielded tax windfalls that easily kept pace with increased outlays. Governors were able to hike state budgets to satisfy program constituents while still achieving balanced budgets. The subtle irony of the 1980s is that for all their complaining about Reaganomics, the prosperity of the era yielded manna from heaven for state governments. The Cuomos, Deukmejians, Dukakises, Keans, and Sununus proved ready and eager to spend it, in what became a genuinely bipartisan budget orgy.

Riches to Rags

ANOTHER bitter irony in the states' riches-to-rags story is that just a few years ago many liberal commentators observed approvingly that the big-spending states had become the true laboratories of democracy, because of their willingness to appropriate funds to solve the nation's pressing social ills. These were the days of the Massachusetts Miracle, when nothing seemed unaffordable. Not surprisingly, it is the very states that launched the biggest spending buildup in the 1980s that are now teetering on the verge of bankruptcy. Average state budgets rose by a brisk 104 per cent in the 1980s. But in California and Virginia spending climbed by 120 per cent; in Massachusetts and New Jersey, 135 per cent; in Connecticut and Florida, 170 per cent. Today, all of these once highly esteemed states are awash in red ink; none of them seems nearly so innovative now.

Where did the states' budgets expand most in the 1980s? Mainly in the big-ticket areas of corrections, education, health care, and welfare. For example, the states along with local governments doubled spending on education--from $89 to $188 billion--during the 1980s. Not only did this spending buildup coincide with falling enrollment, but there was also an almost perfect correlation between rising expenditures per pupil and declining test scores. What the money mostly bought was an enlarged education bureaucracy. In North Carolina, for instance, while the state education budget was doubling, the ratio of teachers to non-teaching education employees tumbled from 2 to 1 in the 1970s to 1 to 1 today. New York raised its per-student spending to $7,500 a year, about twice the per-student cost at superior private schools.