Transcript Katherine McFate: State Budget Crises and Responsible

State Budget Crises and
Responsible Contracting
The Anti-Government Spiral
Negative attitudes toward
government
• Promoted deliberately by anti-government
conservatives
• Reinforced by political candidates and
elected officials as they criticize their
opponents
•Inadvertently repeated by non-profits leaders
and advocates, esp those who want govt to do
better
Quality of governance
declines
Growing anti-tax
sentiment
Cuts in public
services and staff
The Anti-Government Spiral
Negative attitudes toward
government
• Promoted deliberately by conservative
• Reinforced by political candidates and
elected officials as they criticize their
opponents
•Inadvertently repeated by non-profits leaders
and advocates, esp those who want govt to do
better
Quality of governance
declines
1. Make the case for
government
Growing anti-tax
sentiment
Cuts in public
services and staff
Dramatic Decline in State
Economic Circumstances
National Unemployment Over 10%
Real unemployment rate could be 18%
Less than 9%
9.1% to 10%
More than 10%
Source: Bureau of Labor Statistics, November 2009
Projected FY2010 Budget Gaps
More than 30%
10 to 30%
Less than 10%
Source: Center on Budget and Policy Priorities, November 2009.
A Confused and Angry Public
Public Opinion
• The public confuses the $787 billion for ARRA with
the bank bailout ($700 billion TARP) and the auto
bailout & doesn’t understand how ARRA was
structured
• Majority of likely voters believe recession is not over;
Lack of jobs is biggest problem the country is facing;
Obama Administration needs to do more
• A well-funded effort to create a crisis about the
federal budget deficit is bearing fruit (Peterson
Institute)
Our story
Their story
• De-regulation, lack of
enforcement, and risk-taking
by financial institutions
caused the recession
• Irresponsible borrowers,
programs for the poor, and
incompetent government
officials caused the recession
• Government can pave the
way for economic recovery –
especially for the middle class
- with investments in public
structures
• The wealthy create jobs; the
government only gets in the
way of economic actors
• The public structures we’ve
built over the last 80 years
can’t be maintained without
investments
• The states are facing fiscal
crises because they have tried
to do too much; cutting state
spending is the solution to
the state fiscal crisis
The Banks Crashed the Economy
• The banks – especially the big banks who received TARP
money - brought down the economy by creating , marketing,
and gambling on riskier and riskier financial products – with
borrowed money
• When the bubble they created burst,
–
–
–
–
–
–
–
$15 trillion in personal wealth and gone
$6.1 trillion in housing value disappeared
Pension funds (the top 1000) dropped a trillion dollars in value
8 million jobs have been lost since the recession began
Unemployment is over 10%
One in nine Americans – 34 million – are on Food Stamps
39.8 million people in poverty - highest number since 1960
The Economic Collapse Crashed State Budgets
• State budgets are suffering because revenue comes from:
–
–
–
–
Property taxes (property values declined 20-30%)
Sales taxes (depressed)
Income taxes (millions unemployed and wages cut)
Corporate taxes (businesses are contracting)
• But needs grow in an economic downturn:
– Unemployment Insurance (paid for through state payroll taxes, a
declining base; states had been raiding rainy day fund)
– Medicaid and uninsured healthcare costs (numbers grow with
unemployment)
– Transportation and infrastructure repairs and maintenance (put off for
years, engineers now say basic repairs are URGENT)
– States pay for k-12 and public university education costs (competing in
new economy requires ever higher levels of literacy and reasoning)
The Recovery Act provided $787 billion for:
•
•
•
•
•
$288 B (37%) in tax breaks to individuals and business
$154 B (19%) for infrastructure, energy, science
$144 B (18%) in state fiscal relief
$112 B (15%) for healthcare, education & training
$81 B (10%) on support for low income households
• 1-1.5 million jobs have been saved or created with $220 B of
the stimulus that has been spent
• But only a minority of likely voters believe the stimulus has
had a significant impact on the economy
Source: Economic Policy Institute
Looming State Budget Crises
• State and local budget shortfalls
– FY 2009 $104 B (Recovery $31 B)
– FY 2010 $217 (Recovery $68 B)
– FY 2011 $220 (Recovery $38 B)
– FY2012 $140 B (Recovery $2 B)
• Slashing support for public structures will
undermine a state’s ability to grow its economy and
the ability of its citizens to compete in the economy
of the future – “eating the seed corn”
Source: Economic Policy Institute
Federal versus State Role in Social Spending
in billions
3000
2500
2000
1500
1000
500
0
Federal: $1,932.5
All Else
Social Security
Education
Safety Net
Corrections
State: $1,056.1
Healthcare
Transportation
Federal versus State Role in
Discretionary Social Spending
in billions
3000
2500
2000
1500
1000
500
0
Federal: $990.3
All Else
Corrections
State: $1,056.1
Safety Net
Transportation
Healthcare
Education
Federal versus State Control
over Social Spending
in billions
3000
2500
2000
1500
1000
500
0
Federal: $563.6
All Else
Corrections
Safety Net
Transportation
State: $1,482.7
Healthcare
Education
State and local governments provide/pay for:
• Public education -all children from kindergarten through high
school; subsidies to public universities
• Police, fire, emergency services
• Parks, playgrounds, and recreational areas
• Protection of clean water and air; sewers, trash removal
• Prisons and jails
• The maintenance of roads and bridges
• Courts and the judiciary
• Subsidies to healthcare providers
• Care for the handicapped and long-term care for the destitute
elderly
• A myriad of other public services and public structures
STATE
GOVERNMENT
The Federal govt has provided more support to the
financial institutions that crashed the economy
than states dealing with the economic devastation:
• TARP (Troubled Assets Relief Program) provided $700 billion in
direct loans to banks with “toxic assets”
• The Federal Reserve (our central bank) provided TARP banks
with another $4 TRILLION in guarantees to help shore up the
banks – even though the banks have not started loaning
money to small businesses or modifying family mortgages to
keep people in their homes
• The Federal Reserve guaranteed the banks’ bets by bailing out
AIG
• The Federal Reserve continues to lend money to the banks
who crashed the system at very low interest rates – which they
are using to give bonuses and finance big merger deals
The fiscal crisis facing state governments is the
worst in our nation’s history
• States have never faced such a large and swift fall in
resources
• Huge cuts in state spending will make the recession
deeper, longer, and undermine the fragile success of
early stimulus funding
• Traditional ways that state raise funds - issuing bonds
and borrowing from private banks - will reward the
institutions and individuals who created the crisis
Projected FY2010 Budget Gaps
More than 30%
10 to 30%
Less than 10%
Source: Center on Budget and Policy Priorities, November 2009.
Instead
• The Federal government should provide more $200$300 billion in direct aid/fiscal relief to states
and
• The Federal government should take over
responsibility for funding Medicaid
and
• State governments should be able to borrow from
the Federal Reserve directly at the same rates as
the private banks, cutting out the bank fees and
profits and giving states access to capital for critical
public investments