State budgets in fiscal danger, task force reports
By TOMER
OVADIA | 7/17/12 2:58 PM EDT
A task force
co-chaired by former Federal Reserve Chairman Paul Volcker sounded alarms over
the fiscal futures of state governments Tuesday with a comprehensive report
showing, in the words of fellow co-chair Richard Ravitch, “that it’s going to
be a hell of a lot more costly to deal with this problem five years from now.”
While the
State Budget Crisis Task Force report admits that “what we found will not be
surprising to many knowledgeable observers,” it provides a new trove of data
and analysis from more than a year of research of six states: California,
Illinois, New Jersey, New York, Texas and Virginia, which represent
approximately 40 percent of the U.S. population.
“Our basic effort here is not to say the apocalypse
is around the corner, but to say that it’s going to be a hell of a lot more
costly to deal with this problem five years from now than it is to try to deal
with it today,” Ravitch, the former lieutenant governor of New York, said at an
event announcing the report.
The task
force, which is funded by non-governmental
grants, set out in June 2011 to determine the extent to which state fiscal
challenges are due to the recession or to structural issues.
“The
conclusion of the Task Force is unambiguous,” a summary of the report states.
“The existing trajectory of state spending, taxation, and administrative
practices cannot be sustained. The basic problem is not cyclical. It is structural.
The time to act is now.”
The report
pointed to rising expenditures, particularly Medicare and retirement obligation
costs, as well as states’ restricted ability to raise revenue.
The task
force also emphasized that cuts at the federal level trickle down to state and
local governments, possibly shedding light on the broader implications of automatic cuts set to take effect at the end of
the year if Congress does not act. U.S. states depended on the federal
government for 32 percent of their revenue in 2009, according to the report.
Obama tried
to highlight the effect of state and local government cuts in a June 8 press
conference in which he famously said that the “private sector is doing
fine,” immediately adding that “where we’re seeing weaknesses in our economy
have to do with state and local government.”
The report
stops short of making specific calls to action, stating that “such decisions
are properly subject to the values and politics of a democratic society.”
Speakers at
Tuesday’s event, which was held at the Newseum in Washington, D.C., also took
aim at what they said was a lack of transparency on the part of state
governments, as well as faulty accounting practices that downplay the severity
of their situations.
Ravitch said
the problem is exacerbated by a preoccupation with the federal budget, an
evolving media industry, state capitals being in “cocoons” and a Congress
that’s “deaf” to the issue.
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