No easy solution is available in the state budget office’s toolbox to prevent legislators from having to make some difficult and unpopular decisions this year. Across the country, state legislators blame decreased tax revenues as the cause of their budget woes, but in fact the recession has illuminated the underlying problem of state spending increases funded by debt and accounting gimmicks rather than real revenue.
This habit harms taxpayers just as irresponsible personal finance harms individuals—consumers can finance personal spending with debt; however, a large portion of their future income will be dedicated toward paying it off, plus interest. The American taxpayer will be doing the same for years to come, because state lawmakers have spent beyond their means. For example, Oregon voters recently elected to increase taxes rather than cut education funding—they now pay more money for the same level of services, because such a large portion of their tax dollars are financing the state’s debt.
Many states have reduced spending with government employee furloughs and widely publicized layoffs in the last year. This is only a short-term strategy, and it comes at a high cost to taxpayers who face sharply reduced public services. By minimizing redundancy and waste within state bureaucracies, legislators can find ways to ease their budget shortfalls without cutting valuable services.
This problem is not a Democrat issue or a Republican issue—regardless of party politics, state leaders want to give their constituents more than they pay for. Unfortunately, national headlines reveal: the tipping point is here.
Since the 1990s, states have been expanding their service provisions while attempting to avoid tax increases. As with any other bank account, outflow cannot continually exceed inflow in state coffers. Bills from past spending are coming due, and taxpayers will pay for these mistakes.
Each state, excluding Vermont, has a constitutionally mandated balanced budget. For decades, states have been avoiding this constraint with fiscal gimmickry by making their budgets appear balanced when they are not. The worst offenses include: rolling payments over into future fiscal years, borrowing from trust funds such as pensions, and making rosy predictions about revenue growth that cause budgets to deceptively appear balanced.