July 1 Fiscal Year: Thanks to GOP, Doomsday Arrives for State Budgets

Posted by AzBlueMeanie:

For the second year in a row, and the only time in Arizona history, the GOP-controlled legislature has failed to enact a balanced state budget by the start of the fiscal year on July 1. A balanced budget is constitutionally mandated, but our Republican governor and legislators have failed miserably in their constitutional duty. (The budget was passed without a single Democratic vote.)

"But wait," you ask, "didn't the legislature pass a budget months ago and declare the session sine die?" Yes they did. They passed the "Jan Sham Budget" which relies on voters approving two ballot measures in November to permit the legislature to raid the voter mandated special funds from the Early Childhood Development and Health Programs (Prop. 302) and from the Land Conservation Fund (Prop. 301). Even in the unlikely event that these ballot measures are approved by voters in November, the FY 2011 budget will still have a deficit.

Republican senators who have been filibustering the unemployment insurance extension bill in Congress have at the same time prevented passage of aid to the states, primarily for Medicaid programs, which is also included in the bill. This has blown another deficit hole in state budgets.

As Jon Perr explains PERRspectives: Thanks to GOP, Doomsday Arrives for State Budgets:

For months, governors and economists alike have been warning that unprecedented revenue shortfalls in the states would lead to draconian budget cuts and massive layoffs. Now with the July 1 start of fiscal year 2011 for many states, doomsday is here. And thanks to Republican obstructionism in Congress, the combined $89 billion budget gap facing the states could result in 900,000 jobs lost – and an end to the nascent economic recovery.

Last month, President Obama asked Congress to send him a $50 billion aid package for the states in order to avert "massive layoffs of teachers, police and firefighters." And with good reason. Despite the success of the American Recovery and Reinvestment Act, economists like Stephen Gordon warned "The increases at the federal level have not been enough to compensate for the spending cuts at the local and state levels." While the Congressional Budget Office (CBO) and former McCain economic adviser Mark Zandi among others touted federal aid to the states as the biggest bang for the stimulus buck, a new report from the Rockefeller Institute painted a grim picture if Congress failed to act.

The revenue decline comes despite the tax increases imposed by many states since the recession began. With less tax money coming into state treasuries and expenses for programs like Medicaid continuing to mount, many states will probably be forced to consider further tax increases, spending cuts and layoffs — actions that some economists warn could put a drag on the nation's fragile economic recovery.

And still Senate Republicans said no, choosing instead last week to filibuster last the $112 billion jobs bill that provided new grants and badly needed Medicaid funding to refill state coffers.

Now, the Washington Post reports, the chickens are coming home to roost. And, as the Post put it, "Nothing less than the nation's nascent economic recovery hangs in the balance."

The result of the financial Armageddon coming to state houses nationwide could "deliver a potentially crippling blow to the economy." After two consecutive years of revenue declines and a $74 billion drop-off (11%) in state spending since 2008, the stimulus funds which refilled state coffers will soon dry up. Nevertheless, 30 states included new federal money in their budgets, "assuming that Congress was sure to approve it given its past support and the fiscal chaos likely to ensue if the money is not forthcoming." But unless Democrats can overcome the Republican roadblock soon, that fiscal chaos will be coming to a state near you.

States face a combined deficit of $89 billion in the fiscal year that begins Thursday, according to the National Conference of State Legislatures. And because every state but Vermont is required to balance its budget, the only recourse is cutting employees or vital programs, including education spending, medical services, programs for the disabled and elderly, and police and fire protection.

All that cutting could mean the loss of 900,000 jobs — in the public sector and in private companies that rely on state business, according to the Center on Budget and Policy Priorities, a liberal research group.

Multiplied by 50 states, 46 of which are looking at red ink and all but one of which are required to produce a balanced budget, what will happen is an economic calamity. As Raymond C. Scheppach, the executive director of the National Governors Association put it:

"More and more economists are talking about a double-dip recession. These cuts could be the straw that breaks the back."

That appears to be a gamble the GOP is willing to make. Despite new survey research showing that over half of Americans "have suffered a spell of unemployment, a cut in pay, a reduction in hours or have become involuntary part-time workers," Republicans are still blocking the extension of unemployment and COBRA benefits for the jobless (and even aid to homeless veterans). And when it comes to the fiscal crisis in the states, the Pew Research Center received mixed messages from Americans this week. While only 26% want the federal government to add to its deficits to help states, large majorities reject state cuts to education (73%), public safety (71%) and health care (65%) programs.

But when the budget ax falls in states across the country, Americans will know who was on their side – and who was to blame.

This is a bit of political naivete. Americans have voted against their own economic best interest many times based upon divisive wedge issues like "guns, God and gays," and here in Arizona the ever-popular xenophobic anti-immigrant hysteria. Voters tend to blame the party in control during recessions, even when the Republican "disloyal" opposition (whose economic policies created the recession) have so blatantly done everything in their power to undermine and to prevent economic recovery for purely partisan political calculations. This kind of behavior should be harshly punished, not rewarded by the voters.

The failed Republican economic policies of the past 30 years created the economic calamity we face today at the state and national level, yet Republicans, with a straight face, are asking you the voters to give them back the keys to the car that they so recklessly and incompetently drove into the ditch. The American public should colectively rise up and just say "no!".