February 16, 2008

It's One Thing to Have Company in Misery; It's Another to Be a Leader

Justin Katz

Rhode Island can't be doing so badly if it's only one of at least 25 states facing budget shortfalls, can it? Well, considering the sour mood about the economy across the nation, it's perhaps surprising that 25 states don't have shortfalls. In judging between those that do, though, one would want more information than a snapshot in the midst of an economic downturn. Some of the states might have reserves that Rhode Island lacks. Unique circumstances such as decreasing Katrina aid affect others.

But even based on the information we're given, it presumes a bit much to minimize Rhode Island's problem with this sort of context. Notice anything about the following table of states' projected budget gaps?

Amount Percent of FY2008
General Fund
Alabama $784 million 9.2%
Arizona $1.7 billion 16.2%
California $14.5 billion 13.9%
Florida $2 billion 6.5%
Illinois $2.5–3.0 billion 9.1–10.9%
Iowa $350 million 6.0%
Kentucky $266 million 2.9%
Maine $57 million 1.8%
Maryland $550 million 3.8%
Massachusetts $1.2 billion 4.2%
Minnesota $373 million 2.2%
Nevada $565 million 7.8%
New Hampshire $50–150 million 1.6–4.8%
New Jersey $2.5–3.5 billion 7.6–10.6%
New York $4.7 billion 8.7%
Ohio $733 million–1.9 billion 3.6–9.4%
Rhode Island $380 million 11.2%
South Carolina $160 million 2.4%
Virginia $1.2 billion 6.9%
Wisconsin $652 million 4.8%

How about on this New England–only version?

Amount Percent of FY2008
General Fund
Maine $57 million 1.8%
Massachusetts $1.2 billion 4.2%
New Hampshire $50–150 million 1.6–4.8%
Rhode Island $380 million 11.2%

It's one thing to be "sharing the pain" with other states. It's another when that pain is almost three times as acute for us as for our closest neighbors, at a minimum.

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Great post. Could it be any clearer?

The problem is not revenue, when you're the fourth highest taxed state. The problem is spending. And, as Justin said, we're spending beyond our means three times faster than our nearest "rival".

Posted by: Monique at February 16, 2008 8:58 PM

It's nice to see that we're leading in something else other than indoor prostitution. ;)

The other major problem that we have is a lack of significant economic growth. Real economic growth is primarily driven by private industries (big and small) and by private investment, which is done primarily by people who already have money who wish to make more of it. As a result of folks in the private sector wanting to make more money for their businesses and presumably also for themselves, it ends up creating this nifty thing in a state called "private employment." Employers hire employees, and they both pay taxes! However, they don't do it if they can't make money at it.

Economic growth does not occur because of continuous and ultimately unsustainable levels of growth in government spending (of course, since "we" essentially are the government, government spending ultimately ends up being at our expense). Any affect that government spending may seem to have is largely short-term, and thus an illusion. We need to focus a whole lot more as a state on long-term solutions to attract investment (thus generating more revenue), and not just quick fixes which do more damage in the long run.

Many other states, which are not currently in the red, have avoided deficits by creating comparatively friendlier environments which attract businesses and better educated people to either stay or to emigrate into their states. That results in more revenue going into the states' coffers; despite income, sales, and property tax rates which are often much less than our own. When a state's short on cash, the impulse can't just always be "raise taxes." When people have a choice, they almost always choose to go where they can pay less for the same or better; not more for worse.

I'm reminded of a Reagan quote that seems to sum up Rhode Island's predicament pretty well:

"Those doing all the criticizing had their chance. In the four years before we got to Washington, they had it all. They had the whole enchilada ... they virtually had a free hand and all they could think to do with that free hand was to stick it in your pocket."

Posted by: Will at February 18, 2008 2:17 AM

It's no mere coincidence that the states doing the best economically - and therefore the places that "working families" are doing best - are in the Sunbelt, mostly Republican dominated and union-free (right to work) states;

While the states in decline are Democrat / union dominated, here in the Northeast and in the Rustbelt.

The spin notwithstanding, Democrats and unions are actually harmful to "working families."

Posted by: Tom W at February 18, 2008 12:40 PM

Would love to see the party composition of each state's legislature. I know Florida and Virginia are Republican, but I wonder about the rest?

Posted by: John at February 20, 2008 2:59 PM

Would love to see the party composition of each state's legislature. I know Florida and Virginia are Republican, but I wonder about the rest?

Posted by: John at February 20, 2008 2:59 PM
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