Wall Street Journal ^ | January 26, 2009
When Detroit's auto makers begged for a federal bailout last month, Congress demanded that their CEOs make changes to their operating model in return for a check from Uncle Sam. If only Congress would demand the same from the state and local politicians now seeking $200 billion from federal taxpayers.
President Obama has announced that a big check to state governments is part of his stimulus spending plan in order to "save the public sector jobs of teachers, police officers, firefighters, and others who provide vital services." But the states aren't innocent victims. Their revenues have collapsed of late, but the main reason so many states are broke today is because lawmakers thought the days of living well would last forever.
The state spending binge of the last five years has been almost unprecedented in American history. (See nearby chart.) Since 1998 state and local budgets have nearly doubled to $2 trillion, according to the Census Bureau. State and local expenditures rose 34% from 2003-2007 compared to inflation of 19% and population growth of 5%. They also loaded up on debt, which doubled to $2.23 trillion in 2008 from $1.14 trillion a decade earlier. This doesn't include nearly $1.5 trillion in unfunded health and pension liabilities.
The states with the biggest deficits tend to be the most profligate. California has by far the biggest gap -- $40 billion -- thanks in part to a 40% increase in spending over the last five years. Arizona, Florida and Nevada also have deficits of roughly 20% of their operating budget; each of these states allowed their expenditures to grow by more than 50% faster than the average state budget over the last decade.
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Also from the article: New York has a $15 billion deficit -- but would run a $5 billion surplus if it spent the same amount on average as the other states. Since 2001, New Jersey added 15 state government jobs for every job created in the private sector.