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.
Republican stonewalling isn't just wreaking havoc on blue states like California, New York, Michigan and Illinois. Arizona has been forced to sell buildings and other state assets. Alabama now faces a yawning budget chasm because "the $1.6 billion General Fund budget passed by the state Legislature anticipated receiving $197 million for Medicaid from the jobs bill." Georgia, too, faces a $375 million hole created by the missing federal money it had been banking on to balance its budget. As the AP reported:
Bert Brantley, a spokesman for Georgia Gov. Sonny Perdue, said it is unclear what will happen if Congress fails to deliver the dollars but that more cuts could be needed.
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 piece also appears at Perrspectives.)
UPDATE: ThinkProgress lists the 17 GOP Senators from states with double-digit unemployment who voted multiple times to filibuster jobless benefits.