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July 07, 2009

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Not a very insightful post for you, Publius. Usually you do better. The problem that you point out is not one simply of state government, but of democratic/representative governments in general; the buck can't simply be passed to the federal government, which is heading in the same direction as California albeit a bit more slowly.

Secondly, you fail to note that not all states are having budget problems (Texas being a good example to pair with California). When I lived in Texas, I didn't get the feeling that I was being cheated on social services, the budget balanced and taxes weren't particularly onerous, so obviously they're doing something right.

California's problem is that voters can pass mandatory spending without regard to available revenue.

As for Texas, check out this article posted on the Texas Public Employee's web site for a view from the other side:

Wednesday, March 25, 2009
By ROBERT T. GARRETT
The Dallas Morning News
Cloud looms over Texas budget
http://www.tpea.org/news/newsarchives/2009/032509.html"

"Senate budget writers did very little to make college more affordable and almost nothing to give more Texans health insurance. They rebuffed pleas to make it easier for poor children to stay on Medicaid; hire more state workers to fix the screening process for Texans who need aid, which was fouled up in a privatization push four years ago; and hire more child-welfare workers so that fewer abused youngsters languish in foster care.
"How can we get $16 billion in federal stimulus money and still have ... the most uninsured in the country – and rising – and fewer students who can afford college?" said Sen. Eliot Shapleigh, D-El Paso. "What is going on in Austin?"

I've kept in touch with some colleagues in Florida's library systems... budgets for the county public libraries are literally down to the bone, and the universities were looking at 15 (!) percent cuts across everything.

And that's just libraries and schools. We're seeing budget cuts for parks, roads, social services, elder care, child care, you name it. But oh God forbid the governments fail to fund their personal road trips to Argentina!

Anybody else realize we've been conned by the Club for Greed the last 30 years?

Gosh what if we just gave up the Rube Goldberg crap and just federalized local and higher education and health care funding? We don't need to micromanage states we just need to recognize that things like health and education are the birthright of Americans and not something determined by being born in the Missippippi Delta as opposed to Scarsborough NY.

A little Social Democracy anyone?

Their budgets are already cut to the bone.

Bullshit.

For starters... we lock up a bazillion people here in California because we can afford it. Until we drastically reduce our incarceration rate and take forty whacks at our prison-industrial complex, we haven't cut enough.

Publius, there's a whole literature on fiscal federalism. Your view that mobility between states will lead to a "race to the bottom" is not the prevailing one anymore. People (and businesses) will go to states that have good, cost-effective public services. The worst run states are the ones where exit is costliest.

Lots of problems on this front:

1. Different rates and\or types of taxes promote business incentives to play one state off against others. This is simply blackmail.
2. The widespread and insane belief that, when it comes to government services, there really is such a thing as an economic free lunch. This is simply fantasy.
3. The lunatic public subsidies provided to professional sports. This is socialism for the rich and collective narcissim.
4. Skewed public policies leading to tragic spending priorities (what Creamy said). This is delusional.

Really, not a happy picture.

And DBN, Texas is up against a $3b+ shortfall, and they have managed to do this even though they have no public social and health services to speak of and get around 4% of their tax revenue from oil and gas production. But I guess running a government "like a business" is easier when you get free revenues.

On social issues, I’m all for states’ rights and localism. But federalism just doesn’t make much sense on the economic and regulatory fronts.

Do you really think this, publius?

"Social issues" include the recognition and enforcement of a lot of basic rights that I'm very happy the federal government does not simply farm out to the states.

pith - what about automobile companies? Alabama and TN aren't exactly paradise on earth, public services wise. But they do keep taxes very low.

This just seems backwards to me: the problem is that the Federal government takes such a large bite that the States can't take enough to function. Instead, the states are stuck begging for money back from the Federal government for the roads, bridges, teachers, cops, etc. that the State needs...only now the Federal government gets to put strings on the money.

A rational system would have people paying the most to the most local level of government (city), followed with less to the state, and even less to the feds. Paying a lot to the federal government so the federal government can then fund a local overpass (with Federal requirements) is silly.

It is hard to imagine that any one of our states lacks sufficient size to function through appropriate taxation: there are entire nations with fewer people than most of our states.

And the race to the bottom doesn't end at the nation's borders...eliminating competition between states would simply mean that either the US as a whole races to the bottom, or loses more industry to more competitive countries rather than States.

I'd settle for the Federal government paying the costs of its mandates.

California spends about 40% of its general fund revenue on K-12 education. Close to 20% of that (i.e. close to 8% of the CA general fund) covers the cost special education costs to provide the "Free and Appropriate Public Education" mandated by the Federal Individuals with Disabilities Act. That's likely to increase now that the Supreme Court expanded the situations where school districts have to pay for private school placements.

IDEA itself isn't the problem -- but the distance between those making and interpreting the laws, and the entities trying to pay for them is problematic, even in more functional states than California.

I don't think that taxes suck. That's the conservative framing and it is a fundamentally irresponsible frame. Taxes are membership dues. People should be happy to pay to have a functional society and a reasonable quality of life for themselves and others. What sucks is people who think they can get something for nothing or the people who think the only things the govenment should fud are the things they need.

What also sucks is a tax system that shifts the cost of memebership dues off those who can most afford to pay and onto others.

But taxes themselves don't suck.

I like paying taxes, actually.

(Typepad thinks this is too short, so I'll say more). IMHO "No one likes paying taxes" makes as little sense as "no one likes buying things" or "no one pays for anything if they can help it".

Umm, really?

I think that part of the problem with taxes is that just about everyone can find something that their tax money is spent on that they disapprove of. Also, while I am happy to pay my dues to the club (UK in this case), there seems to be an awful lot of waste -- and though people might not mind spending money on things that they need, and might even not mind spending a little on things that other people need, I think that most people really don't like wasting money, which a lot of UK govt spending seems to be.

I also believe that Publius has it backwards. States have failed more in their functional roles because of a willingness to shift those responsibilities to Washington. As this has proceeded the state politicians have become more and more averse to any action that might cause them enact tax increases. Instead, they show an exuberance for needed funding when it comes from Washington, with strings attached, of course. It is a vicious circle. I also do not think taxes suck. Again, the important issue is at what government level is the tax authority. Some things are done well at the federal level and some are handled better at the state and local levels.

jrudkis, the idea sound resonable on the surface but at least the first part has already led to catastrophic results. The main effect is (and that is what makes it appealing to a certain kind of people) that money stays locally and has not to be shared with "them". Well-off people congregate and by means fair and foul keep out the rest. Favorite tool: redrawing district borders, so the poor suburb next door is on the other side and has not to be subsidized by the 'good' neighbourhood. Social gerrymandering so to speak. And this does not even require the establishment of gated communities, avoiding the ugly optics of fortresses for the rich. Therefore, a money distribution system located at a higher level has its advantages.

If the objective is money distribution and the people can agree that is why they are being taxed, then the level where the distribution takes place is probably not very significant. What is important is what laws are in effect and enforced for the protection of individual rights. Much of my life's passage involved the process of upgrading to a better neighborhood, which meant a greater range of economic opportunity and higher living standard. Never thought of it as sinister.

The issue of wasted tax dollars is in America at least another conservvative frame that iw fundmentally iresponsible. IT's irresponsible because conservative politicians have not tried to eliminate waste--waste was a code for bashing the Other. When Reagan made an issue of waste he used Geroge Wallace's slogans about "niggers on welfare" and sanitized them for the mass market as "bums on wlefare." There was no effort to look inot the really massive amounts of waste and outright fraud in military purchasing, no effort to rein in subsidies for profitable coorporations, no effort to think through the issues of subsidies for dying industries such as the timber industry. Just waste put in terms of blaming the Other for a problem that Republicans had no intention of solving . Meanwhile everything that contributed to making our society a decent place to live got targetted as waste: funding for parks, the ennviornment, education, services for children in need, funding for basic govenment functions, etc, hit over and over and over both at the stae and federal levels with cuts justified as ways of trimming waste.

This blather about mysterious unidentified waste combined with blather about the importance of cutting taxes (Republican politicians never tell the truth and say they mean cutting taxes onnly for the rich) has poisoned the whole discussion.

We need to shift the frame around entirely. Taxes are membership dues. They go to pay for what I want and what you want and what we need. We can disagree about the those things but just because you want it and I don't doesn't make an expenditure"waste" Just because you need it and I don't doesn't make an expenditure waste either. "Waste" has been an excuse for selfishness for too long.

A conservative might respond, “no, we need to get spending in check.” But that’s not really the problem. Just look around at the states’ specific problems. Their budgets are already cut to the bone. And it's hurting our most basic institutions and services.

Just for the sake of argument... Many conservatives would argue that the budgets are not "cut to the bone". Medicaid is not a mandatory federal program. Most of the states with budget shortfalls could fill the gap with the single spending decision, "We will no longer require our taxpayers to provide health care for the indigent". Look, having states with balanced budget requirements and limited borrowing authority pay half on a very large and rapidly growing, counter-cyclical, entitlement program was, in hindsight, a really bad policy decision.

I think you're being disingenuous by claiming that state budgets are cut to the bone.

California, for one, has (as another comment noted) a large prison system which bleeds money, thanks to the prison guards union.

Public employees unions have loopholes in retirement benefits law that allow some employees to draw up to 150% of their last year of salary for the rest of their lives.

The initiative system allows special interests to jack up spending or create mandatory allocations of spending which further hamper budget reform.

And year after year spending is increased far beyond the rate of inflation and population growth.

And term limits while they might be a decent idea in theory ensure in practice that politicians can make short term financial decisions to benefit their supporter and special interest groups without having to stick around to deal with the consequences of their actions.

Health care is killing state governments too. Another reason to get some sort of reform pushed through Congress.

And yes, tax policies could be reformed. Differentiating commercial real estate from private real estate for the purposes of property taxation would be a good start.

But to pretend that our state government's problem is only one of lower tax receipts is rather silly.

"(Republican politicians never tell the truth and say they mean cutting taxes onnly for the rich) has poisoned the whole discussion."

What poisons this discussion, on both sides, are the generalizations that have become so iconic that people repeat them with impunity from proof. Republicans aren't evil people intent on making the rich richer, Democrats aren't evil people intent on killing the American dream by redistributing every penny of income through government tax and spend programs.

These ideas are as divisive as the religious divisions we decry in other countries and could be the end of our form of democracy.

With respect, I believe publius is mistaken on the issue of the collective action problem. If state spending provides value in excess of cost (as we suppose), then residents should flock to high-tax/high-service states. After all, they're getting more out of the taxes than they're paying in.

Scale this logic up to the international level (and why shouldn't we?) and we would expect to see residents fleeing high-tax France for low-tax Algeria. We see the opposite.

"Scale this logic up to the international level (and why shouldn't we?) and we would expect to see residents fleeing high-tax France for low-tax Algeria. We see the opposite."

This, of course, makes the unlikely assumption that all other reasons for living in Algeria or France are equal.

I think the argument about equalizing funding is going to be part of the argument for a national sales tax. For example, in Australia there is a 10% Goods&Service tax collected at the federal level but the funds collected are provided to the states to provide services provided by the states not the federal gov't (mostly, this is primary education, law enforcement and the like). I think the formula is tied to population so you don't have intra-state competition.

Ditto what Marty said at 1042am - gross generalizations aren't adding anything productive to an otherwise surprisingly civil discussion.

On the subject of economic federalism, I agree with GOB (at 0745 AM). In my limited experience with the half dozen states I've lived in, over the last several decades funding authority for basic and many non-basic services has over time migrated upwards from local to state and from state to federal government, and this has contributed to a disconnect between the people receiving these services (or feeling the impact of cutting back on them) on the one hand, and the local polity (either city, county or state) which they are increasingly alienated from.

I recall a thread a couple of months ago where we discussed why people get so p*ssed off at government in general, and somebody pointed out that for many folks the bureaucratic hassles and snafus that make their lives more difficult and really cheese them off quite frequently involve state and local govt (zoning boards, country commissions, the DMV, etc.) rather than the federal govt., yet govt. at all levels takes the blame.

I wonder if part of this problem is that as responsibility for essential services has migrated up the chain of govt, we are left with a dysfunctional situation where smaller scale govt at the local level is left with the unpleasant chores (zoning, regulation, hassling people and saying 'no' to them all the time) while the federal govt gets to do all the popular stuff (i.e. handing out goodies).

I don't think this is a healthy situation, and tends to alienate people from their local and state govt. How many folks can name off the top of their heads who their state representative is? Or any of the important city or country level officials in their district? Why is that? I think in part because for most folks nothing good can come from interacting with those officials - the only reason why you would have contact with them is because of some sort of bureaucratic hassle that needs to be untangled. That is a problem. If local govt is the laboratory of democracy, then we need to make it less toxic, and a greater centralization of tax policy at the federal level which Publius proposes in the top level post doesn't sound to me like a step in the right direction in that regard.

for many folks the bureaucratic hassles and snafus that make their lives more difficult and really cheese them off quite frequently involve state and local govt (zoning boards, country commissions, the DMV, etc.)

I wonder if a lot of that isn't a problem of false economies, as opposed to the more popular "waste, fraud and abuse" theory promoted by conservatives. If you spend just enough to keep your public service offices shabby and understaffed, people are going to experience government as an unpleasant waste of time; but the solution to that is actually more staff, better IT, more regular changing of fluorescent tubes, etc. (That's actually happened with the Pennsylvania DMV: the driver's license center I go to has at least a dozen staffers at any one time, an express line for people who just need a new photo ID, and digital cameras that make it easy to get a picture that doesn't actually snck.)

It's a hard argument to make, but I'd like to see more people making it.

"How many folks can name off the top of their heads who their state representative is? Or any of the important city or country level officials in their district?"

An interesting point.

I harbor basically no animus toward government per se. I also can name my state rep, state senator, US rep, and most significant political officeholders in my town. They and/or members of their families live in my area, I've met most of them, had dealings with several, and am on a first-name basis with some.

Conversely: how many people can name any significant officer of the company (whoever it might be) that holds their mortgage? The company that provides their electricity, phone, or cable service? The producers of any of the software products that they use daily? The folks who make and sell the clothes they wear? The folks who built their car or house?

My general experience is that government and the agents of government are far more approachable and responsive than their counterparts in any private sector institution of similar size and scale.

My experience is the same regarding waste of money or other resources.

I'm with wonkie, I don't see that the narrative of wasteful and unresponsive government, at least as compared with private sector institutions of comparable size and scope, holds water.

I don't know what level of government is the best location for decisions about how money should be raised and spent. Local government is the most responsive, because it's closest to you. But it's also the form that will be most various in its results -- some places will be well served, and some not. Are we willing to just live with that outcome?

But the animus toward government, per se, I simply find puzzling.

"Our state governments are simply (1) unwilling and (2) unable to collect a sufficient amount of tax revenues for their residents’ needs."

Unwilling is correct, but that is a political problem that exists at the national level as well. Enough people seem to want more stuff out of government than they are currently willing to pay for that it can cause a big problem.

I don't buy your unable argument however. There isn't much evidence for your formulation--lots of people live in MA (high tax) and NY (high tax) and CA (medium tax) and lots of people moved to low tax Nevada, but it also had low property values to make for more bang for your buck.

"At some point, the politics on this issue has to change – that is, we must come to terms with our need to raise more tax revenues. A conservative might respond, “no, we need to get spending in check.” But that’s not really the problem. Just look around at the states’ specific problems. Their budgets are already cut to the bone. And it's hurting our most basic institutions and services."

I think this is pretty much garbage. California per capita spending (inflation adjusted) went up about 25% in the past 10 years. That is an enormous jump in spending. Essentially it took top-of-the-tech-bubble tax levels as the norm and never looked back. California spends a huge amount per elementary and secondary student on education (interestingly pretty much at national average for higher ed yet the CA higher ed is of amazingly high quality while our primary/secondary ed sucks) and spends almost twice as much as the average per prisoner. (Not coincidentally the teacher's union and the guard's union are both incredibly powerful in CA).

If it were really true that CA had normal spending on prisons and primary education, and that it had similar spending levels in 2009 as it did in 2000, you could make that claim. They don't. You can't.

My whole complaint is not that we can't spend more, but that as a country (both at the state and federal levels) we have largely divorced the idea of taxation from the idea of government spending. And even when progressives acknowledge the link, they try to push it off on taxing the rich. Breaking the link between what most of us are willing to vote to have the government do from what we ourselves are willing to pay to have the goverment do, is the root of this problem.

"States are structurally unable to provide the revenues required, and there’s no real reason to think this dynamic will improve."

You just haven't shown this at all. States which match their taxation level to their spending level have been pretty good. It is the states like NY and CA (which don't match their high service levels with high taxation) that are having the most trouble.

"I wonder if part of this problem is that as responsibility for essential services has migrated up the chain of govt, we are left with a dysfunctional situation where smaller scale govt at the local level is left with the unpleasant chores (zoning, regulation, hassling people and saying 'no' to them all the time) while the federal govt gets to do all the popular stuff (i.e. handing out goodies)."

I think this quote from ThatLeftTurnInABQ is worth spending a lot of time on.

responsibility for essential services has migrated up the chain of govt

What services are these? Local governments do very little besides providing services: schools, police and fire protection, trash pickup, street maintenance, etc. Other than the federalization of standards for welfare and occasional increases in funding for schools or law enforcement or roads, what are these services that the federal government is preempting from the states and localities?

Speaking of funding from the top:

From the Federal Director of a program, astonished at the resistance to a proposal to buy a luxury property to convert to DHHS group housing, at markup, and at about 250% higher than a multi-unit property (about $1.5m):

"I don't understand why you are upset. We aren't using state or local funds to pay for this, but federal money."

We then informed her that we also pay federal taxes. At the same time, our local gov't was debating issuing $10m in bonds to provide local low cost housing. When I tried to link the waste on one side with the need on the other, the county board just had blank stares.

"what are these services that the federal government is preempting from the states and localities?"

Hogan,

What I have in mind is two issues:

1 - While states are continuing to administrate those services, they have lost some or all of the funding authorization, i.e. these things are paid for by federal grants. This means that those services are harder to invoke to justify state taxes, and the state govt is less involved in the decision making process which determines what level of taxation is necessary to appropriately fund those services and what level of spending is available to provide them. The states have essentially become contractors to the Fed govt. for providing those services rather than the place where the key decisions are made regarding them that factor into justifying the tax burden.

2 - I also had in mind migration of services from the local up to the state level. Education in California is a salient example of this, since Prop 13 and the Serrano decision gutted the older system for funding local school districts.

for many folks the bureaucratic hassles and snafus that make their lives more difficult and really cheese them off quite frequently involve state and local govt (zoning boards, country commissions, the DMV, etc.) rather than the federal govt., yet govt. at all levels takes the blame.

For me, on the other hand, and I suspect many others, the bureaucratic hassles and snafus are far more likely to come from phone/cable/Internet companies and, especially, health insurance companies than from government of any sort.

Part of the problem with California corrections is that it's a long-term problem that requires a long-term solution. You don't want to fix this year's budget crisis by abruptly closing a prison and throwing the inmates out on the streets. What we need is a long-term restructuring of the penal code to reduce the average time served for various crimes. But it's really hard to do that, not just because of the power of the prison guards' union (who have scuttled most attempts at penal reform), but because it's hard to enforce long-term legislative commitments in the face of term limits.

In the past, we might have had the leaders of both parties agree to raise taxes this year to fix the immediate crisis in exchange for a long-term commitment to reform the penal code over the next few years. But now, the legislators are only there for a few years, and the leaders are typically only in their positions for a couple of years. They can't make binding commitments that extend more than a year or two into the future, because they won't be there to deliver on those promises. So that's another piece of the puzzle.

Sebastian wrote:
California spends a huge amount per elementary and secondary student on education (interestingly pretty much at national average for higher ed yet the CA higher ed is of amazingly high quality while our primary/secondary ed sucks)

Measured relative either to other states, or typical private school tuition, the statement that CA spends a "huge amount" on each elementary and secondary student is just flat out wrong. A typical school district in CA gets about $7000 per pupil, plus some special purpose funding for students with particular needs. Spending is low compared to other states on an absolute basis, and even lower when cost of living is accounted for.

States set up the same kind of unfunded mandates for local governments that the federal government does for the states.

The states decide what kind of pension your local schoolteachers, firemen, and even elected officials will receive (very generous). Then your local taxpayers have to fund it.

In Illinois it is all too common for an elected official with a small monthly stipend to take a state job with a $100,000-plus salary for a few months. He/she can then retire with the pension rate determined by combining the high salary with the previous years of service.

These pension programs are constantly being expanded, never reduced. The legislature votes to establish them, but not to fund them.

In Illinois our overly generous public pensions (I say overly because no one else even HAS a pension anymore) are woefully underfunded. Our governor and legislature have opted not to pass a budget for this fiscal year, and social service at the local level is being cut by 50% and more. I would like to see the legislature and governor deal with this, not pass it off to the next higher level.

And year after year spending is increased far beyond the rate of inflation and population growth.

Why should this be the desired rate of growth in state and local government spending?

1) If you set a limit of, say, 5% of personal income in the state during the prior year, that limit would have grown substantially faster than "inflation plus population".

2) Per-capita demand for services is increasing. To take an example, per-capita car ownership has increased steadily, requiring per-capita increases in registration services, lane-miles, traffic control, etc.

3) Collectively, we demand more sophisticated services. From computers in schools instead of typewriters, to environmental testing, to bigger building codes to deal with new and improved materials.

4) Government spending bears little resemblance to the "basket of goods" that goes into headline inflation. Salaries. Health services. Energy. Building materials on a large scale. Many of these are things that people often complain about going up much faster than the overall CPI.

Agreed, not your best work, Publius. But you're entitled to bad posts. Sucks that they get more comments though - including this one. But I still heart you.

You focus on tax policy when the root of the problem is the requirement for balanced budgets through the boom and bust business cycle. Now, balanced budgets for non-federal governments are absolutely necessary, so the boom/bust aspect of local revenues is the issue to address.

A simple policy implication would be to require a percentage of surplus revenue to be set aside in boom years and drawn down in bust years. This is already done ad hoc, but not to the extent needed. In most cases, a constitutional amendment would need to be passed. (Maybe California's initiative would help in this case.)

I also heartily agree with the federal government fully funding mandates. It is a huge deal in education.

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