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- iHaveNet.com: Economy
by Richard Ravitch
Addressing local economies is key to solving the national mess
Until recently, the political system was preoccupied with a seemingly inevitable national healthcare reform and state
The healthcare bills had many sound ideas but made a mistake in not focusing more closely on the fiscal effects of
The 50 states and their localities are the units of U.S. government that directly affect Americans' daily lives. The federal government has 2.5 million civilian employees, while states and localities employ some 15 million people. It is the states that bear primary responsibility for ensuring adequate infrastructure, education, and healthcare for their citizens. These conditions are the foundations of the national economy and its ability to provide jobs.
In 2010-11, states have faced and will face deficits of approximately $350 billion. These deficits will not disappear with the end of the recession. True, the recession caused large drops in state revenues, but these declines exposed years of structural state budget imbalances, with expenditures that frequently outpaced recurring revenues. Since states must generally balance their budgets, the gaps were often hidden by "one shots" like asset sales and borrowings.
Many people who focus on national politics see these state problems as failures of political morality. This view is neither useful nor accurate. Current state budget crises are not limited to states that are big or have arcane budgeting or colorful political histories. Crisis has also hit states with reputations for clean politics and sound fiscal practices.
The reasons for the widespread troubles are systemic. Some are on the revenue side: States increasingly rely on shrinking and volatile tax bases. Other reasons lie with expenditures: Much state spending is determined by changes in population size or need and, thus, tends to rise even--or especially--when state revenues fall. The biggest of these rising expenditures is
The fact that
In the short run, the diminished resources for education and infrastructure create a drag on employment in the public and private sectors. Teachers are being laid off because of cuts in school aid. Unemployment is soaring in the building trades because there are no funds to build and maintain roads, bridges, mass transit, and other physical infrastructure.
In the longer run, the diminished resources will mean disinvestment in the factors that create and sustain economic growth. States are significantly cutting the higher education systems that have produced generations of the nation's human capital. In a recent hearing of the
Some people say that because of the federal deficit, Washington can't concern itself with state budget relief. But if policymakers try to address the federal deficit without recognizing the role states play in the national economy, they will achieve not federal fiscal integrity but governmental incapacities that ultimately impose increased federal costs.
The concurrent federal and state crises strongly suggest that it is once again time to give serious thought to adjusting and rationalizing our federal-state relations. We are undergoing extraordinary changes in the long-term economic prospects of the nation and many states, together with exponential growth in the cost to state and federal budgets of healthcare entitlements. It is time to think again about the distinctive competences of the federal and state governments, assign responsibilities to the governments best suited to carry them out, and pay for these functions out of revenues from the levels of government that are able to raise them in the most efficient and most equitable way.
These are not new concerns. As early as 1959, the federal government recognized the need for increased federal-state coordination and created the
The states are not looking to the federal government to solve all of their deficit problems. They are making the most painful kinds of cuts in the services they provide to their citizens. But it would be both fair to state governments and prudent for the federal government to tackle unemployment and the federal deficit issues together with the issues of the contribution of the states to national economic health and the threat to this contribution from today's debilitating state budget deficits.
Richard Ravitch is the lieutenant governor of New York.
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To Fix Economy and Unemployment Rate, First Help States | Richard Ravitch