For Release Sunday, November 25, 2012
© 2012 Washington Post Writers Group
Why listen? It’s because federal, state and local tax codes, plus the revenues, budgets and spending decisions made at all levels of government, don’t exist in distinct universes. They’re closely intertwined.
That means budget decisions President Obama and Congress make to prevent sequester, with its dramatic program cuts and tax hikes, will ricochet across the 50 states – Washington’s partners in the federal system.
A top example: Under the sequester process, some 18 percent of federal grants flowing to states would be subject to immediate, across-the-board cuts, according to the Federal Funds Information for States service.
Plus, huge amounts of wealth would be sapped from state economies as the sequester process increased Americans’ taxes for 2013 by more than $500 billion, or an average of almost $3,500 per household.
The news would be grim indeed for state governments, most of which have been riding a jarring fiscal roller coaster since the Great Recession hit. Most have already run out their string of familiar fixes – tapping into rainy day funds, postponing construction, temporary tax boosts or issuing debt.
The recession and its after-shocks were key in forcing total state revenues to decline 12 percent, or $97.9 billion, according to a recent report from the Pew Center on the States. Some states are recovering. But most of their unemployment rates remain well above pre-recessions levels. Even without further cuts in federal assistance, some 19 states project a combined $30.6 billion in shortfalls as they prepare budgets for next year.
It is true – state tax codes so tightly emulate the federal that as Congress lowers or eliminates some allowable income tax deductions, the taxable dollars on individuals’ home state returns will actually rise, increasing the dollars paid into state coffers.
But overall, states stand to be losers from federal tax and spending budget deals. And the situation is just as alarming for cities and counties. A group of major city mayors, visiting Washington this month, carried the message that they face their sixth consecutive year of lower revenues. They insist they can’t absorb more without severe, negative impacts.
Proposed federal cuts in what Washington calls “discretionary spending,” the mayors argue, would seriously diminish the ability of cities to respond to critical needs in such areas as job training and workforce investment, public transit, clean water and wastewater infrastructure, low-income housing and more. Denver Mayor Michael Hancock told Governing magazine that the cuts in Community Development Block Grants would create “devastating conditions.” Baltimore Mayor Stephanie Rawlings-Blake said CDBG funds are “helping us build jobs, stabilize communities – all of that would be in jeopardy.”
Local governments are especially upset about possible federal action to remove the tax-exempt feature of municipal bonds – a feature that dramatically increases the borrowing costs for infrastructure.
Could all these consequences be averted in an escape from the fiscal cliff? Are more stringent measures coming, no matter what?
Perhaps. But as grave as our fiscal challenge seems, the state and local cause needs underscoring and support that it sometimes fails to get in the fiscal scramble for federal money.
Military funding, for example, is often held up as sacrosanct. And it’s a dangerous world out there. But should the United States consider sharp cutbacks in federal support for state and local government needs when its national defense budget is more than six times larger than China’s, and greater in cost than the world’s next 20 largest military spenders combined?
Take the big “entitlements” debates. Social Security and Medicare, vital as they are, focus on senior citizens, not the youth who are, literally, our future. As Stephen Marche reported in a recent Esquire article, “The War Against Youth,” the United States spends 2.4 times as much on the elderly as on children, measured per capita, with the ratio rising to 7 to 1 if one looks just at the federal budget.
Why, then, should Social Security and Medicare be held harmless in budget cutting, as opposed to student loan programs and support for the state and local governments that carry the overwhelming responsibility for funding schools and community and four-year colleges?
Too easily, federal budgeters and Congress regard governors and mayors seeking federal support as special interest lobbyists. They aren’t. They’re us.
Ideally we’d recreate some body like the late Advisory Commission on Intergovernmental Relations – a key forum that brought together federal, state and local officials to discuss key, shared issues. Sadly, the executive branch and Congress let it die in 1996.
What kind of a federal system ignores its partners? We could – and need – to do a lot better.
Neal Peirce’s e-mail is email@example.com.
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