Home State finances in disarray

State finances in disarray

user profile picture Chris Martenson Nov 17, 2008
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I had a most pleasant weekend off – the first in a very long time – and spent some of it pondering an unusual recent event.

We are raising turkeys, five very large, gorgeous bronze birds.  Last Thursday they started making their alarm sounds, meaning that something was not right.  Rushing out, I saw that "Skunky McGee", our ancient resident neighborhood skunk, was in their pen toodling around. He’s nearly all white, we know his habits quite well, and his appearance at 9:30 in the morning was a bit late for him to be out and about.

It took me far too many beats to realize he wasn’t toodling around looking for errant food scraps, he was chasing our turkeys in an unbalanced, tippy version of the skunk waddle.  As I stared in wonder, he caught one, and began, well, chewing on it.  You see, skunks are not usually predators of anything larger than a lawn grub, so he was incapable of really doing much more than begin a long process of gnawing.  He started near the tail. 

It was at this time that the word finally popped in my head: "rabies".

It’s at times like these that having a .22 is a must. I sent Skunky McGee off to the great beyond and immediately called the local animal control officer to come and test the animal for rabies.

Imagine my shock when the town official who answered said, "We don’t have an animal control officer anymore – the budget was cut.  Do you have a shovel?  Maybe you could bury it."

So here I am, in full possession of the knowledge that trillions of dollars are being lavished on a defective banking and financial services industry, while my locality was unable to contend with a dangerous communicable disease.

I let them know that this was an unacceptable option to me.  Finally my town located an animal control officer from a neighboring town that could come and deal with the situation. No word yet on what the disease was that afflicted Skunky.

To me, this experience encapsulated what our Horizon I future has in store: the steady erosion of local and state services, even as a bloated federal government provides larger and larger handouts for large corporations and other political insiders.

While I am generally an advocate of smaller, more cost-effective government, the speed of this collapse is creating a condition where gigantic decisions must be made under the pressure of collapsing revenues, often with predictably bad results.

Facing Deficits, States Get Out Sharper Knives
LOS ANGELES — Two short months ago lawmakers in California struggled to close a $15 billion hole in the state budget. It was among the biggest deficits in state history. Now the state faces an additional $11 billion shortfall and may be unable to pay its bills this spring.

The astonishing decline in revenues is without modern precedent here, but California is hardly alone. A majority of states — many with budgets already full of deep cuts and dependent on raiding rainy-day funds or tax increases — are scrambling to find ways to get through the rest of the year without hacking apart vital services or raising taxes.

In Michigan, to reduce overtime costs, fewer streets will be salted this winter. In Ohio, where the unemployment rate is above 7 percent, the state may need a federal loan for the first time in 26 years to cover unemployment costs. In Nevada, which is almost totally dependent on sales taxes and gambling revenues, a health administrator said the state may be unable to pay claims in a few months.

In California, Mr. Schwarzenegger, a Republican, and state legislators are preparing to do battle over a proposed 1.5-cent sales tax increase, while in New York, Mr. Paterson, a Democrat, has proposed $5.2 billion worth of savings, principally cuts to Medicaid and education.

Even states where until recent months natural resource production has provided a buffer — and fat surpluses — are experiencing a sudden reversal of fortunes as oil prices have declined.

“Frankly, I thought 2001 was really awful,” said Scott D. Pattison, the executive director of the National Association of State Budget Officers, referring to the last big economic downturn. “It is even worse now.”

He added, “This fiscal year will be really bad, and what is unfortunate is that I can’t see how 2010 won’t be bad too.”

And I’ll be honest – my local efforts to alert my town administrators to this looming crisis, back when we could have done something about it a year or two ago, were completely rebuffed.They were either "too unlikely to consider" or "not actionable".  Of course, now we have fewer options and less time to fashion our response to a now obviously severe funding crisis.

My impression was that local governance had become completely tuned to growth, and that any predictions that spoke of a sustained period without growth had virtually no resting place, either in the belief systems of the administrators or the decision making processes themselves.  My assessment is that my community, like many others, may have lost the ‘muscle memory’ required to effectively manage in a world of declining resources.

But this is not a failing of my town or its people.  This merely reflects the fact that our entire culture and economic system is built around growth.  It is reinforced constantly, and there is no "other way" for many people.  Growth is a given.  It is such a constant that it is almost never questioned.  

See if you can spot the growth assumptions baked into this article posted to Bloomberg today:

Obama-Pelosi Stimulus May Fail to Reignite Economy
Nov. 17 (Bloomberg) — President-elect Barack Obama and House Speaker Nancy Pelosi may throw as much as half a trillion dollars worth of stimulus at the economy — and have little or no growth to show for it.

The forces arrayed against recovery, including the credit contraction and cutbacks by consumers, are so powerful that they may overwhelm the record sums of spending and tax cuts being discussed in Washington. The only consolation, economists say, is that without the stimulus, things would be even worse.

“It’s hard for me to imagine we’ll have a return to positive growth before the fourth quarter of 2009, even with a $500 billion stimulus,” says Barry Eichengreen, an economics professor at the University of California, Berkeley.

Mark Zandi, chief economist at Moody’s in West Chester, Pennsylvania, says the economy may contract 2 percent next year without a package of at least $300 billion. With it, “we could get growth pretty close to zero,” he adds. That would still be the worst result since 1991.

“Stimulus,” “growth,” “recovery,” “credit contraction”…the message is clear, unambiguous, and unanimous – our economy requires growth.  There is no Plan B.  Unfortunately, we are in "Economy B" and the sooner we get our heads around that, the better. In the meantime let’s hope that we end up cutting wisely, and not in a manner that leads to serious diseases going unmanaged and untracked.

And let’s all wish Skunky McGee a lawn full of grubs, wherever he may be.