Public Policy Forum Blog

Will 2010 bring resolution to difficult state and local budget issues?

While many state and local budget officials undoubtedly were thrilled to see 2009 come to a close, two recent national news articles indicate the outlook for 2010 and beyond isn't much rosier.

The first, from the Wall Street Journal, cites a 7% decline in local and state tax collections in the third quarter of last year and warns that despite indications of economic recovery, the worst may be yet to come for state and local government budgets.

The article notes that rebounds in state and local tax revenues tend to lag upturns in the general economy by several months because tax collections trail increases in store sales and incomes. In addition, while the economic downturn already has produced significant hits to state and local income and sales tax collections, the impact of falling property values has not been fully felt on property tax collections. The bottom line, according to an expert with the Brookings Institution, is that local governments "will be working through the catastrophic drops in revenue for the next 18 months to two years."

Meanwhile, the second article, from the Washington Post, puts a damper on the notion that federal assistance might continue to be a significant source of relief. The Post article cites increasing support from the Obama administration and members of Congress for a new commission to tackle the skyrocketing federal budget deficit. The bipartisan commission would have broad power to recommend both spending cuts and tax increases. Its recommendations would be presented to Congress as an unamendable "take it or leave it" package, thus increasing the odds of passage.

Prospects both for the formation of a new commission and for its ability to agree on a major deficit-reduction strategy are uncertain. What is more certain, however, is that the escalating federal debt no longer can be ignored by the administration and Congress, which spells bad news for state and local policymakers who have relied heavily on stimulus funds and other federal dollars to help alleviate budget pain during the past year.

So what does this mean for state, county and municipal officials in Wisconsin? It means that the fundamental problems that have created persistent and growing structural deficits at the state, Milwaukee County and City of Milwaukee will not magically disappear and must be the subject of equally persistent focus in 2010.

Simply put, the programs, services and spending commitments currently in place at those levels of government cannot be supported by their existing revenue streams. As the Pew Center on the States recently reported, efforts to paper over this reality at the state level with questionable short-term budget tactics have run their course. And, as the Forum has found, the same holds true for Milwaukee County, while the City of Milwaukee is on the verge of needing to revert to similar tactics or face major cuts in core services.

Hopefully, policymakers at all levels will resolve this year to honestly discuss what it costs to provide the government services that are desired by citizens and required by law, and whether the government structures and revenue sources currently in place are the best way to administer and pay for those services. Such a resolution also should include a pledge to provide specifics regarding which programs and services should be cut if increased revenues aren't part of the answer, and just how much new revenue is needed from taxpayers if expenditure cuts are not a big part of the equation.

Whether 2010 will be the year that elected officials openly confront their unpleasant budget realities is questionable given the November elections for governor and many legislative seats. Then again, could there ever be a better time to put these issues on the table and demand that candidates responsibly address them?

Author: 
Rob Henken