Opinion: States Face Tough Budget Choices in 2011

By Peter Morici

MARYLAND ( TheStreet) -- Remember when local governments reaped bonanzas from rising property values and taxes? They added services, tightened regulations and hired more employees. Schools added nonessential programs and stricter supervision of teachers, further bloating payrolls.

The housing bubble burst and property values dropped an average of 35%; but mayors and school superintendents view as essential too much of what they do.

State governments, relying more on income and sales taxes, were not as flush. The Internet and globalization make those taxes tougher to collect. Washington has been busy imposing expensive mandates on states -- especially in Medicaid, education and environmental standards -- without sending enough money to pay for those.

In 2010, 29 states and many localities raised taxes and increased fees on everything from soda to hospital beds, but often those drove away business, increased unemployment and didn't much alleviate budget woes.

In 2011, things get worse, even as the national economy recovers modestly. Federal assistance to the states from the 2009 stimulus is expiring.

In many areas, assessed values on properties are adjusted only once every several years, so assessments will only now fully reflect the collapse in housing prices, and property taxes will fall further. And foreclosure sales are pushing down prices further in many localities.

Investors are getting skittish about state and municipal bonds. Governments have unfunded pension liabilities nearing $3.5 trillion, and many are selling off assets to temporarily plug budget holes, but lack viable plans to permanently fix finances.

State and municipal governments must slash spending and opt out of matching federal programs where they can, or they will not be able to borrow at affordable interest rates and risk default.

In Georgia, benefits like the HOPE scholarship will be curtailed for middle-class families. That will raise college costs and burden families, just like higher taxes.

We can all expect somewhat higher taxes and fewer benefits and services. Like the rest of us, governments need to do more with less.

Readers Also Like:


Professor Peter Morici, of the Robert H. Smith School of Business at the University of Maryland, is a recognized expert on economic policy and international economics. Prior to joining the university, he served as director of the Office of Economics at the U.S. International Trade Commission. He is the author of 18 books and monographs and has published widely in leading public policy and business journals, including the Harvard Business Review and Foreign Policy. Morici has lectured and offered executive programs at more than 100 institutions, including Columbia University, the Harvard Business School and Oxford University. His views are frequently featured on CNN, CBS, BBC, FOX, ABC, CNBC, NPR, NPB and national broadcast networks around the world.

More from Opinion

Attention 60 Minutes: Google Isn't the Only Big-Tech Monopoly

Attention 60 Minutes: Google Isn't the Only Big-Tech Monopoly

Apple Buys Tesla? Amazon Buys Sears? 3 Dream Mergers That Just Make Sense

Apple Buys Tesla? Amazon Buys Sears? 3 Dream Mergers That Just Make Sense

Amazon's Assault on Grocery Stores Will Have a Profound Impact on Many

Amazon's Assault on Grocery Stores Will Have a Profound Impact on Many

It's Dumb to Think There Aren't Already Monopolies in Big Tech

It's Dumb to Think There Aren't Already Monopolies in Big Tech

Google's EU Battles Are Hardly a Reason to Panic

Google's EU Battles Are Hardly a Reason to Panic