Ronald Reagan called it “The New Federalism.” Gov. Mario Cuomo derided it as “Fend-for-yourself-federalism.” By any name, New York suffered acutely in the wake of federal cutbacks. In 1981, Washington’s largesse flowed freely into virtually every corner of New York state government. New York spent $2.7 billion in federal funds that year to help build housing, treat drug addicts, train the jobless and subsidize mass transportation. Through revenue sharing, Albany passed on millions to its cash-starved cities, which gobbled the money up for everything from teachers’ salaries to debt service. It was a last hurrah. The Reagan White House and Congress pulled federal support for state programs, eliminating some (like revenue sharing) and hamstringing others with deep cuts or anemic annual increases. It’s one reason that state spending has more than doubled in 10 years, from $28 billion to $49 billion.
At face value the federal withdrawal is not dramatic. Washington still kicked in $2.5 billion (excluding Medicaid) this year, only $200 million less than 1981. But a decade of inflation compounds the pain. If subsidies had simply kept pace with rising costs in the 1980s, officials estimate that New York would have had an additional $6 billion to spend. That’s money it could have invested in the federally mandated war on drugs. Felony drug convictions rose 289 percent in New York during the last half of the ’80s. The state added 27,800 new prison spaces, almost entirely at its own expense. It could have fought AIDS as well: New York’s case-load has increased about 800 percent since 1983. Congress has offered only token help.
With the economy in recession, New York can’t keep up. It faces a $6 billion shortfall this year. Cuomo, eying a presidential race, has cut $1 billion from the budget and ruled out a broad-based tax increase. “Through the ’80s the states picked up the slack. They are no longer able to do that,” says Richard Nathan, director of the Nelson A. Rockefeller Institute of Government at the State University of New York in Albany. “Reagan began the change, and it’s had a huge, lasting impact.”
Many states hurt themselves by spending freely in the 1980s. Minnesota hardly ever met a government program it didn’t like. It invested in one of the nation’s most ambitious education-reform programs. There was cash left over to install $1,200 marble ashtrays in a state office building where smoking is prohibited and put up $138,000 to determine if shiitake mushrooms were a viable state crop. Government outlays consistently outpaced inflation. But the fat days seemed to be nearing an end last fall. Hobbled by the recession and an increased demand for social services, the state faced a $1.6 billion budget deficit over the next two years. The legislature’s response: $609 million in new taxes. It also scuttled salary increases, saving an additional $577 million.
The revenue hike, which includes a half-cent increase in the state sales tax, generated barely a yip of protest. A May 15 antitax rally on the steps of the state capitol drew about 200 people. It was quickly eclipsed by another 200 counterprotesters. Why are Minnesotans so accepting of big state government? One reason: theirs is cleaner than most. The state has had relatively few public scandals. Minnesota’s greatest political hero remains Hubert Humphrey, a symbol of freespending liberalism.
But Minnesota politicians might be overestimating the voters’ generosity. Overspending will be on the agenda again in l993, with a shortfall possibly exceeding $300 million. This year’s one-shot solutions, like cutting raises, won’t suffice - and Minnesotans might be less indulgent.
Texas was swimming in black gold in 1982. Booming oil and gas industries poured $2 billion into the state treasury - more than a quarter of its total revenues. When the boom went bust in 1986, the private sector trimmed back. But not state government. Instead of facing the music and overhauling its oil-addicted tax code, officials waited in the hope that oil prices might climb again. They’re still waiting. Thanks to a diversifying economy, Texans themselves are better off now than they were a few years ago. But their state’s finances are a basket case. Next month, the legislature will meet in special session to confront a projected $4.7 billion budget deficit, its largest ever.
The budget mess is largely the product of political cowardice. Tax increases are historically career-busters for elected officials in Texas. If Gov. Ann Richards and lawmakers do devise a package of cuts and new revenues to close the gap, they’ll be bucking a dismal trend of passing tough fiscal decisions to the courts. Over the last decade, judges have thrown out legislation woefully underfunding state prisons, schools and mental-health facilities, mandating increased expenditures from the bench. The crunch could force legislators to think the once unthinkable: levying a personal-income tax. It would reform one of the nation’s most regressive tax codes. With no income tax and a high sales tax, the state’s poor shoulder an unfair burden.
California has always relied on growth as the prescriptive for its budget problems. Its mammoth economy, larger than all but a handful of countries, has historically generated enough tax revenue to cover state government’s expenses. But an explosion of expensive social needs over the last decade has overwhelmed California. Six million people - a fifth of the population - have moved to the state since 1980. Many of them are immigrants. The state’s welfare caseload has grown three times faster than the national average; the prison population is swelling by more than 10,000 annually. K-12 school enrollment may climb by 230,000 students by next year - the equivalent of a new school district the size of Philadelphia sprouting up in 12 months. The result is a $14.3 billion budget gap.
The search for additional funds has been especially difficult in California. Looming in the background is Proposition 13, the landmark 1978 ballot initiative that cut property taxes and limits their growth. It’s lulled Californians into complacency about their state’s finances and deprived the government of an estimated $200 billion. Instead, Gov. Pete Wilson is trying to fill the gap with a potpourri of revenue increases - including $7.7 billion in new levies on newspapers and junk food and increases in alcoholic-beverage taxes. He’s also devised a package of increases and cuts he calls “preventive government.” It slashes entitlements like aid to impoverished families and re-invests the money in programs that can head off social problems, like Head Start and family planning. Critics say it’s a crudely Darwinian approach. “What I think is heartless is not to have the guts to face the reality that this state has been papering over a deficit for many, many years,” Wilson retorts. Can government by prevention help California? Other states, buckling under billions in costly cures, will be watching.
