My ex-husband Richard Ravitch is a brilliant man who has spent most of his life in public service. He was born during the Great Depression, and he grew up idolizing Franklin Delano Roosevelt and believing that the highest ideal was to improve the well-being of the public.
We have an informal agreement that he doesn’t do education and I don’t do housing, transportation or public finance. But now he has stepped into my territory and I must step into his.
Yesterday he and Paul Volcker released a task force report on the budget crisis facing states. The task force report should be read by everyone because it contains an urgent warning. As of 2009, states now spend more on Medicaid than on K-12 education. That is a historic reversal. States are facing unsustainable costs and will have to make cuts to essential services if they can’t make appropriate adjustments to their tax and spend policies. Added to this, the possibility of federal budget cuts will do terrible damage to education and other basic services.
The task force report does not tell states precisely what to do beyond warning them of the cliff towards which they are heading. It says to stop the gimmicks and the one-shot funding measures. It says to face the problems head-on.
The task force report does not call for cuts to education. I spoke to Richard, who is a close friend, and he said that the point of the task force report was to warn states to take action now so that they can protect education and other essential state functions into the future.
My view: If we continue to cut K-12 education, preschool education, and postsecondary education, as so many states now are doing, we sacrifice our future. We throw away our seed-corn. If we continue to shift the costs of higher education to students, we will narrow access to higher education, which develops our nation’s innovativeness, research, and brainpower. We cannot eliminate access to education and erode its quality and then expect our nation to have an educated society, an innovative society, or a good society. My friend Richard Ravitch agrees.
Here are the recommendations of the task force:
Conclusions and Recommendations
The recent recession and financial crisis have exposed both structural problems in state budgets and the increasingly pro-cyclical nature of these budgets. States and their localities face major challenges due to the aging of the population, rising health care costs, unfunded promises, increasingly volatile and eroding revenues, and impending federal budget cuts.
If these problems are not addressed soon, they are likely to worsen. The problems affect the national interest and require the attention of national policymakers. In addition, each state can sharpen its fiscal tools to improve its own decision-making process.
■■ The public needs transparent, accountable state government finances. States and standards- setting and advisory bodies should develop and adopt best practices to improve the quality of planning, budgeting, and reporting.
–– States–should–replace–cash-–based–budgeting, with modified accrual budgets so the public and legislators can easily discern how revenues earned in the fiscal year relate to obligations incurred in the same year. This change won’t eliminate budget gimmickry but will be a step in the right direction, particularly if accounting standards continue to be strengthened. In addition, states should publish information, together with their budgets, on the extent to which these budgets
rely on temporary resources and underfund annual required contributions for pension and retiree health plans.
–– States–should–enact–multi-year–forecasts–and–plans–that–extend–at–least–four–years–beyond– the–current–budget–year, in order to increase their ability to make better short-term decisions and improve long-term outcomes. States should encourage independent review of their budget forecasts. Above all, states need rules that encourage them to adhere to these plans, so that the longer-term consequences of budgetary decisions become apparent.
– State Comprehensive Annual Financial Reports should be supplemented with easily accessible summaries of financial information and should be issued more quickly after the end of the fiscal year, so that they are available before the next year’s budget is proposed; the private sector accomplishes this task regularly.
■■ States should strengthen and make better use of their main tool for counter-cyclical policy, their rainy day funds. They need to save larger amounts automatically. Also, to avoid discouraging the use of these funds, states should allow enough time to replenish them once a fiscal emergency is over. Successful state models of rainy day funds, like those in Virginia and Texas, should be
Report of the State Budget Crisis Task Force SUMMARY
promoted, disseminated, and replicated. It is in the national interest that states have effective rainy day funds so that state balanced-budget imperatives do not counteract efforts to spur national economic recovery and so that states can maintain more-stable tax and spending policies, particularly for the programs implemented by states under federal oversight.
- ■■ Pension systems and states need to account clearly for the risks they assume and more fully disclose the potential shortfalls they face. States and retirement systems should develop and adopt rules for responsible management of these systems and mechanisms to ensure that required contributions are paid. States should begin to use dedicated systems of reserves to save for the ongoing health benefits they expect to provide to retirees and should monitor the ability of their local jurisdictions to do the same.
- ■■ State tax bases have eroded and become more volatile; these developments are undermining fiscal sustainability. States should mitigate these trends by seeking reforms that would make their tax structures more broad-based, stable and productive. The federal government should exercise its authority to make it easier for states to collect existing sales taxes on goods and services sold over the internet. Federal tax reform needs to take account of the significant effects of such change on state and local tax systems.
- ■■ Federal deficit reduction and budget balancing actions pose serious potential threats to
state and local government economies and budgets. There is a “disconnect” between the federal government and the states, with no formal mechanism for evaluating the impact of proposed federal policies on the states. There should be a permanent national-level body to consider the ways in which federal deficit reduction or major changes in the federal tax system will affect states and localities. Such a body, with purposes similar to those of the former Advisory Commission on Intergovernmental Relations, should conduct careful, ongoing examination of the relationship between federal and state governments. Even before such a body is established, Congress should require the Congressional Budget Office to prepare analyses of the ways in which major legislative proposals, whether relating to mandated programs, discretionary programs, or tax revenue, are likely to affect the fiscal situation of state and local governments. - ■■ Federal and state governments should work together to control health care costs and Medicaid costs. State costs for existing Medicaid programs are likely to continue to grow faster than state revenues; many states already consider these costs unaffordable unless they scale back other essential functions or substantially raise taxes. Now that the Supreme Court has validated most of the Affordable Care Act, states that implement eligibility expansions will incur additional annual costs over the next eight years that could range from zero to five percent of baseline Medicaid spending.
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Report of the State Budget Crisis Task Force
SUMMARY
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- ■■ Few state governments have effective procedures for monitoring the fiscal condition of
their local governments in a timely manner or taking early action to help local governments resolve their fiscal problems before they threaten insolvency or bankruptcy. Most states either ignore such problems altogether or wait until local governments actively seek state help because they are on the brink of insolvency. Fortunately, a few states have well-established monitoring and early intervention procedures that can serve as models for other states. North Carolina, New Jersey, Kentucky, Pennsylvania and Michigan are examples worth careful study. - ■■ Essential state and local infrastructure is starved of funding and necessary maintenance. This underfunding threatens the nation’s competitiveness; the longer it is ignored, the larger the problem it will pose. An essential first step toward mitigating the problem will be the adoption and funding by states of realistic annual capital budgets based on multi-year capital plans.
Reblogged this on Kmareka.com and commented:
Diane Ravitch discusses a recent report by her ex-husband, Richard Ravitch, sounding the alarm bell on how states must face and deal with budget problems.
Almost every developed country in the world manages to cover its citizens’ health care needs and spends half of what we do per person. Most also get better outcomes.
We also spend more on our military than the next 10 nations (at least, depending on who you ask) combined.
If we addressed these two issues, most of our fiscal problems would go away.
In the recent report of the Council on Foreign Relations about education, a dissenter from its woeful conclusions–Professor Stephen Walt of Harvard University–said that the US spends more on its military than the next 20 nations combined.
I’ve heard that figure as well. Again, it depends on who you ask. And you can also get into relative costs and % of GDP and so on…
The point is – it’s a lot of freaking money. And a lot of smart people who know this area seem to agree that it’s for a lot of stuff we really don’t need.
Not to mention re-instituting a progressive tax system that taxes capital gains at the same rate as earned income. That and a stock transfer/financial transaction tax of at least the state level in which the transaction occurs. I have to pay a sales tax on my purchases, why not the financiers/rentiers?
Jesey Jazzman,
With spending out of control in the two largest sectors of spending in our nation’s budget, the recent efforts of the USDOJ to crack down on Medicare fraud are welcomed and long over due (but glad the effort is here now). This link, {http://www.justice.gov/opa/pr/2012/May/12-ag-568.html }, details a multi-state effort that discovered almost a half of a BILLION dollars (452MILLION) in fraud with my state’s capitol, Baton Rouge, LA, leading the way with 250MILLION of that. This is shameful and embarrassing especially when considering our Governor Jindal is somehow considered a Medicare expert and this happened in the same town he lives and works. He is also now considered an education ‘reform’ champion.
I’m puzzled when I think of the fact that health care enjoyed privatized for some time now and apparently is ripe with fraud. Education is on the path to privatization and the instances of fraud very much exist. I just don’t get why it seems we keep making the same mistakes.
The GOP goal is to allow states to go bankrupt.
“… as with municipal bankruptcy, a new bankruptcy law would allow states in default or in danger of default to reorganize their finances free from their union contractual obligations. In such a reorganization, a state could propose to terminate some, all or none of its government employee union contracts and establish new compensation rates, work rules, etc. The new law could also allow states an opportunity to reform their bloated, broken and underfunded pension systems for current and future workers. The lucrative pay and benefits packages that government employee unions have received from obliging politicians over the years are perhaps the most significant hurdles for many states trying to restore fiscal health.”
http://articles.latimes.com/print/2011/jan/27/opinion/la-oe-gingrich-bankruptcy-20110127
Better off Bankrupt
January 27, 2011
By Jeb Bush and Newt Gingrich
I don’t pretend to understand finance that well, but all this surely impacted further by the Libor scandal? http://www.alternet.org/story/156352/wall_street%27s_biggest_heist_yet_how_the_high_wizards_of_finance_gutted_our_schools_and_cities?page=2
Gotta love Elizabeth Warren:
http://www.washingtonpost.com/opinions/elizabeth-warren-libor-fraud-exposes-a-rotten-financial-system/2012/07/19/gJQAvDnDwW_story.html?socialreader_check=0&denied=1
Gotta abhor anyone who supports deregulating Wall Street
Medicaid helps the poorest Americans and disabled people. Cutting back on Medicaid will be a disaster for these people. Not to mention that Medicaid pays for seniors in nursing homes. All the other industrialized democracies have some form or version of universal health care but in the US all we’re talking about is cutting or gutting the few decent social programs that we do have.
The exact cures for state fiscal crises are beyond what I can reasonably discuss in a comment. But I will point out that the Center for Budget Policy and Priorities (CBPP) has projected that at even if current rates of growth continued at 8.3%, we would not restore losses to state budgets until fiscal year 2019. (See the graph at the link.) That is a very long time for K-12 budgets to be under water. All the seed corn and then some would certainly be gone by that time. Our public school system would resemble Chile’s.
http://www.k12newsnetwork.com/groups/faqwiki/docs/why-are-state-budget-cuts-to-education-the-new-normal-the-shock-doctrine-in-action
This is a very timely post because on Monday, propelled by upside-down tax policies, LAE leaders, community officials, and tax policy experts will gather to discuss the impact of Louisiana’s corporate tax loopholes on our state’s funding system. The gap in our state’s budget continues to grow hurting schools, students, and communities. I will certainly be reposting this and will try to get it into the hands of those who will be involved, both the panelists and the staff of LAE. Thanks again for the information, Diane.
Aw, geeze. I don’t know what’s more alarming, the risks to education and medicare or the risks to states under the Republican plan to permit state bankruptcies. It’s all so very disturbing.
It just makes me want to scream to Obama, “Who’s in charge, what are they doing about these things, and where the hell are you?”
Now would be the time for Obama to step forward with true clarity of vision and viable action plans. He’s in a position to be the FDR of the 21st century, but he must come out in support of social and economic policies that promote equity. He needs to take stands against profiteers and for substantially increasing taxes on the wealthy –all of which could appeal to large numbers of the 99%, since so many of us are struggling today.
Considering how often other presidents like Bush took to the podium and preempted prime time TV, in order for him and his cronies to show videos of (non-existent) weapons of mass destruction, describe the state of affairs (Clinton) and use visual aids to show the (false) benefits of trickle down policies (Reagan), why is Obama just relying on corporate contributions for ads etc., to get his message across? He should be capitalizing on opportunities afforded to him as POTUS to speak directly to the American people.
Obama is way too low profile, especially when it comes to matters where there are justifiable needs for him to inform US citizens of critical issues and his plans for dealing with them, during prime time TV. (Even the announcement of Bin Laden’s death was flubbed. What kind of PR people does he have?)