Zywicki on Nation's State Budget Woes

Despite the federal government's having turned down two requests by California officials for federal help, Professor Todd Zywicki speculates that California and other financially troubled states could make the "too big to fail" argument, forcing the federal government to review its position in the event the states' finances continue to worsen.

Zywicki's comments came in an opinion piece questioning how much deeper present state budget woes could go.

The article's writer concludes that bankruptcy and bond defaults are unlikely; however, options such as federal bailouts; government overhaul; and customary measures such as service cuts, tax hikes, IOUs, layoffs, furloughs, and political gridlock remain on the table.

In the horror show of state budgets, there are few happy endings in sight, The News Journal (Wilmington, Delaware), January 10, 2010. By Daniel C. Vock.

"In other words, Rutgers University public-policy professor Carl Van Horn said, state budgets for next year will look a lot like those passed for this year -- 'only worse.'

"In the halls of many state capitols, many others are repeating that same refrain.

"California legislators spent the last year closing a $60 billion gap for the last two fiscal years. Already, though, legislative analysts predict the state will be short another $20 billion by June 2011. The bad news is expected to continue even after that, with gaps of roughly the same size persisting through at least 2015.

"'The scale of the deficits is so vast that we know of no way that the Legislature, the governor and voters can avoid making additional, very difficult choices about state priorities,' the report from the Legislative Analyst's Office said.

"Outgoing Virginia Gov. Tim Kaine, a Democrat, is preparing a budget plan for the state's next two years, when the state's revenues are expected to drop $3.6 billion. Kaine said he is worried about the proposal, even though his successor, Republican Bob McDonnell, will determine the budget's final form.

"'The things that get put in front of me in terms of cuts are ... tougher and tougher, and somewhere in whittling down that $3.6 billion number, I know I am going to get a cut that I don't want to make,' Kaine said."

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