State Budget Crises Caused By Overspending
The sluggish economy is not to blame for most state's budget problems, says an exhaustive analysis by USA Today. Of course, this is not news to readers of HobbsOnline, where we have time and time again shown that Tennessee's alleged "revenue shortfalls" were, in fact, caused by excessive spending. But to see it in the nation's largest newspaper is sure to be exhilarating for those in Tennessee who spent the last five years opposing efforts to enact a state income tax that would have merely accelerated the growth of government spending, not solved the state's chronic problem of overspending.

An excerpt from USA Today:

The financial problems racking many state governments this year have less to do with the weak national economy than with the ability of governors and legislators to manage money wisely. That is the key finding of a USA TODAY analysis of how the 50 states spend, tax and balance their budgets - or don't. The National Governors Association says states are suffering their worst economic crisis since World War II. But for many states, the analysis shows, the fault is largely their own.

Some states that have enjoyed handsome growth in tax revenue nonetheless have huge budget shortfalls. At the other extreme, some of the best-managed states suffered sharp declines in tax collections but promptly took painful steps to balance their books.

You have to read the whole thing for the details. The USA Today piece has an accompanying graphic that ranks how the states manage their money, and a state-by-state analysis.

The remarkable thing is, the paper reached the conclusion that states overspending, not the economy, was the primary cause of fiscal crises in the states - even though the paper relied primarily on the National Council of State Legislatures and Governing magazine for a large portion of its information. Both the NCSL and Governing are biased in favor of higher taxes and bigger government. I have a fuller discussion of Governing here, published Feb. 17, 2003. But even the bias of the NCSL and Governing could not obscure the truth about the real cause of states' fiscal woes.

USA Today says Tennessee state government increased spending (from state revenues) at 6.7 percent per year, on average, adjusted for inflation and population growth, from fiscal years 1997 through 2002, a period in which revenue growth slowed because of the recession to a much-lower growth rate.

As I've explained repeatedly on this blog, Tennessee revenue grew in four of those the six years - apart from any tax rate increases or new taxes - but the legislature and the state's previous governor, Don Sundquist, insisted on growing spending much faster than revenue. Overspending, not the mythical obsolete tax code, was the real reason for Tennessee's budget problems.

As I explain in this white paper, Tennessee has been raising spending at a rate faster than the growth of the state's economy for more than a decade, routinely exceeding the state constitution's spending cap, called the "Copeland Cap," via a loophole designed for emergencies but now exploited almost annually.

The legislature has exceeded the cap by a cumulative $3 billion since fiscal 1985, including $1,096,000,000 (one-billion-and-96-million dollars) during the Sundquist administration. Because much of that extra spending was for recurring programs, the actual cost to taxpayers far exceeds $3 billion and continues to mount year after year.

One year ago [Ed. note: Feb 2002] Gov. Sundquist proposed a budget for fiscal 2002-03 that would've exceeded the state constitution's cap by a whopping $1.27 billion dollars. The legislature cut his budget request by some $500 million, yet Sundquist's legacy remains that he signed into law a budget that includes the largest spending in excess of the constitutional cap in the history of Tennessee - a whopping $771 million. That's 9 percent more spending than the constitutional cap allows. That's $771 million in just the first year. Because each year's budget increase is built on top of the previous year's budget, exceeding the cap by $771 million this year means next year's budget will also be $771 million higher than it would have been if the constitutional spending cap had been respected. And the next year's budget. And the one after that, etc... Over the next 10 years, this year's busted spending cap will cost Tennessee taxpayers an astonishing $7.71 billion dollars in additional taxes, unless something is done.

Revenue in the 1990s grew significantly faster than the combined rate of population growth and inflation, but spending grew even faster as the Sundquist's administration feasted on record revenues and spent every dollar on a series of record high budgets, setting Tennessee up for a fiscal train wreck when the economy slowed. During fiscal year 2001, Tennessee’s general-fund spending grew faster than all but 11 other states - and second fastest among the dozen Southeastern states - with general fund spending rising 8.7 percent, ahead of the U.S. average of 8.2 percent and second in the Southeast, trailing only Florida and well ahead of the Southeastern states’ average of 6.4 percent. And in fiscal 2002, Sundquist proposed increasing spending 9.2 percent, compared to 2.44 percent in the rest of the Southeastern states. Sundquist’s proposed budget for 2002 would have shattered the Copeland Cap growth limit, increasing total appropriations from state tax dollars by 13 percent even though the economy - defined in Tennessee law as aggregate personal income - was expected to grow just 5.8 percent. Had Sundquist’s budget passed, the Copeland Cap would have been exceeded by $607.6 million. Thankfully, the legislature passed a reduced budget.

But this year, thanks to the big tax increase, Tennessee is spending $771 million more than it should under the Copeland Cap.

That serial overspending by Gov. Sundquist ended with the end of his second and final term in office - today, Tennessee Gov. Phil Bredesen has managed to pass a balanced budget without tax increases, by using spending cuts to keep government living within its means. That budget - Tennessee's first fiscally sane budget since fiscal year 1996 - goes into effect July 1.

USA Today is a Gannett paper. So is The Tennessean, which strives to keep Tennessee taxpayers fully informed as to the real cause of the state's fiscal problems. So we look forward to seeing the USA Today analysis carried in The Tennessean. Admittedly, we are not holding our breath - The Tennessean for four years merely regurgitated the deceptive spin of the Sundquist administration that blamed the state's budget gap on the tax code, rather than its own fiscal profligacy. Of course, the administration and the paper shared a goal: imposing a new income tax on top of the state's 21 other taxes and fees, in order to enable even more rapid expansion of government spending.

EconoPundit has more on the USA Today story.

A version of this story is also posted at PolState.com.