GAO: Fiscal Pressures Threaten Intergovernmental Programs

A recent report from the Government Accountability Office says states' financial woes will ultimately make it harder for the federal government to deliver services.
by | August 19, 2010
 

A recent report from the Governmental Accountability Office found that states face entrenced, long-term fiscal pressures, thanks mostly to the decades-long increase in health care costs. And even despite the recent infusion of federal ARRA cash, states will continue to confront revenue challenges for a long time.

That's not news to anybody.

But the report went on to say that the state and local challenges over the past 30 years are increasingly threatening to derail federal efforts, too:

State and local current expenditures grew faster than federal grant revenues in more than half of the states. Despite these trends, the sector in the aggregate usually remained in surplus during this 30-year period. The sector avoided operating deficits, in part because of federal grant growth, and in part because, from 1995 to 2007, the sector increasingly financed capital purchases by issuing debt, rather than with revenues, which left more revenues available to pay for current expenditures. However, if the overall trend of state and local government expenditure growth in excess of revenue growth persists, this growth will put increasing pressure on state and local governments going forward.

So federal grants have helped stave off state deficits, but the effectiveness of those grants is diminshing as states and cities' expenditures continue to increase. Again, it's not exactly earth-shattering news.  But the GAO's point about interconnectedness is a good one:

The interconnectedness which defines intergovernmental programs requires that officials at all levels of government remain aware of and ready to respond to fiscal pressures. These pressures have implications for a wide range of federal, state, and local programs, policies, and activities, and include costs associated with health care, physical infrastructure, state and local employee pensions and retiree health benefits, and education, among other areas.

The best part of the report -- or at least the part that states and cities most want to hear -- is the last line of the executive summary (emphasis ours):

Actions to address the nation’s long-term fiscal outlook will be needed at all government levels in coming years and the challenges cannot be adequately met by shifting burdens from one level of government to another.

So we just need cities, counties, states and the feds to all get together and overhaul the nation's revenue structure. How hard can that be?

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