The timing couldn't be better. After all, most states are now grappling with significant revenue shortfalls. By the end of January, the National Association of State Budget Officers was estimating that the 50 states were coming up $40 billion short for fiscal year 2002 and that most would be grappling with similarly knotty problems for 2003 as well.
Unfortunately our illusions were squashed when we read the rest of the Arizona Republic article. It turned out some of the ideas Arizona state legislators were proposing are less than magical. One of the major ones calls for sliding $200 million in school payments from June 2003 to July 2003. Sounds like one month wouldn't make much of a difference. However, since the state's fiscal year ends in June, the shift allows the state to keep the expense out of the 2003 budget. Arizona played this game from 1988 to 1994, increasing the amount each year that was passed over to the next--kind of like a drug addict who needs a bigger fix to get the same high.
Obviously, there will be lots of debate in Arizona before any measures are passed--and there's a good chance this maneuver won't actually make it into the budget. But such solutions are hardly painless. All they really do is delay the agony. Of course, if the economy turns around, then states and cities can get away with finessing their budgetary problems temporarily. But if hard times linger, then eventually it becomes clear that pain delayed is not pain denied.
One thing we know for sure: Before the budget season ends in early summer, there are going to be squadrons of governments that consider avoiding the hard--and politically painful--decisions, such as cutting programs or raising taxes, and seeking instead the temporarily easy fix.
That certainly was the case during the last recession, back in the early to mid-1990s. Back then, states and cities came up with a remarkable array of tricks to keep their budgets in apparent balance-- rather like the comedic magicians who pull a seemingly endless stream of colored cloths out of their pocket until, at the end of the stream, a pair of underwear pops out.
One of the simplest of maneuvers back then was to underestimate expenditures in the budget. Almost every state has a requirement that their budget be balanced, but there's no way to enforce the notion that they be balanced with real numbers. Medicaid expenses were particularly ripe for underestimating. The list of states that low- balled their estimates in this area included Alabama, Florida, Hawaii, Idaho, New Mexico and Wyoming. Were they all doing this on purpose? We can't say for sure. But we did have conversations with Massachusetts state leaders back in 1992 in which they openly admitted that they were purposefully understating their Medicaid expenses, on the grounds that when the coffers ran dry part-way through the year, the legislature couldn't refuse to fund this particular program with a mid-season infusion of cash. You just can't let poor children sicken and die in the streets.
Then, of course, there were entities that used one-time measures to make their books look better. Rhode Island accelerated the booking of tax payments from later years to balance its budgets in the early 1990s. In 1995, Maine got $16 million in additional revenue by selling some of its roads to the Turnpike Authority. New Orleans was such a disciple of the one-timer means of budget balancing that the gap between current tax revenues and expenditures was around 12 percent in 1996. New York State also was a master of this kind of thing. During the early 1990s, the state pulled money out of its retirement system funds, changed its method of calculating pension contributions and rolled school payments into later years--among other ploys. This last--delaying the payment of bills--was pretty common back then, too. Illinois took the cake: At one point in the early 1990s, it had deferred some $1.4 billion in unpaid bills.
Washington, D.C., meanwhile, approached its problems from both ends. Not only did it delay bill paying, it also added a fifth "quarter" to 1993 by pretending that it had already received the first quarter of property taxes from 1994. This allowed it to book about $180 million in Monopoly money.
All of this may sound like ancient history. And to be sure every single government we've mentioned has promised us--in healthier economic times--that they'll never again engage in such tightrope walking when it comes to balancing their budgets. Unfortunately, unlike tightrope walkers, when government budgets topple, there's rarely a net waiting underneath.
