“Invitation to Disaster”
January 11, 2010, 4:00am

By Bob Herbert — The New York Times.

We didn’t pay attention to the housing bubble. We closed our eyes to warnings that the levees in New Orleans were inadequate. We gave short shrift to reports that bin Laden was determined to attack the U.S. And now we’re all but ignoring the fiscal train wreck that is coming from states with budget crises big enough to boggle the mind.

The states are in the worst fiscal shape since the Depression. The Great Recession has caused state tax revenues to fall off a cliff. Some states — New York and California come quickly to mind — are facing prolonged budget nightmares. Across the country, critical state services are being chopped like firewood. More cuts are coming. Taxes and fees are being raised. Yet the budgets in dozens and dozens of states remain drastically out of balance.

This is an arrow aimed straight at the heart of a robust national recovery. The Center on Budget and Policy Priorities has pointed out that if you add up the state budget gaps that have recently been plugged (in most cases, temporarily and haphazardly) and those that remain to be dealt with, you’ll likely reach a staggering $350 billion for the 2010 and 2011 fiscal years.

This is not a disaster waiting to happen. It’s under way.

Without substantial new federal help, state cuts that are now merely drastic will become draconian, and hundreds of thousands of additional jobs will be lost. The suffering is already widespread. Some states have laid off or furloughed employees. Tens of thousands of teachers have been let go as cuts have been made to public schools and critically important preschool programs. California has bludgeoned its public higher education system, one of the finest in the world.

Michigan has cut some of the benefits it provided to middle-class families struggling with the costs of health care for severely disabled children — benefits that helped pay for such things as incontinence supplies and transportation to special care centers. The Grand Rapids Press quoted a state official who acknowledged that the cuts were “tough” and were hurting families. But he added, “The state simply doesn’t have the money.”

The collapse of state tax revenues caused by the recession is the sharpest on record. Steep budget cuts have not been enough to offset the unprecedented plunge in tax collections that resulted from unemployment and other aspects of the downturn. The shortfalls swept the nation. As the Rockefeller Institute of Government reported, “Total tax revenue declined in all 44 states for which comparable early data are available.”

State governments are not without fault. Very few have been paragons of fiscal responsibility over the years. California is a well-known basket case. New York has a Legislature that is a laughingstock. But for the federal government to resist offering substantial additional help in the face of this growing crisis would be foolhardy. You can’t have a healthy national economy while dozens of states are hooked up to life support.

The Center on Budget offered some insight into how the trouble in the states adds up to trouble for us all:

“Expenditure cuts are problematic policies during an economic downturn because they reduce overall demand and can make the downturn deeper. When states cut spending, they lay off employees, cancel contracts with vendors, eliminate or lower payments to businesses and nonprofit organizations that provide direct services, and cut benefit payments to individuals.

“In all of these circumstances, the companies and organizations that would have received government payments have less money to spend on salaries and supplies, and individuals who would have received salaries or benefits have less money for consumption. This directly removes demand from the economy.”

The Obama administration has provided significant help to states through its stimulus program, and it has made a difference. It prevented the crisis from being much worse. But much of that assistance will run out by the end of the year and states are fashioning budgets right now that will absolutely hammer the quality of life for some of their most vulnerable residents.

New York’s lieutenant governor, Richard Ravitch, has been trying to bring a measure of sanity to the state’s budget process. But as he told me this week, without additional federal help, many states will have no choice but to impose extreme budget cuts, or raise taxes, or — most likely — do both.

We need more responsible and less wasteful fiscal behavior from all levels of government. But the country is still faced with a national economic emergency, with tens of millions out of work or underemployed. We can hardly afford any additional economic shocks. Turning our backs on the desperate trouble the states are in right now is nothing less than an utterly willful invitation to disaster.