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Debt capitals

"Debt capitals" Continued...

An oft-quoted study by Boston College found that New Jersey has lost $70 billion of wealth between 2004 and 2008. Scheininger blames the punitive business climate and welcomes the end of the millionaire tax: "If you're a small business guy who's trying to keep your cash flow positive and have monies to invest, it can't hurt."

He adds, "We are a cautionary tale for the rest of the country. We are a cautionary tale for those members of Congress who think that the unprecedented [spending] levels that they're racking up now won't wreck economic activity. We're a cautionary tale for the Obama administration. The bills come due. They really do."

Across the East River, New York is in the same kind of gridlock. . Lt. Gov. Richard Ravitch has proposed a plan that would let the state borrow up to $2 billion a year, but the money comes with strings attached. The state would have to use better accounting principles to make deficits more transparent. An independent financial review board would make sure the budget is balanced every quarter and if it's not, the governor would have the power to impound spending.

Elizabeth Lynam, deputy research director for the Citizens Budget Commission (CBC), warns that if the state doesn't adopt the accounting standards that Ravitch proposes and simply borrows wildly, deficits will continue to balloon. Lynam said the state's temporary stopgaps are supposed to relieve financial pressure just until the state can get its finances in order. The stimulus was one stopgap, and this $2 billion in borrowing might be another. But "so far there has been no movement towards that future where we're reining in our spending," she said.

Gov. David Paterson, a lame duck governor dogged by allegations that he pressured a woman into dropping a domestic abuse case against one of his closest aides, has proposed the leanest budget so far. And even that one, CBC calculates, will leave the state with a $12.4 billion budget gap in 2013-2014.

The governor's budget raises $1 billion by increasing fees and taxes on things like cigarettes and sugary drinks. It also proposes $5.5 billion in recurring cuts, with the bulk of the cuts coming in school aid, Medicaid, and agency spending. New York spends $15,981 per K-12 pupil compared to the national average of $9,666. Even with Paterson's education cuts, the state will have increased education spending by 42 percent since 2003-2004.

The governor is cutting only $1 billion from Medicaid. The Empire Center for New York State Policy notes that although New York covers half as many people as California does, it spends 25 percent more on Medicaid. New York's Medicaid spending per enrollee is $7,927 compared to the national average of $4,575.

The Governor, Senate, and Assembly are still wrangling over the cuts, with the Senate and Assembly proposing plans that leave the state with a budget gap. The worst case scenario would be a repeat of last year: The governor and legislature cobbled together a shaky budget that didn't deal with future gaps. Revenue continued to plummet, spending continued to soar, and midway through the fiscal year the state found itself with a projected $3.2 billion budget deficit. -Alisa Harris

Indiana & Illinois: Alike and different

Indiana and Illinois have much in common. Both can claim Abraham Lincoln and the Wabash River as native forces that have shaped their heritage and landscape. Culturally, the people from the two states tend to enjoy basketball and country music.

When it comes to managing their finances, however, the two states' government officials have gone their separate ways.

In recent years, Indiana has ranked among a handful of states running a budget surplus-though now state officials are spending those reserves to compensate for the effects of the recession on state revenue. Illinois, meanwhile, must grapple this year with a budget deficit of nearly $13 billion. The Wall Street Journal in February identified the state as facing "one of the biggest state budget crises in the nation."

Indiana's fiscal discipline is partly an extension of its top elected office-holder's philosophy and style. Gov. Mitch Daniels, a Republican, famously earned the nickname "the Blade" when he worked under President George W. Bush as director of the Office of Management and Budget. The nickname sprang from Daniels' constant recommendations to slash federal budgets wherever possible, and he has continued his propensity for budget-cutting as governor.

He has cut about $800 million per year from the state budget in each of the last two years, according to state figures. He has directed most state agencies and departments to trim 20 percent from their budgets. Daniels aide Brad Rateike declared, "We've been cutting government spending since 2005, even before the recession was adversely impacting revenue collections. When you account for inflation and population growth, our spending has been reduced about 1.3 percent per year since the governor took office."

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