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Debt capitals

"Debt capitals" Continued...

Over the past three years, Indiana has maintained a relatively flat budget of $13.5 billion since previous years' reductions.

The approach has earned Daniels both fans and critics. Daniels announced late last year that K-12 education would have to share in the budget reductions-trimming $300 million from public schools statewide.

This spring, districts across the state have been forced to lay off hundreds of teachers and other school employees. In school board meetings, school officials have routinely blamed the governor for forcing them into the painful exercise of handing out pink slips to teachers.

Daniels didn't like having to make that particular decision, either, Rateike said: "K-12 education was a last resort. Everything else was reduced earlier and much deeper."

In Illinois, meanwhile, the financial picture is bleak. "Illinois' bond rating is the second-lowest in the nation, just a few steps above junk status," noted Laurence Msall, president of an Illinois policy think tank called the Civic Federation.

The state has fallen far behind on scheduled payments to state-supported institutions and programs, Msall noted-currently owing nearly $500 million, for example, to the University of Illinois.

Gov. Pat Quinn, a Democrat, has proposed increasing individual income taxes in his state to 4 percent from 3 percent as a first step to begin cleaning up the state's fiscal mess. Neighboring Indiana's state income tax rate is 3.4 percent.

Without the tax increase, Quinn has told legislators the state must cut $1.3 billion from K-12 education and $380 million from human services.

Illinois' fiscal problems predate the economic downturn of 2008, Msall noted. "Since 2002, the state of Illinois has run a general funds deficit, usually because of a deficit carrying over from the prior fiscal year," Msall said. "The scope and reach of the crisis has been made worse by inaction on the part of successive general assemblies and governors to curb spending."

Msall gives Quinn and the state's current legislature credit for taking steps to reform Illinois' pension system for state employees into a more affordable and sustainable program, but overall he sees few positive signs in Quinn's proposals for the state's fiscal future. "The governor's budget recommendation does very little to address the $12.8 billion deficit the state faces in the coming fiscal year," Msall said. "It is not a balanced budget and it relies heavily on borrowing to pay for operations."

Despite their proximity and similar cultures, Indiana and Illinois offer a sharp contrast on the matter of financing a state government. Perhaps, though, the disparate scenarios intersect at a common lesson on the importance of a state government-just like an individual household-living within its means. -William McCleery

Arizona: Cuts and rumors of cuts

Thanks in part to the housing market crash, Arizona's state budget crisis ranks second only to California's. The actual numbers are leagues apart-Arizona's shortfall is estimated at $2.6 billion compared to California's $20 billion-but as a percentage of state expenditures, they're in the same boat.

However, there's a big difference in the way the two states are viewed nationally when it comes to dealing with the problem. While the Democrat-controlled California legislature is roundly perceived as resistant to any spending reductions, Business Week highlighted Arizona as one of few deficit-facing states willing to make deep cuts. In a feature story on social services being sacrificed to fill in budgetary gaps, NPR cited Arizona as one of the "hardest hit." And, the online news arm of the Pew Research Center, called the cuts in the budget Arizona lawmakers approved on March 11 "staggering" and "dramatic."

While it's fair to say that the Grand Canyon state is more conservative and thus more open to budget cutting than its coastal neighbor (a recent Arizona Republic editorial joked, "In Sacramento, lawmakers can't bring themselves to cut a loaf of bread"), some local policy experts say that characterizations of Arizona as a cost-cutting trailblazer are wild exaggerations. They say many of the so-called cuts being alternately touted and condemned on the national stage amount to little more than creative accounting.

State Treasurer Dean Martin, who is running against incumbent Jan Brewer for the Republican gubernatorial nomination, argues that what appear to be large spending reductions in public education and Medicare are really just spending delays. "Everybody talks about saving billions, but a lot of that is on paper," he says. "The actual money being spent is only being reduced by $240 million." He points to provisions allowing the state to delay paying schools and hospitals for several months with the promise that the payments will be made up in the next fiscal year. "It's kind of like Wimpy from Popeye: I'll gladly pay you Tuesday for a hamburger today," says Martin.


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