Under the Radar

The news from Washington is filled with debates about safeguarding Americans' Social Security, proposals to make tax cuts permanent, and sweeping federal budget reductions in a time of looming deficits. In the meantime, the 50 states, various territories, and close to 90,000 counties, cities, towns, and other local jurisdictions struggle with their own concrete budgetary challenges. As critical as current federal-level issues are, those confronting state and local governments may have even more immediate effects on people's lives.

It is state and local governments that sponsor schools, public universities, and community colleges; maintain highways; secure public safety; and administer most courts. They dispatch inspectors to ensure public health and to see that nursing homes and industrial facilities are up to code. They oversee insurance, utilities, and other vital industries. They uphold standards for physicians, dentists, psychologists, engineers, and other professions. They support alcoholism-treatment facilities, adoption agencies, small-business assistance, fish and wildlife management, and other services that form the dense civic infrastructure that makes residence in the United States enviable. Although federal funds often help subsidize state and local activities, virtually all transactions that people normally have with government (except perhaps with the post office and the Internal Revenue Service), are, for better or worse, with state and local governments.

Until recently, state services and functions had been steadily improving in professionalism, sophistication, and uniformity. But the march toward modernization in state public services, taken for granted during much of the postwar era, is under relentless attack by the anti-government, low-tax movement. Promoted by conservative think tanks and led by the American Legislative Exchange Council, like-minded legislators are working to undermine public-sector capacity. Their playbooks call for privatization, deregulation, and, above all, a reduction in government expenditures. The most recent state fiscal crisis has provided ample opportunities.

There have always been tensions between conscientious legislators who support or oppose particular government expenditures, or who advocate or oppose increased tax revenues. But the sly campaign to cut government in general is relatively new. The advocates of small government today do not attack, as such, public schools, the state's flagship university, mental-health providers, child-care assistance, or other critical programs and institutions. Instead, conservatives now undermine government in general. They respond to budget crises with deep spending cuts and sweep away any growth in revenues with tax cuts, ratcheting down the government's ability to address public purposes. Any notion of investing in state capacity to meet growing needs is dismissed, leaving advocates of vital state services to compete with one another for an ever-smaller state budget pie.

As myriad programs are starved to preserve funding for core activities, states are hollowing out planning agencies, deferring maintenance on roads and public buildings, and reducing inspectors in key regulatory areas. They have gutted their public workforces by offering early retirement. Public workers who once helped the unemployed are being replaced with computer kiosks that spit out job listings. They are eliminating key data collection, obscuring from the public the evidence of decline.

Unlike the federal government, nearly all states are required to balance their budgets each year. So when recessions occur and tax collections decline, program reductions follow. Under a rational budgeting process, states would sequester funds in rainy-day accounts during good years and cut taxes only temporarily in anticipation of recession years. But driven by the anti-government ideology of the 1990s, states cut taxes permanently. The Center on Budget and Policy Priorities estimates that states today are short $40 billion because they imprudently cut taxes in the '90s.

In addition, state tax systems typically suffer from structural deficits. Tax revenues do not increase as rapidly as the state economy because many economic activities are exempt from taxes, such as professional fees and services. Moreover, populations requiring services for groups such as school-age children often grow faster than the economy. Legislators frequently face the challenge of increasing taxes or cutting services periodically just to stay in balance, thus feeding the public's mistaken belief that state governments are profligate.

The Federal Impact on States

In the early 1970s, the federal government provided, on average, more than one-quarter of all state spending exclusive of Medicaid (see chart below). But support, under the hammer of federal budget cuts, has been dwindling for the last 30 years. Today, the federal share of state spending aside from Medicaid is around 17 percent, and is scheduled to decline further. The president's budget calls for cutting domestic discretionary programs by $214 billion over five years, including cuts in education, transportation, and law enforcement. According to the Center on Budget and Policy Priorities, the five-year cut in grants to states and localities between 2006 and 2010 would be $71 billion.

Another important feature of the state fiscal picture is that the federal government continues to impose costs on the states without compensating them. Perhaps states could pay more for health insurance for the poor and disabled, for homeland security, and to meet federal education-accountability standards -- all policies originating at the national level. But one might expect the federal government, with its more expansive revenue sources and capacity, to pay the lion's share of these mandated costs. The National Conference of State Legislatures estimates that the cumulative gap in federal funds to states in fiscal year 2005 -- the cost of unfunded mandates -- stands at $31.9 billion. The state budget picture is rendered gloomier still by the certainty that long-term budget deficits at the national level reduce the chances that federal funds to state and local governments can continue at their present levels, much less help to fill this gap.

The conservatives driving national budgets want to have it both ways with state voters and taxpayers: They want credit for cutting taxes and for reducing federal spending, but they want to pretend that fiscal health in the states is not their responsibility. Indeed, in recent budgets, states have been treated as if they were just another set of claimants, rather than the partners in American governance that they truly are.

The combination of diminished federal transfers and reduced resources at the state level will increase pressures to raise taxes, particularly property taxes. Stronger progressive leadership is required to help voters make the connection between the federal tax cuts and the tax and budget crisis they experience locally.

Exporting Insidious Initiatives

An ominous development for the future of government in the states has been the determination of conservative activists to do to other states what they have done to Colorado. Twelve years ago, a Colorado ballot initiative instituted a series of constitutional amendments collectively known as the Taxpayers' Bill of Rights (TABOR). These amendments set binding limits on tax revenues and state spending, which, over time, have the effect of drastically reducing the amount of money that can be raised and spent in that state, regardless of the health of the economy or the extremity of the need for state-government intervention. The only escape clauses require the approval of a majority of voters in a state referendum.

The result in Colorado has been a harrowing set of budget reductions and a steady decline in the state's stature and quality of life. State general-fund appropriations for higher education have fallen to their lowest level in 20 years (in constant dollars), and the funding decline in just the last two years has been the worst in the nation. Public health has also suffered: Colorado's national ranking for access to prenatal care dropped sharply from 23rd in 1990 to 48th in 2004. The state is now 50th in on-time child-immunization rates; in 1995, the vaccination rate was well above the national average.

The retreat from public investments appears to be taking its toll on the state's economy, too. In 2003, Colorado's economic growth lagged behind that of the nation and of almost every surrounding state. In January 2005, the Colorado Business Leaders Confidence Index declined for the second consecutive quarter, and more than half of Colorado's business leaders now feel that the state funding situation is critical.

As damaging as TABOR's forced budget reductions have been, an equally ominous legacy is its effect on democracy. For the traditional decision-making roles of legislators, TABOR has substituted a mechanistic process that ensures fiscal contraction over time. Conservatives may choose to see these developments as strictly related to budget discipline, but it is hard to deny that they represent fundamental challenges to representative government.

Even as Coloradans are beginning to fight back to change the most egregious aspects of the TABOR amendments (more than 80 percent believe that Colorado has a serious budget problem, and 75 percent believe that it is very important or somewhat important to change TABOR), conservative efforts are under way in several other states including Wisconsin, Ohio, Iowa, Arizona, California, and Oregon to introduce elements of the TABOR package into law. Instigated by the American Legislative Exchange Council, The Heritage Foundation, the Cato Institute, and others, these efforts are seen explicitly by conservative theorists as a way to achieve permanent reductions in the role of government -- a goal they have been pursuing piecemeal for decades.

Signs of a Turnaround

Despite the threatening environment, there are good reasons to think that Americans will not readily abandon their state governments and the programs they have put into place over time. In a notably forceful stand, the National Governors Association recently presented a united, bipartisan front against the Bush administration's proposed cuts to Medicaid for 2006. And when those budget cuts reached the Senate, seven Republicans joined all 44 Democrats to block the Medicaid reductions. The amendment to strike the cuts was offered by a Republican.

Virginia Governor Mark Warner, a Democrat, last year surprised observers by successfully championing a tax increase with the help of Republican legislators. The Republican governors of Indiana and Arkansas, while backing some budget cuts, have also been recommending tax increases in order to salvage state programs. The governors are taking these courageous steps despite the widely publicized defeat, in Alabama two years ago, of a referendum championed by Republican Governor Bob Riley to reform Alabama's tax system. (Governor Riley said his support for tax reform was driven in part by his faith, which required a more equitable tax system for the state's poorest residents.)

Significantly, Colorado lawmakers are expected to revise the most damaging aspects of the TABOR portfolio soon. Proponents of TABOR elsewhere will have a hard time advocating Colorado-style reforms when Colorado itself is abandoning them.

Moreover, early awareness of the strategy of the anti-government, low-tax advocates, and much greater organization than in the past, is ensuring that no one is surprised by the conservative plan. Fiscal watchdogs in the states, particularly those organized through the State Fiscal Analysis Initiative (coordinated by the Center on Budget and Policy Priorities), have been alerting activists to the threat posed by the TABOR dissemination campaign, and mobilizing them to oppose it.

The Virginia situation is worth a closer look for what it may tell us about successfully making the case for tax increases. Governor Warner provided critical leadership by drawing attention to the accomplishments of which all Virginians were proud (the reputation of the commonwealth's universities and the state's continuous record for fiscal responsibility); focusing on long-run revenue projections rather than the usual two years, thereby demonstrating that these accomplishments would be in jeopardy unless additional revenues could be found; and taking this message virtually to every county in the state. Also critical to this success was the leadership of Republican legislators, who put the requirements of the state above the ideology of “no new taxes.”

If the Virginia tax turnaround was led from the top, the 2003 tax increase in Nevada was led by a broad-based coalition, the Progressive Leadership Alliance of Nevada (PLAN). PLAN, which has welcomed all broadly progressive groups in the state since 1994, started the ball rolling by engaging outside tax analysts to review Nevada's tax structure to identify weaknesses and potential areas of reform. Their report drew attention to the highly regressive nature of Nevada's taxes, and to the undertaxing of chain stores and other out-of-state businesses. Widespread media coverage of PLAN's proposals, meetings with public officials, and spirited public rallies resulted in an $833 million tax increase to support schools and social services.

The Virginia and Nevada cases drew on a key political reality that is observable throughout the country: People generally like what governments do, and want governments to continue to provide public services at a high level. For example, substantial majorities of Americans say that they have benefited from public schools, roads and highways, and parks and recreation services -- all of which are mostly produced by state and local governments.

In many states, ad hoc coalitions often come together to oppose particular budget cuts or advocate for tax reform. Typically, they drift apart after the legislative session, as groups return to advocating for their undoubtedly worthy particular policy concerns. Increasingly, long-term alliances such as PLAN -- but also One Connecticut and the Dirigo Alliance (in Maine) -- are breaking that pattern. Coalitions are emerging in which participants recognize that achievement of their particular interests in the long run depends upon working with others to support a robust public sector responsive to broad public purposes. And others are beginning to come together, particularly to oppose TABOR–style challenges in such states as Wisconsin and Ohio.

Though it may seem paradoxical in an era dominated by conservative rhetoric, the reality is that voters hold many points of view in their minds simultaneously. The challenge is to reinforce the strands of thinking that encourage a more balanced perspective on government and its role than the one that has dominated American politics in recent years.

Proponents of a capable and robust public sector need to better understand how to talk about government. Research sponsored by Demos, the research and advocacy group we work for, and the Council for Excellence in Government, in partnership with the FrameWorks Institute, is helping us understand how to increase the chances that messages about the positive role of government are favorably received. Polling will still be important to understand public opinion on specific issues, but in the long run, issue-by-issue pulse-taking will not be successful unless activists develop alternatives to the contaminated ways that messages about government are framed today.

As communications efforts and constituency-building activities mature, and as public understanding grows, disparate groups and communities in the states are coming together to debate and rediscover the broader set of shared public purposes and values that underpin our society. In doing this, they are validating the indispensable role of an effective public sector in achieving and ensuring common interests.

Michael Lipsky is a senior program director at Demos. His publications include Nonprofits for Hire: The Welfare State in the Age of Contracting (with S.R. Smith) and Street-Level Bureaucracy. Dianne Stewart is the director of Public Works: the Demos Center for the Public Sector.

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