Budget Deficits - A Tale Of Two States

Watching the evening news at 6 tonight, one of the stories was about the problems many states were having with their budgets due to the tough economic times. The approaches taken by them were as different as the states themselves. I thought it might be a good idea to compare the approaches of two of them, New Hampshire (where I live) and California.

Both states are running budget deficits.

New Hampshire's deficit for the biennium ending June 30, 2009 is approximately $100 million. (The state runs under a two-year budget.) If action is not taken by the legislature and governor, the deficit could reach $400 million by the end of the next biennium.This is the first deficit the state has had in decades. New Hampshire has a population of 1.23 million, giving a per capita deficit of $81.30 for the present deficit, and a per capita deficit of $325.20 if the deficit is not addressed for the 2010/2011 budget.

California's budget deficit for the present fiscal year is expected to be over $11 billion, with some officials expecting that number to rise to $40 billion by the end of the 2009-2010 fiscal year. California has a population of 36.7 million, giving a per capita deficit of $299.73 and a projected per capita deficit of $1089.92, assuming the worst-case projections of the deficit for the 2009-2010 fiscal year are correct.

They are taking different paths to solve the problem.

When it was discovered the present New Hampshire budget was $250 million in the hole, the governor immediately ordered across the board hiring freezes and budget cuts in every state department. These actions, plus others made by the legislature and department heads of state agencies, dropped the deficit to $100 million. Most of these actions were additional spending cuts; postponement, scaling back, or cancellation of non-critical state funded projects; and boosting some fees and state taxes. Realizing the deficit could grow to almost $400 million if further measures weren't taken, the governor wants more cuts to be made, including the layoff of state employees if it becomes necessary. New broadbased taxes (income or sales tax) are off the table as the governor has pledged to veto any such measure to reach his desk. (New Hampshire has neither). The governor has also called rare weekend meetings of agency heads, legislative leaders, and the Executive Council to work on the proposed budget, which by law must be presented to the legislature in two weeks.

California, on the other hand, appeared to have a tough time making budget cuts, dialing back state spending. Instead the state assembly raised taxes and fees, while cutting little in the way of spending. To lessen the projected deficit, the governor has proposed spending cuts and tax hikes for the upcoming fiscal year.

The governor's proposed tax hikes will total $4.7 billion, including raising the sales tax from 7.25 percent to 8.75 percent, temporarily, and expanding the scope of the tax. (Does anyone know of any 'temporary' tax that wasn't made permanent?) Proposed spending cuts total $4.4 billion.

The California Assembly has different ideas.

The Democrats want to raise taxes by $8.8 billion and cut spending by $8.1 billion.

The Republicans favor selling off state assets, imposing fees on oil extracted from California oil wells (most states with oil do this), more flexible work schedules for businesses and state agencies, and postponement of new mandatory regulations aimed at reducing greenhouse gases.

Which of the two do you think will succeed?

I'd guess it won't be the incipient Worker's Paradise out on the Left Coast.