New Report Notes Fiscal Challenges Many States Face


Report says states must make structural changes – more flexibility from Feds is needed for states’ stability

 AUGUSTA – A new task force led by former New York Lieutenant Gov. Richard Ravitch and former Federal Reserve Chairman Paul Volcker warns of calamity for states if they continue on their financial trajectory and highlights six threats to their stability. Today, Governor Paul LePage noted the report is a “call to action” for Maine, as well as other states.

The study, released Tuesday titled “Report of the State Budget Crisis Task Force,” outlines six major fiscal threats:Medicaid spending growth; federal deficit reduction; underfunded retirement promises; narrow, eroding tax bases and volatile tax revenues; local government fiscal stress; and state budget laws and practices which hinder fiscal stability and mask imbalance.

“Structural imbalances to the state budget exacerbate Maine’s financial situation,” says Governor LePage. “We need long-term, gimmick-free solutions to balance Maine’s budget and bring our fiscal house in order. This study also shows that the federal government needs to allow us the flexibility to be more fiscally responsible. Maine is not alone in facing these financial challenges, and we all must be prudent moving forward.”

While Maine has begun to tackle some of these issues by reigning in welfare spending and reducing pension debt, Governor LePage believes it is critical to pay attention to the financial cliff states are facing. “We are entering into a very uncertain time and with uncertainty our economy becomes vulnerable,” says Governor LePage. “Reductions in the federal budget have direct impact on states, but local communities are impacted too. There’s a ripple effect that we should all be aware of,” the Governor added.

According to the Maine Revenue Service 135,000 Maine business owners would see a total of $362 million in tax hikes if the Bush tax cuts expire. The expiration of the Bush era tax cuts that will cease on December 31, 2012 coupled with the automatic spending cuts that hit January 1, 2013. “If politicians are concerned with our economy than they have a funny way of showing it. Job creators are suffering because of an ideological battle in Washington,” Governor LePage noted.

The ongoing debate about the Nation’s debt is also hindering economic growth. Monday, the Government Accountability Office reported that the federal government spent an extra $1.3 billion to borrow last year because of the battle over the debt ceiling which is currently set at $16.4 trillion. Experts estimate that the debt load may approach the ceiling as early as mid-November. Governor LePage says it begs the question, “How much debt can the U.S.A. sustain?”

This report recommends that “prompt attention is needed to the effects that federal deficit reduction and major changes in the federal tax system will have on states.” Furthermore, the growing gap between states’ spending obligations and their available financial resources points toward a need to reexamine the relationship between the federal government and the states, according to the study. Chairmen, Ravitch and Volcker say, “The conclusion of the Task Force is unambiguous. The existing trajectory of state spending, taxation, and administrative practices cannot be sustained. The basic problem is not cyclical. It is structural. The time to act is now.”

About the State Budget Crisis Task Force: Initiated in June 2011 by Advisory Board Co-Chairs Richard Ravitch and Paul Volcker, the Task Force is focused on the enormous fiscal challenges confronting state and local governments.   With extensive practical experience in state and local fiscal matters, they are examining specific threats to near and long term fiscal sustainability in six U.S. states: California, Illinois, New Jersey, New York, Texas, and Virginia. The Task Force has partnered with leading independent experts in each state, who have produced extensive reports on potential threats to fiscal sustainability in their state.


About Steve Robinson

Steve Robinson is the former editor of The Maine Wire and currently the executive producer of the Kirk Minihane Show. Follow him on Twitter @BigSteve207.