Fiscal Health: A Tale of Two States

Posted by Mark Todd Engler in California, Health Care, Medicaid, Texas on Dec 4th, 2008 | no responses

Writes Arlene Wohlgemuth, a visiting research fellow at the Texas Public Policy Foundation: "At the very time when families will need the safety net of Medicaid and SCHIP the most, states that have not exercised fiscal responsibility, particularly those that have expanded their health care programs beyond sustainability, will not be in a position to help. That is not compassion."

Wohlgemuth compares responses by state government officials in Texas and California to their respective recessionary budget shortfalls of the early 2000s. She observes that, as a result of very different routes taken, the two states presently find themselves in very different fiscal boats as they attempt navigating these turbulent economic waters.

Today, Texas has become the nation's top job producer, hosts more Fortune 500 companies than any other state, and was cited by the Financial Times as the state best able to weather the financial storm. Although the economic downturn will cause short-term problems, especially in retirement system investments, the state will enter the next budget cycle in the black, just as it did in 2005 and 2007.

California, on the other hand, not only raised taxes as part of its deficit plan, but also borrowed $10.7 billion – about 15 percent of its general revenue. The result has been that California has lost both jobs and population. The current budget year has a $26 billion budget gap, representing 25.7 percent of general revenue. Its solution again is to borrow much of the money rather than significantly reducing spending. But this time, there is a steep price to pay.

California now has the lowest bond rating of any state and will pay for that through a high interest rate. Stateline.org reports that the state may be the first to "nose-dive into junk bond territory." Instead of facing the recession from a position of fiscal strength, the state is incredibly weak.