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Spendthrift States

from the magazine

Spendthrift States

Summer 1999
Economy, finance, and budgets
Politics and law

Have we entered a post-welfare-state era? The Reason Public Policy Institute seems to think so. Its Privatization 1999 report brims with optimism about the rollback of government on the state and local levels. "Governments are becoming more interested in increasing service levels, access to expertise, and innovation, in addition to the traditional goals of cost savings and improved service quality," report editor Wayne Hudson observes.


There's reason to think that the Reason Public Policy Institute is being Pollyannaish, at least when it comes to state government. While Privatization 1999 gives encouraging examples of cities and counties privatizing core services, it offers scant details of similar successes on the state level. In fact, as Dean Stansel and Stephen Moore of the Cato Institute warn in an important new study, state governments have been on a "spending spree" that should give pause to anyone who thinks "the era of big government is over," as Bill Clinton famously put it in 1996.


State governments almost all boast huge budget surpluses, thanks to the economic boom, a slowdown in health-care cost increases, and falling welfare rolls. But only one out of every three of the surplus dollars makes its way back to voters. The other $2, Stansel and Moore explain, has funded expanded government education, health, and welfare programs.


"In an era of almost no inflation," the Cato report shows, state budgets grew by 4.5 percent in 1996, 5 percent in 1997, and nearly 6 percent in 1998—an accelerating trend. (New York State's spending rocketed up 8.5 percent in 1998.) The Monthly Labor Review notes that state government employment in 1998 increased 1.6 percent—double the previous five-year average growth. State governments now eat up a larger chunk of GNP—12.8 percent—than ever before. When the country's boom cools, as inevitably it will, states will then confront massive budget deficits akin to those that "created tidal waves of red ink when the 1980s boom ended," the Cato authors warn. Let's hope voters will at last hold their profligate legislatures responsible.
 

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