Fate of the States: The New Geography of American Prosperity

by Meredith Whitney

  We have reached a breaking point for some states. There is no more money. There are no more stimulus dollars. There are no more rainy-day funds to raid. The emergency options have all been tapped. From 2008 to 2012 states squeezed just under $600 billion from one-time measures to close budget gaps.19 Spending on schools, public safety, and other vital services still got slashed. What will be next? And how bad will things get?

  Cumulative Measures Used to Close Budget Gaps (FY08–12)

  SOURCES: BLS AND MWAG

  Politically it is far easier to increase than decrease spending, and elected officials have gone to great lengths to avoid the politically painful steps required to rein in spending. More often than not, rather than align expenses with current tax receipts, elected officials have just borrowed more—taking from the till of future tax dollars—to pay for current government spending on projects and goodies. Because tax receipts have little bearing on state spending, spending has outpaced tax receipts by a factor of two since 2000. Now the inevitable spending cuts have finally arrived, and the most vital government services are the ones bearing the brunt.

  Education

  For most states, the biggest budget expenditure is education, both K-12 education and higher education. K-12 accounts for 20 percent of spending, whereas higher education accounts for 10 percent, on average.20 The next-largest state expense is Medicaid, which is growing two or three times faster than most state budgets. Clearly the explosion in Medicaid expenses has left less of the budget available for education and infrastructure projects. While a pothole or two may not be a game-changing risk in the near term, cuts to education are serious near-, medium-, and long-term threats to the quality of life within a state.

  According to the Center on Budget and Policy Priorities, thirty-seven states reduced per-student funding to their school districts in 2011, and seventeen states cut per-student education funding to a level below where it was prerecession. Higher education has been hit especially hard: Funding for public colleges and universities has been reduced by an average of 11 percent since 2010, to the lowest levels since the 1980s, according to the State Higher Education Executive Officers Association. Higher education is discretionary, and discretionary items are always most vulnerable. Consider that from fiscal year 2011 to fiscal year 2012, while state general-fund spending on Medicaid increased by $16 billion, general funds cut more than $5 billion from higher education and $2.5 billion from K-12 education. Remember, most K-12 spending comes from municipal monies, and cuts to K-12 education are far more damaging to the quality of teaching, since funding cuts cannot be offset with tuition hikes, as has been the case with public colleges and universities.21

  Other than moving, families have few ways to protect their children from the corrosive impact of shrinking school budgets. Sure, private schools are an option for those who can afford them, as are charter schools for families fortunate enough to get a slot. In 2011 Tanya Moton pulled her daughter out of a public school in order to enroll her in a nearby charter school. “The classes were too big, the kids were unruly and didn’t pay attention to teachers,” she told the New York Times of the former school.22 But Tanya Moton is one of the lucky ones. Nationally, only 13 percent of public-school students attend charter schools.23 Moreover, charter schools are not immune to budget cuts. In 2012 the Philadelphia school district cut its payout to city charter schools by $700 per pupil, a 7 percent reduction in funding. “Charter schools are going to have to . . . be more efficient and find ways to serve [students] in a leaner and more creative way,” said Lawrence Jones, president of the Pennsylvania Coalition of Public Charter Schools.24

  States walloped by the real-estate bust, such as California, have had to make the deepest cuts. From 2007 to 2011 California’s GDP contracted by over $28 billion. In other words, after a five-year period in which the state issued $397 billion of debt and increased the size of its unfunded pension liability by almost $80 billion, its economy still wound up worse off.25 California used to be the gold standard for public education. From universities to grade schools, its education standards were the top in the nation. Since 2008, however, California has cut more than $6 billion from education spending.26 There’s less money for textbooks, teachers, and arts and sports programs. With fewer teachers, “virtual classrooms” are sprouting up in which a live teacher is telecast into a classroom but without any actual physical classroom presence. In 1990 California had a 1.3 percent lead over the United States as a whole in the share of its population that had graduated from high school. By 2008 California’s population had 6 percent fewer high-school graduates than the national average. In many school systems it’s the arts and music programs that are cut first. Art teachers who survive layoffs are often reduced to going classroom to classroom offering “art on a cart” like hot-dog vendors. In 2008 the Los Angeles Unified School District had to suspend one of its key arts programs because of a spending freeze. In 2011 San Diego Unified School District’s visual- and performing-arts program faced a $2.8 million cut—from a $3 million budget. This was part of an effort to plug a $120 million hole in the school district’s $1.2 billion budget. That $2.8 million in cuts amounted to just 0.23 percent of the budget.27 In wealthier communities, raffles, bake sales, and other fund-raisers sometimes help save arts and music programs on the verge of being axed, preserving parents’ dreams of watching a son or daughter play violin in a school orchestra. In poorer communities such dreams die without proper funding.

  Cuts are also coming out of basic programs such as busing. Last year Illinois cut $89 million from its school-transportation budget. In Lake Elsinore, California, school-bus service was scrapped entirely, forcing students to find their own way to school. “There are enough crosses on the side of the road. We don’t need more,” Salvador Sepulveda beseeched the Lake Elsinore school board before it voted to end bus service. Sepulveda believed it was simply too dangerous for his grandson—a first grader—to walk to school. Yes, some kids can get a ride to school with parents, but for some of those parents the added cost of gas is a burden. Others risk being late for work.28

  After doing what they could to raise revenues through higher property taxes, school systems have had to cut and cut deeply in order to balance their budgets. K-12 public education is free, of course, so raising tuition rates was never an option. But higher education is a different story. State universities have the ability to collect—and raise—tuition. Recall the protests in Oakland and Davis, a town just outside Sacramento, during the spring of 2010. Hundreds of college students tried to block interstate highways in protest of spending cuts for education.29 They knew these cuts were simply a prelude to tuition hikes in 2011. Not surprisingly, the states hit hardest by the housing bust and large budget deficits have seen the sharpest spikes in the cost of tuition for four-year colleges. Arizona, California, and Nevada saw tuition costs rise by 94 percent, 80 percent, and 76 percent respectively between the 2004–5 and 2011–12 school years. Nationally, only Maryland and Ohio saw state tuition actually decline over the same time periods.30

  Which states have the highest tuitions? Three of the five—Illinois, Michigan, and New Jersey—are states with faltering economies and massive state budget shortfalls. Cuts to higher education have been so deep in these states that their public colleges and universities have been forced to charge tuitions 50 percent above the national average. In Illinois, Michigan, and New Jersey, average tuitions for four-year public colleges were $10,975, $10,170, and $11,667 respectively, according to the College Board, versus the national average of $7,506.31 Since 2007 California has cut $2 billion from higher-education spending. These cuts caused an 80 percent spike in tuition costs, and now only 18 percent of California high-school graduates are enrolled in state colleges or universities, versus 22 percent prior to 2007. And it’s not just the four-year colleges that are affected: In-state enrollment in community colleges has shrunk from 2.9 to 2.4 million.32 In 1990 California’s population had 15 percent more college graduates than the n
ational average. Twenty years later, that big advantage has been halved to just 7 percent.33

  In case you’re wondering, Wyoming boasts the lowest public-university tuition, at $3,917, even as the state’s overall per-capita spending on higher education is third highest in the country.34 Perhaps not coincidentally, Wyoming now boasts the fifth-highest per-capita income in the country, making it the only rural state among the top five. Of course, massive tuition hikes serve to exacerbate the student-loan crisis, a $1 trillion problem sure to end badly if the job market for twentysomethings doesn’t improve. According to the Economic Policy Institute, 9.4 percent of college graduates ages twenty-one to twenty-four were unemployed in 2011 and another 19.1 percent were underemployed—and thus unlikely to be earning enough to repay their student loans.35

  It’s not just college students getting the shaft. State education dollars also go toward job-training and retraining programs, and those monies are getting cut too. According to the Wall Street Journal, funding for local job-training centers in California is 2 percent lower than it was in 2007, even though the number of unemployed Californians has more than doubled to nearly two million. No wonder California is saddled with one of the highest rates of long-term structural unemployment in the country.36

  Libraries

  Libraries have also been budget-cut casualties. Nationally, the American Library Association reports that 60 percent of libraries had flat or decreased budgets last year. Forty percent of all libraries have had three consecutive years of revenue shortfalls. For library patrons, the timing of the cuts couldn’t be much worse. Library usage is countercyclical. When times are good, people buy books and magazines. When times are tough, they go the library. So even as demand for libraries has surged, libraries have had to cut hours, trim staff, and eliminate or significantly reduce programs in order to stay open at all.

  The free, taxpayer-supported, public library is as uniquely American as hot dogs and hip-hop. The first free public library in the world was built in Peterborough, New Hampshire, in 1833. Over the decades, public libraries’ role in American life has expanded and evolved. Libraries have always been a safe and quiet place to study—an epicenter of autonomous learning. Kids grew up with their library cards as their only identification—good for five books at a time. Nowadays libraries’ role in the economy and in our lives is different. Some might say bigger. With computers and Internet access, libraries are now used by job hunters to help them connect with potential employers. An American Library Association survey reveals that “more than 70% of libraries report that staff helped users complete online job applications. But the majority of libraries do not have enough staff to assist job-seekers with their vital efforts to get back into the workplace.” Worse, the librarians who still have jobs may lack the proper training to help job seekers navigate the technology. So for now, many libraries have to settle for being just another Wi-Fi hot spot.37

  In late 2011 Detroit closed four out of its remaining twenty-three library branches. This came after the city had already fired eighty-two library staff earlier in the year.38 But it’s not just poor cities gutting their library systems. Troy, Michigan, which in 2008 Money magazine voted the twenty-second-best place to live in the United States, is a relatively affluent city with a median household income from 2006 to 2010 of over $87,000. J.D. Power and Associates and DuPont Automotive have offices there. But due to lack of funding, even Troy’s library was closed down, leaving behind a sobering Web site FAQ section for confused residents. Residents wondering where to gain access to books or other library materials were directed to other local libraries’ help desks in order to see whether their Troy library cards would be accepted.

  Libraries are vulnerable because bean counters don’t see the benefits of funding them. “We have invested in full-time librarians for the last three or four years and we haven’t seen the kind of payoff we’d like,” Washington, D.C., school chancellor Kaya Henderson announced at a 2012 meeting. But since when have librarians been expected to provide a return on investment? Isn’t education one of the basic principles in modern America? In D.C., upward of fifty school-librarian positions may be eliminated, even though more than thirty schools are already without site-based librarians. It is tough enough getting students to come to school and pay attention. But how can they continue learning if there is no one in the libraries to guide them? Basic services like school libraries affect not only learning but also students’ overall sense of well-being.39

  Just ask youngster Karla Rivera. “I am 13 years old and I love reading. . . . Without the library, I would DIE,” Rivera wrote on the city of New Haven, Connecticut’s Web site. It was 2011, and Connecticut’s second-largest city was grappling with a $5.5 million budget deficit and debating whether costs should be cut by laying off librarians and reducing library hours. “If I didn’t have the library, I probably would not have survived high school,” declared another local teen, Shawnese Turner, insisting that it took her four hours to do her homework at home versus just two hours “in a nice quiet place like the library.”40 Few things are more politically unpopular than closing libraries, but New Haven wound up doing it anyway, axing twelve librarians and cutting seventy-five hours from the weekly hours of the city’s half dozen libraries—despite the fact that library usage was up nearly 50 percent since 2003. New Haven’s mayor, John DeStefano, Jr., insisted he had no choice. Connecticut’s real-estate market has been among the hardest hit in the country, and property-tax revenues just weren’t keeping up with New Haven’s biggest expenses—the cost of public-employee health-insurance and pension plans. Those outlays had soared from $44 million a year to $105 million and now consumed 22 percent of the city budget, up from 12 percent ten years earlier. “They are,” DeStefano said of health care and pensions, “the Pac-Man of our city budget, consuming everything in sight.”41

  Parks and Trash Collection

  It’s one thing to visit a county park one day and find trash near swings or a ball field. But it’s quite another to return to that same park week after week and realize that the litter isn’t being cleaned up. Not only is this a major eyesore for the community, but it’s a red flag for anyone considering purchasing a home there. It effectively says, “We don’t care about cleanliness in our community”—even if that is not the full truth. Cities and neighborhoods dealing with mounting budgetary issues have been forced to either privatize waste-collection services (which can eliminate jobs for some residents) or cut services and leave trash disposal up to homeowners. For example, in Roanoke, Virginia, officials needed to cut around $1.4 million from the sanitation department. Of that, $160,000 was saved by removing trash bins from condos and townhomes and by “eliminating free residential garbage disposal at the Roanoke Valley Resource Authority Transfer Station,” according to the Roanoke Times.42 Until then, residents had been allowed to drop off their trash a mere twenty times per year at the local transfer station. But really think about that scenario. If you live in a condo or townhome, your trash bins may be removed, meaning you (or your complex) will have to find a way to a regulated trash dump. This increases costs for everyone—gas, service, and equipment. In the past, waste management seemed like a given, one of the benefits of owning your own place. There was a certain pride in rolling your garbage can out to the curb of a home you had worked hard to build and maintain. Who wants to buy a house someplace that makes you pay to take out the trash? Residents will find a way to get by, but they should not have to. Trash removal ought to be a bare-minimum benefit of paying property taxes.

  After closing the ten transfer stations where residents hauled their own trash, Hidalgo County in Texas decided to privatize trash collection, a move projected to save the county roughly $6 million annually.43 There are cost-effective ways like this around poor budgeting by cities and counties. But that raises a question: Where do tax dollars go? After all, it’s not as if trash collection were being cut in order to prevent cuts to ostensibly more important services like police and fire depa
rtments. Those are being cut too.

  Public Safety

  With fewer police and firefighters on the streets, response times have gotten longer. In Red Feather Lakes and Upper Poudre, Colorado, residents were warned that they would have to wait between forty and sixty minutes for emergency response, instead of the usual twenty minutes. That’s scary given the increased number of hardened criminals who may soon be roaming the streets of budget-strained states. In May 2011 the U.S. Supreme Court ordered the state of California to release thirty thousand prisoners to reduce overcrowding in its prisons. While the issue of overcrowded prisons has been around for years, the solutions once discussed centered on privatizing prisons or granting more lenient sentences to nonviolent offenders—not allowing a mass exodus of convicted felons. In California there’s no place to put thirty thousand inmates. “It can be like the Wild West out there if we’re not careful,” one worried bike-shop owner in Bakersfield told the Wall Street Journal. Some prisoners could be relocated from state prisons to municipal jails, but there isn’t room for all of them. “I call it ‘justice by geography,’ depending upon where you get arrested,” said UC Berkeley criminal-justice expert Barry Krisberg.44 California is not alone. Scrambling to find ways to keep prisons open in the face of shrinking budgets, Angola, Louisiana, has resorted to substituting watchdogs for prison guards. After the prison’s annual budget was cut back from $135 million five years ago to $115 million today, the warden brought in “wolf dogs” to replace over one hundred prison guards it had to lay off. “You might run,” one inmate declared, “but they’re going to catch you.” According to a Wall Street Journal story, the money spent on one prison guard’s salary could cover the cost of the full medical care, supplies, and food for thirty of these “wolf dogs.” As of August 2012, there have been few protests of the substitution.45