Neal Peirce / Syndicated columnist
Bush budget compounds fiscal bind for cities, states

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WASHINGTON — The fiscal outlook for America's states and cities, already bleak enough, will turn dramatically worse if Congress passes the budget President Bush submitted.

With all eyes glued on the presidential campaign, scant public attention is focused on the financial stability of state and local governments, which deliver the lion's share of public services to the American people.

The national economic recovery is delivering a little dollar-and-cents relief to states and cities. State tax revenues have started to edge up for the first time in several years.

But the improvement comes off a miserable base. The recession was called mild, but the blow to state tax revenues was close to cataclysmic — for example, the 7.4 percent real per-capita revenue drop states suffered in 2002, notes Donald Boyd of the Rockefeller Institute of Government.

This year, rising consumer spending may boost sales taxes but state income taxes will be gaining little from a largely jobless recovery. About 30 states are projecting budget gaps totaling $40 billion for the coming fiscal year. The shortfall in New York's budget is 13 percent. New Jersey starts off 21 percent in the red, Arizona at 17 percent, with other states just a little worse off.

And now comes the new Bush budget, compounding the problems. States are worried by its move toward capping the federal share of Medicaid, leaving states to carry the incessant, inflationary upward push of a program that already consumes 21 percent of their budgets.

The National League of Cities views a range of Bush-backed cuts with alarm, starting with homeland-security shifts that would cut deeply into federal aid for frontline first-responders — local firefighters and police — even while the administration claims homeland security is one of its priorities.

Cities fear that Bush cutbacks will cause Section 8 housing vouchers to reach 250,000 fewer families next year. On the education front, they note the Bush budget increases No Child Left Behind funding by $1 billion, to $13 billion — but still falls $7 billion short of the promised federal contribution.

And so goes the pattern — a bite here, a nip there, and lots of programs scheduled for block-granting, which the cities fear is just a prelude to collapsed federal assistance.

Accounting for inflation, say the critics, the Bush budget would inflict a 2.6 percent aid cut on states and cities — leaving billions of dollars to be made up locally.

But the new budget's real chicanery, in state and local eyes, is its impact on future years. There's a proposed 0.5-percent lid until 2009 on yearly increases in discretionary spending — non-Medicaid aid to states and cities, plus defense and homeland-security spending. But Bush would allocate so much of that pool to defense and security that all other discretionary spending, adjusted for inflation, would decline dramatically.

The Bush administration omitted — critics said purposefully — a year-by-year reckoning of how much each program would be squeezed. But the Center on Budget and Policy Priorities found the computer runs and published them. They reveal a plan to savage programs for children, the poor, the jobless, the homeless and for homeland security on our streets. Even while, of course, every Bush tax break lavished on America's wealthiest individuals and large corporations gets protected and (at a 10-year cost of $1 trillion more in national debt) would be made permanent.

One wouldn't blame the mayors and county officials and governors of the country, regardless of party, for reacting in angry and united protest.

But they probably won't. Antitax fever is still hot in America, and very intimidating for politicians. Earlier this month, 60 percent of Oregon voters overturned an $800 million tax increase that supporters said was vital to stop larger school classes, days off the school year, and loss of health insurance by 55,000 Oregonians.

National antitax groups are now ready to go into any state and campaign against higher tax revenues. Topping the list are Americans for Tax Reform, led by activist Grover Norquist, and Citizens for a Sound Economy, headed by former U.S. House Majority Leader Dick Armey.

These groups intervened last year in Alabama to stop a major tax reform pushed by Republican Gov. Bob Riley. They're poised to back repeal of Nevada's $833 million tax increase signed into law last summer by Republican Gov. Kenny Guinn, and in Ohio to reverse a temporary 1-cent sales tax increase.

History suggests there's a self-correcting impulse in American politics — a return to common sense and balance that's sure in time to start rescuing states and cities from antitax Know-Nothingism, and all of us from the abyss of the Bush deficits. But how much damage will be inflicted first?

Neal Peirce's column appears alternate Mondays on editorial pages of The Times. His e-mail address is nrp@citistates.com

Copyright 2004, The Washington Post Writers Group