Tom Sgouros: Making Our Own Crisis
Monday, June 27, 2011
The budget "debate" in the House was last Friday, so I decided to celebrate by spending the whole afternoon at the DMV helping my daughter get her drivers' license. There were three people involved in the process, and they were all friendly and efficient, but they were bailing with a thimble against the tide of people in line and it took us over two hours to get her appointment and get out.
The Governor proposed hiring 25 new people to help with DMV and the Assembly cut the number to four. I'm sure DMV can manage somewhat more efficiently, and better technology can certainly improve things, but we're not going to automate a driving test any time soon. Unless the supply of 16-year-olds is reduced, the Assembly is simply washing its hands of the problem.
I mentioned this to some friends and they both shrugged and said, "What can you do? There's no money."
Statements like these are commonplace these days, but they show a thorough misunderstanding of what has actually happened to this state. Our fiscal crisis is not a case of forces beyond our control conspiring against us, but of terrible damage inflicted by ourselves. That the damage was then exacerbated by forces that were beyond our control does not change the circumstances that brought us down. We are the victims, first and foremost, of self-sabotage.
GET THE LATEST BREAKING NEWS HERE -- SIGN UP FOR GOLOCAL FREE DAILY EBLASTOur crisis predates the economic downturn
Our state's fiscal crisis was already immense by 2007, well before the nation's financial near-meltdown in 2008. In 2007, our "structural" deficit -- the predicted deficit two years ahead -- had risen to $379 million from $23.8 million just five years before.
What was responsible for this? Was it the plunge in tax revenues we felt in 2008 and 2009? No, that was not foreseen by the budget writers in 2007. The revenue drop was due to tax rate changes for the very rich, the historic tax credit, and the capital gains tax cuts of the previous few years. The way these costs were structured makes their cost difficult to estimate, but collectively they probably cost us around $70-100 million in fiscal year 2009. (Not to mention another $100 million per year for the tax cuts of 1997-2002.)
On the expense side, there was the irresponsible splurge of transportation borrowing where we took on hundreds of millions in new debt without any voter approval at all. This "off-budget" debt currently costs $56 million per year in debt service, and is funded by the gas tax and by deferring road and transit improvements. Over the same eight years, we took on over $300 million in new debt for highways, at an annual cost of around $20 million.
Beyond those, we have the rise in pension costs brought about by the stock market declines in 2000 and 2008, and our drive to pay off this debt by 2029 without really knowing if that is necessary. This year, we're paying $100 million more than we did ten years ago for employee pensions, and next year it's set to go up even more. But we could have re-amortized this debt some time ago without adverse effects on our bond rating and currently be paying around $40 million less than we are.
Beyond all these, we have the real elephant in the room, the abject failure of our state policymakers to address the rising cost of health care in any way at all besides finding people to deny care. Congress and President Obama did finally act last year, and we can expect the health-care inflation rate to moderate in future years but our state has done almost nothing to control costs here except ask Congress to restructure the program as a block grant so the state has authority to cap the expense. (Which is fine as far as it goes, but health care costs are a burden for everyone, not just government, so how does that really help?) Over the past decade, Medicaid costs have gone from $392 million in state tax dollars, to $614 million in the current fiscal year.
If you add this money up and include the revenue lost from the economic downturn, it's more than our current crisis. Where did the other money come from? Mostly it came from withholding aid to your city or town, making your property taxes go up.
Doing it to ourselves
In other words, our fiscal crisis was primarily the result of policy changes no one forced us to enact, as well as policy inaction in the face of predictable problems. The national financial crisis of 2008 only made worse a problem we'd already made for ourselves.
Why does this matter? It matters because you can't fix a problem without understanding it. The small and petty side of me wants to see responsible parties shamed, but in truth I'm less interested in assigning blame than I am in seeing our way to a more sensible government. I'm appalled that we think we can't afford to help homeless people any more; that our buses are a dispensible part of our transportation system; that AP classes might be "frills"; and by a hundred other choices that make our society meaner, colder -- and poorer -- than necessary. The constant hand-wringing that says "we can't afford" to invest in our future or to repair past damage is as damaging to the project of good government as any corruption scandal.
Ours is a great country, and when we work together we can make astonishing things happen. Within it, our state is a cool place with an inspiring history and tons of smart and talented people in it (many of whom are public employees, go figure). The problems that face us are solvable problems, but only if we understand that many of the barriers to better government are there only because we put them there.
Tom Sgouros is the editor of the Rhode Island Policy Reporter, and the author of Ten Things You Don’t Know About Rhode Island. Contact him at [email protected].
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