States struggle to avoid budget deficits
Unlike the federal government, states can't carry deficits, and many states are cutting services to balance their budgets. Jennifer Collins reports why this hurts the economy, and why it would be bad for states to rely on cuts alone.
A senior protests cuts to a California health care program in Los Angeles, Calif. (David McNew/Getty Images)
More on Fed. Budget/Govt. Spending
TEXT OF STORY
Bill Radke: The U.S. government is fighting the recession by going deep into debt. But what are the states supposed to do? California is in an $8 billion budget hole, and it's asking voters to help fill it:
California budget ad: Without Props 1-A and 1-B, We have $16 billion in new cuts coming. Could lose another 24,000 firefighters and police.
Marketplace's Jennifer Collins tells us California is just the biggest example of a nationwide challenge.
Jennifer Collins: If all the states in the country were taking economics 101, California would be in a parent-teacher conference.
Jean Ross: Many states are holding California out as a model that they don't want to emulate.
Jean Ross runs the California Budget Project. She says unlike the federal government, states can't carry deficits. Federal stimulus dollars are helping, but many states are cutting services to balance their budgets.
Jon Shure tracks state spending at the Center on Budget and Policy Priorities. He says it would be disaster for states to rely on cuts alone.
Jon Shure: When states spend money, that pays salaries, it buys things, it puts money into the hands of people usually in the local economy. So when states start to cut a lot, that actually makes the recession worse.
Shure says it's better to also raise taxes or find new sources of revenue. Ohio's dipping into its reserves. Hawaii may legalize gambling. It needs the money to make up a nearly $2 billion shortfall.
I'm Jennifer Collins for Marketplace.
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