Last Updated Sep 8, 2009 5:57 AM EDT
Now there is starting to be an understanding that next year and in the future these funds just won't be there. Income tax, sales tax and property tax revenue has shrunk as people lose their jobs and houses and cannot afford to spend the way they did a year or two ago. The states were able to receive money to make up the loss through the "Stimulus" bill passed by Congress and Obama. There won't be this money next year when budgets are signed meaning unless state revenue jumps up a lot of teachers and police will be laid off.
Governor Mitch Daniels of Indiana recently wrote in The Wall Street Journal that he believes the states' are facing "near permanent reduction in state tax revenues that will require us to reduce the size and scope of our state governments. And the time to prepare for this new reality is already at hand." In his opinion the time to start planning for this is now and not wait until the budgets have to be developed.
Of course as proven over the last twelve months governments are loathe to cut spending and face many issues when they do. Attempts to reduce the number of workers which remain the biggest cost faced by government are met with lawsuits and contract disputes. States that have tried to even have non-paid furloughs meet opposition. If Daniels is right there will be a massive reduction in the size of state workforces and eventually there may have to be at the Federal level despite plans to hire thousands of more workers.
In England Prime Minister Gordon Brown also faces the same quandary. He now realizes that the National Government cannot continue its current borrowing and spending. Major cuts will have to be made to balance out the budget in the near future. Of course the chances of him being reelected and having to do this are pretty low due to the failure of Labour policies in England. This means that the Conservative government succeeding him will have to deal with the issue.
The Obama and Democratic Congress "Stimulus" plan was supposed to jump start the economy and jobs. It has failed to preserve jobs as unemployment slowly creeps up in the U.S. A recent report illustrates the problems faced by the U.S. ecoomy. A "green" bus company that was looking forward to increased demand for its products due to stimulus funds is now laying people off as governments do not have the money to buy their products. New Flyer is restructuring its work force as its production schedule was upset by Chicago canceling a large planned order as the funds required didn't come in from a cash strapped state.
Daniels is right in that if there is not a rapid recovery of the economy and tax revenue government will be facing choices about their spending. The most likely decision will be to eliminate some programs and the jobs that go along with them. The question will be if government will remain smaller or begin to grow back to where it was. The Obama Administration is already laying the foundation for major tax increases whether to pay for health care or just to prop up spending. The current plan of trillions in debt cannot continue and either there needs to be major belt tightening or increased revenue. Of course raising taxes a great deal when the economy is recovering is probably not the wisest move.