Various states as well as the Federal Government are running large deficits. In some of the states they at least pretend to balance the budget every year through tax increases, juggling spending and borrowing. The Federal level relies on borrowing which will reach a record this year especially with the Stimulus Bill, TARP and the Obama's proposed $3.5 trillion budget.
California is in the same state as the national government as it has seen spending spiral upwards beyond the rate of inflation for several years. Part of this has been driven by the cost of Union salaries and other benefits and part by the increasing cost of various social programs. In the Federal budget it has been Social Security, Medicare, defense spending as well as most other parts of the discretionary budget. The size of the workforce has also steadily increased over the last twenty years or more.
Now in New York and in California there is a movement afoot to establish by law or constitutional amendment a cap on the growth of funding. Senator Orrin Hatch (R-Utah) has also introduced legislation at the Federal level to do the same. These proposals would restrict the actual growth of the budget to a certain percentage. These are admissions that the legislature and executive branches cannot do their jobs and control spending themselves to at least a level related to revenues.
In California it will require an amendment to the state constitution to carry this out. As such yet another proposition, 1A, will be on the ballot this year. Unfortunately it has little support from either the right or left as it will extend tax increases offending Republicans while also limiting government spending which may cut back on programs important to Democrats. This is a follow up to two propositions passed five years ago, 57 and 58, that were supposed to fix the systemic problems with the California budget. This large bond issue and a requirement for a balanced budget didn't work as spending kept increasing beyond revenues. If 1A and five other related propositions do pass there will still be issues as they rely on budget tricks like borrowing against future lottery revenues and authorizing new spending on schools. Unless there is a sea change in current California views they probably won't pass.
In New York also facing large deficits due to declining revenue and increased spending the Governor, David Paterson, has proposed legislation that caps the growth of the state budget. This would be flexible and tied to the rate of inflation over the last three years. New York saw an average of almost eight percent increases in annual spending since 2003. If the cap had been in place it would have been around three. The Republicans in the state had proposed such a cap last year, but the Democrats control the legislature.
Caps are a lazy way to do budgeting. In the past states with caps have struggled as the budget structure may force decreases, or limits in growth, to popular programs. They also cause the legislatures or executive to look for ways around them. This may lead to more budget gimmickry. In the long run it is better for the governments to try and match spending to revenue and control themselves. Unfortunately this has not happened in the past and we will probably see attempts to increase revenue before reducing or controlling spending.