Everyone understands balanced budgets. We all have to live within our means and know we will get in trouble if we overextend.
States have to balance their budgets, and so do cities and towns. Only the federal government can spend more than it takes in, and the national debt is seen as a sign of irresponsibility that will lead to trouble down the road.
But in the age of COVID, there are other kinds of deficits that we are running that don’t show up on a balance sheet.
Leaders in cities and towns are busy rewriting budgets that will be in line with the collapsing revenues projected for next year.
These governments can’t run deficits and they don’t want to raise taxes at a time when many of their residents are out of work and won’t be able to pay. So they will have to cut services.
The same kind of thing will soon be happening in Augusta. Reserve accounts including the “Rainy Day” budget stabilization fund should get us through the fiscal year that ends next month, but the next year could have a billion-dollar revenue shortfall.
That is occasion for Republicans to call for an era of austerity. That position was argued by Sen. James Hamper, R-Oxford, in an op-ed piece that ran in the Press Herald last week.
“What seems most in order as an answer to our budget crisis is the old-fashioned Maine approach of rolling up our sleeves and tightening our belts rather than looking to someone else to bail us out with our own money,” Hamper wrote. “We must craft a smaller state budget and accept a smaller state government.”
But there are other kinds of deficits that Mainers have to worry about, ones that will make a much bigger impact on their lives than the trillions of dollars borrowed by Congress at rates so low they end up being negative in real terms.
On the local level, not fixing the roads is a kind of deficit. Future taxpayers will have to pay more to repave streets that were allowed to fall apart when the money got tight. Drivers will have to pay more for repairs in the future as potholes do battle with suspension systems.
Putting off school construction projects – the kind of thing that happens in bad economies – is another kind of deficit. It creates long-terms costs in the form of inefficient energy use and transportation plans that somebody is going to have to pay.
There is a long-term debt that comes with every lost opportunity for a child to learn, and every person who can’t afford to see a doctor. But we have been trained to think that cutting school funding and health care programs – the inevitable result of a “smaller government” – is sound fiscal management instead of calling it what it really is: recklessly borrowing from the future to get us out of our present crisis.
That’s where the federal government comes in.
Since it prints its own money, it can’t run out.
With 30 million Americans out of work and a huge drop in consumer spending, state revenues are projected to collapse by $650 billion over the next few years.
Congress came through with the $2 trillion CARES Act in March, which was unprecedented in size, and acknowledged at the time to be not nearly enough.
The House followed up with the $3 trillion HEROS Act this month, which included $1 trillion in aid for state and local governments.
A bipartisan group of senators, including Maine’s Susan Collins, began work on a $500 billion state bailout last week that could be part of a Senate COVID relief package, if there is even going to be such a thing. Senate Majority Leader Mitch McConnell, who controls the Senate calendar, has said he favors a “wait and see” approach to more spending. He ignored calls from Collins and others to keep the Senate in session, and adjourned for another vacation.
But cities and towns can’t wait to find out how this ends. Their budgets for next year are being built right now, and unless Congress can get its act together, they will be built on assumptions that revenue will tank while demand for services climbs.
There is an economic cost to doing nothing in a crisis, and the deficits caused by “wait and see” are going to be a lot harder to pay off.
Send questions/comments to the editors.
