Gov. Jon Corzine of New Jersey found $600 million in cuts this June, only to borrow $3.9 billion for school construction projects, with another bond issue of $750 million for transportation projects underway. Gov. Arnold Schwarzenegger made $5 billion in cuts to fill in the state's $15.2 billion gap but wants to make up the rest by levying a sales-tax hike.
Part of what makes budget cutting so painful is that the main cost drivers, such as pensions and school aid, are often budgetary third rails, wrapped up in court orders and government mandates and guarded by unions. That is what makes the plea for federal assistance so appealing--it's a politically cheap way to avoid the hardest reforms.
-Who's Next In Line For A Bailout?
In the fiscal-political calculation, government survival strategies emerge. Cut some programs but create new ones and call them "economic stimulus." Cut to maxi mize public outcry as a justification for future tax increases. With this crisis, governments are facing a hard budget constraint: There's not much room or political support to increase taxation, municipalities' borrowing capacity is reduced and reserve funds are drying up.
-Crisis may finally force fiscal restraint