NCPA - National Center for Policy Analysis


August 1, 2008

State and local government spending has been rising three times as fast as revenue amid warnings from governors that their finances are nearing crisis stage, says USA Today.

As many Americans face stagnant wages, high gas prices and job uncertainty, new government figures show that state and local governments boosted spending 7.8 percent in the second quarter compared with 2007 while revenue rose 2.5 percent.  Government is on a hiring binge, too, even as private-sector jobs disappear, says USA Today.

In a move to curb spending, California Gov. Arnold Schwarzenegger took sweeping action Thursday to pressure the Legislature to pass an overdue budget:

  • He signed an order laying off up to 22,000 part-time and temporary state workers and cutting the pay of 200,000 others to the minimum wage of $6.55 per hour.
  • The state is on track to spend $15 billion more than it will take in during the next year.

The robust public spending reported Thursday by the Bureau of Economic Analysis means that government can provide more services, such as smaller class sizes, bridge repairs and expanded health care, but it also could bring higher taxes.  The added spending is financed mostly by debt and budget reserves:

  • State and local governments are on track to spend more than $2 trillion for the first time in 2008 -- about 13 percent of the nation's gross domestic product.
  • A key factor driving higher spending: New employees and higher compensation.

A large share of the new workers are teachers, police officers and prison guards, says Ron Snell, a budget analyst at the National Conference of State Legislatures.  Those positions generally must be filled because of class-size rules, longer prison terms for inmates and other requirements, he says.

Source: Dennis Cauchon, "Official spending outpaces revenue," USA Today, August 1, 2008.

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