Texas leads as California dreams on

September 1, 2009

Financial Times

Newt Gingrich

California is in bad shape. It is likely to get worse. As America’s most populous state faces a $26.3 bn budget gap, lawmakers in Sacramento have had no choice but to make desperate spending cuts. Their latest solution? The legislature is debating a plan to release 27,000 prisoners early to save money on correctional facilities.

California, like so many other states facing budget shortfalls, is a victim of decades of reckless spending and unsustainable budgets. It was not always like this. The Golden State’s government services and public institutions – including its prisons – were models for the country in the 1960s and 1970s. But Californian policymakers stopped planning for the future. The state’s population ballooned from 23m in 1980 to 36m in 2008, and demographics shifted dramatically due to immigration. Roads, schools and prisons built with 1975 in mind are now crumbling and overcrowded.

Albany is just as paralysed as Sacramento. New York State legislators, both Republican and Democrat, avoided difficult decisions and kept spending unsustainably high for years. In New York, per capita Medicaid spending is double the national average. New York also has the highest per-pupil spending in the country, but ranked only 22nd in academic achievement in a US Chamber of Commerce state-by-state study of school systems. Even as private sector jobs evaporated, the state awarded 160,000 public sector employees a 3 per cent pay raise this spring. In the face of falling tax revenues because of last year’s crash on Wall Street, legislators increased total spending by 9 per cent. The result: a $17bn deficit in 2009.