THE VIRGINIAN-PILOT
Copyright (c) 1995, Landmark Communications, Inc.
DATE: Tuesday, January 17, 1995 TAG: 9501170010
SECTION: FRONT PAGE: A10 EDITION: FINAL
TYPE: Editorial
LENGTH: Medium: 59 lines
In selling the balanced-budget amendment and other provisions to reduce government contained in the Contract With America, Republicans in Congress have focused on the good news. Federal taxes will be reduced as programs are cut or eliminated and the federal deficit will vanish by 2002.
There is, however, no free lunch. Some governors have begun to worry that the bad-news side of the equation will directly affect them. Majority Leader Dick Armey has admitted that a realistic look at what it will take to achieve balance is likely to make the knees of congressmen buckle. But if states are forced to take up the slack, it could actually be state officials - and state taxpayers - who end up feeling the pain.
Howard Dean is the Democratic governor of Vermont and the chairman of the National Governor's Association. He's an unusual politician since he's a physician by training. Dean has performed a dissection of the balanced-budget amendment and finds the prognosis for states isn't good.
According to Dean's figures, based on Treasury Department data, reducing the deficit to zero by 2002 and undertaking the other measures called for by the Contract without raising taxes would shift a huge burden to states.
Since interest payments on the national debt and spending for defense and Social Security are off the table, the rest of the federal budget would have to be cut by 31 percent - or $340 billion a year in 2002. This would have an impact on the states in two ways.
First, fewer federal dollars would flow to state residents. According to Dean's projections, Virginia would lose $8.3 billion a year in federal spending. There would be a $1.9 billion reduction in Medicare benefits paid to Virginians and $6.4 billion less in housing assistance, student loans, veterans benefits and other such outlays.
But the cuts that really worry state officials are direct federal grants to state governments. Dean's analysis suggests Virginia would get $1.4 billion less per year. It would lose $673 million annually in Medicaid funding, $99 million in highway grants, $68 million in Aid to Dependent Children and $539 million in funding for education, job training, the environment, housing and so on.
If Virginia wanted to replace the funding for all those programs at the state level, it would have to increase state taxes across the board by 11.2 percent. A more likely scenario would be the elimination of some services and a smaller tax increase to retain those deemed essential. Nevertheless, as the federal government is cutting taxes, states and localities will almost certainly be put in the unenviable position of having to raise taxes.
A balanced budget and a reduced deficit are essential goals, but getting there won't be painless. It is reasonable for states to demand some assurance that budget cutters at the federal level won't leave states holding the bag. Yet if Dean's figures are anywhere near correct, that's exactly what Washington is preparing to do. And substituting state taxes for federal taxes isn't really problem solving: It's sleight of hand. by CNB