Census: Spending on public welfare, unemployment costs create red ink for state and local governments

The U.S. Census Bureau reported Tuesday that higher spending on things like public welfare, education and unemployment sent state and local governments into the red in 2012.

Census said total spending by state and local governments rose to $3.2 trillion in 2012, while revenues were $3.0 trillion. Six years earlier, in 2007, state and local governments were running a surplus — they spent $2.7 trillion, and took in $3.1 trillion.

Census said state and local governments are now in the red, spending more and taking in less money in 2012.
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Census said public welfare, education and unemployment compensation were the main drivers for higher spending from 2007 to 2012. Public welfare spending rose by more than $100 billion, while education spending rose $95 billion and spending on unemployment benefits rose about $66 billion.

In four states, spending on unemployment compensation rose by more than five times: Colorado, Texas, Utah and Arizona.

Census said revenues fell slightly over that period of time because of a drop in earnings on investments, and interest earnings. Both of those factors, caused by the Great Recession, led to a $400 billion drop in revenue.

"State and local government revenues continue to be impacted by capital market fluctuations, especially employee retirement revenues," said Kevin Deardorff, who runs the Census Bureau's Economy-Wide Statistics Division.

That drop was partially offset by a rise in tax revenues, plus an increase of more than $100 billion in federal government grants.

The Census report confirms recent reports that state governments around the country are struggling with red ink. According to the Washington Post, states like Illinois, Maryland, Pennsylvania and others seem likely to be forced into spending cuts that could be painful for some constituents.

"At least 16 states are projected to run budget shortfalls in the next year or two, according to an informal count maintained by State Budget Solutions, a watchdog group," the Post reported. "Those gaps range from lows of $17 million in Vermont and $34 million in Rhode Island to $4 billion in Washington State over the next two years and $2.2 billion in Wisconsin next year alone."