Or as Fed Chairman Ben Bernanke likes to call it, “fiscal consolidation.” Despite all of the money spent at the federal level in the U.S. (~$800 billion), this has largely been offset by cuts at the state and local level (~$600). This is why the recovery, well, isn’t.
This wasn’t hard to predict–I did so three years ago. It’s not rocket science (or even microbial genomics). But what worries me is that I don’t think local spending will rebound very much. Why? Because property values won’t rise anytime soon (they’ll probably drop a little more). In 2008, before housing price assessments were recalculated, property taxes accounted for 30% of tax revenues and 22% of overall revenues at the state and local level nationally. Property values are much lower now, and it’s unrealistic to think property taxes are coming any time soon. Local budgets are already cut to the bone–even a five or ten percent decrease in revenue is devastating at this point.
Without help from the federal level, I’m not sure how we fix this.