State governments have been getting a lot more scrutiny lately for one reason: they’re not doing too well. California has become the best known example, but Ohio, New York, and Illinois lead the list of big state governments that suddenly went from obscure to major crises. The problem with that statement is at both ends – how a Depression wrecks a state budget is obvious, but the relative obscurity of this branch of government is where the real problem lies. Very few people know just what states do anymore.
The problem with government is that it has been called on to solve just about every problem it can, whether this makes sense or not. This may sound like a right-wing rant until I add that some levels of government are extremely good at solving problems that other levels just aren’t. My solution to the problems of state government is to talk about what branches of government are effective at solving what and sticking to it.
My first pass at the problem is this: Local government exists primarily to provide essential services like police and fire protection. State government seems very effective at long term capital investment projects like big schools, research facilities, and roads because they have major resources but are still connected to the people. The Federal government works best as a kind of insurance system because balancing things out over 50 states requires a relentless codification and adherence to pre-published schedules.
Naturally, there is a lot of overlap, especially if you take these missions broadly. Essential services includes a school system that may need to be run locally but benefits greatly as a long term investment from statewide funding. Long term investments in transportation benefit people from all states but can really make a big difference to one local area. Insurance can be defined so broadly that it includes the deterrent effect of a big military.
I am not proposing that these definitions are all that each level of government do, but I am suggesting that the closer they can stay to their core competencies the better it all works.
If we try to focus state governments on long term investment, it becomes clear that the more they can plan out the future the better off they’ll be. When revenues drop off dramatically in a Depression that can be difficult, but long term investment implies bonding which implies spreading out costs over time. The cost of money for state governments is lower than it has been in a while and the cost of construction is especially cheap, so a belief in either Keynes or the power of cheapness tells you this is the time to accelerate spending, not slow it down.
The way to do this is to think long term. Most large capital projects have to go into the official request hopper about 3 times in the Minnesota Legislature before they are funded. The process is long and arduous to start with. Why not have a capital projects list that is 5 years out, with changes in the rank order not allowed over the next 3 years? While I’m not a fan of trying to “take the politics out” of processes, it certainly has that side benefit as well.
Once the state maintains a list of all the projects that they will fund over a long haul, this can be sped up in an emergency. Instead of doing the top 100 projects this year, we’ll do the top 150, as an example. While the state might reasonably have to cut back on expenses for any number of things, they can expand capital spending through bonding and still call it a balanced budget.
That doesn’t solve all of the problems, of course, which include funding of education systems and other important long term investments. But it would stop the states from pulling back at the time when they are needed the most in the economy. The more we can get states to focus on what they do best, which is this kind of long-term investment, the more they can be a force for stability rather than anguish.