I don't know how much longer everyone can muddle through with huge cuts and absolute refusal to raise taxes.

There may be a lesson from Arkansas, but probably the wrong one will be learned: http://www.stateline...?contentId=443566

Arkansas was already in bad shape when the Great Depression hit. In 1927, the state took over the task of building highways from local authorities, because the locals built far more roads than they could pay for. The state takeover included new revenue for the roads, but it also authorized the state to build even more highways.

The result, said University of Arkansas Little Rock history professor Fred Williams, is that the state debt mushroomed. The local economy took a big hit when a third of the state flooded in 1927, and the stock market crash two years later made things worse. By 1933, Arkansas piled up $160 million in debt. That meant, of its annual $14 million budget, the state spent $13 million on debt service for roads.

The state simply couldn’t keep up with its bills. In 1933, Arkansas defaulted on its bonds — the only state to do so during the Great Depression — and its state government essentially functioned on federal money for two years. It started digging itself out only when it passed a sales tax, and even then, the state had to stop building roads for 16 years.

The Great Depression default wasn’t Arkansas’ first missed debt payment. The state was one of eight states, along with the territory of Florida, to miss its bond payments in the early 1840s.

That wave of defaults came in the wake of the Panic of 1837, a banking crisis that triggered a five-year recession. Generally, the Northern states of Illinois, Indiana, Maryland, Michigan and Pennsylvania were unable to pay debt service for bonds they used to build canals and other infrastructure improvements. Arkansas, Louisiana and Mississippi in the South, along with the territory of Florida, ran into trouble when state-backed banks for large landowners became insolvent.

The defaults didn’t cripple the states’ ability to borrow for long, but, in Mississippi’s case, the state’s refusal to pay bondholders hung over the state government until 1996. That’s when the state Supreme Court dismissed a case brought by the heirs of British bondholders who sought $13.8 million for the $1.5 million of debt they held, plus 152 years of simple interest.

There are Republican noises about letting states declare bankruptcy (as a supposedly "pain free" way to screw union contracts), but I don't see many taking it seriously. It's hard for me to imagine a federal takeover until a state raises taxes and shows that that's not enough. Given the way California has muddled through (so far), I expect the kick-the-can-down-the-road approach to continue for a while yet.

The problem with state budgets isn't "out of control spending" (Hi Beep!), or teachers' unions or pension costs, it's that tax revenue fell off a cliff. Some temporary spending reductions may be needed, but taxes need to be increased on those who gained most of the benefits during the last 10+ years. There's a fundamental unfairness in letting the well-off make the same contribution to state expenses (or even get tax cuts!) while the middle and the poor take the overwhelming majority of the reductions. Attacking Medicare or public employee pensions is a distraction that shows that the Republicans making these noises aren't serious. (Employee pensions are part of total compensation. If states cut pensions, or make pension or insurance payments more expensive for employees, there's the risk that people will leave. Or that states will be forced to pay higher salaries making the "savings" a wash. If there are going to be serious cuts, they must be shared. For state budgets, as for just about everything, TANSTAAFL.)

States should be continuously looking at ways to perform their duties better. But falling for simplistic slogans about solutions while ignoring the cause of the problem isn't the way to do it. Walker seems to be of the simplistic slogans school - http://www.wuwm.com/...hp?articleid=7679

Cheers,
Scott.