Washington Wednesday – Squeezing state budgets

MARY REICHARD, HOST: It’s Wednesday the 6th of May, 2020. You’re listening to The World and Everything in It and we’re glad you are.  Good morning!  I’m Mary Reichard.

NICK EICHER, HOST: And I’m Nick Eicher. First up, state budgets.

Last month, Congress approved a $150 billion aid package to help states cover extra expenses related to the coronavirus response. But some governors say that’s not their biggest problem. With businesses closed and workers receiving pink slips, states are facing a significant drop in tax revenue.

REICHARD: Some governors want the federal government to help fill that hole. Senate Majority Leader Mitch McConnell flatly refused last month, suggesting Congress should make it possible for states to file for bankruptcy instead. He tempered that message a few days later, saying states would get additional aid in the next round of stimulus legislation.

The Trump administration has agreed to let states use already allocated coronavirus aid to pay first responders. But the White House is adamant that federal money won’t fill state general fund shortfalls. Here’s Treasury Secretary Steven Mnuchin during a Sunday town hall on Fox News.

MNUCHIN: The president’s very clear. We’re looking to help states, but we’re not bailing out states’ finances.

EICHER: Joining us now with a state-level perspective is Ty Masterson. He’s a Republican state senator in Kansas where he’s served in the legislature there for 15 years. Good morning!

TY MASTERSON, GUEST: Good morning.

EICHER: Start by telling us where Kansas stood financially before the shutdowns, just for context, so we can understand what kind of shortfall you’re projecting.

MASTERSON: Well, Kansas was unique to some degree. We were heavy in aviation, agriculture, oil, and we had been suffering a little bit from the Boeing 737 Super Max issue artificially when it hit. Now we had governors change in our last election from Sam Brownback, who’s now the ambassador for religious freedom for President Trump, to a fairly radical Democrat and we raised taxes significantly. So, we had been sitting on about a billion dollars of surplus, and that’s in a only a $7 billion general fund. However, we had as a legislature not been very responsible and were deficit spending already, even anticipating higher revenues. So we were deficit spending our budget to the tune of several hundred million dollars to begin with, and now you have the COVID crisis and that dropped our estimates by another $1.3 billion. So, Kansas is in a bit of a bind. And we will also have a lagging recovery just in general because of the ag, aviation, and oil piece that Kansas is used to. So, with income tax returns being down so significantly, in estimates Kansas has a compounded issue, if you will.

EICHER: What kind of cuts do you envision the state might make because of that shortfall?

MASTERSON: Well, I mean, we should make some significant cuts because we had made significant increases. However, I don’t think that’s the path our governor’s going to take. I think it’s wise of the federal government to try to limit us from filling our holes, but I think that’s exactly what Kansas will try to do. I mean, currently our governor’s a big fan of the state bailouts because the federal government can reward some poor state behavior.

EICHER: But, as you mentioned, you have a Democrat in the governor’s mansion, and Republicans in control of the legislature in Kansas, so is that going to fly with you? Doesn’t seem like it is.

MASTERSON: No, it won’t. We have a little bit of a timing issue in Kansas that’s unique. We’re in a citizen legislature that comes in between January and May so we’re going to be in a situation where the legislature is not in session for the predominance of this time. And so there is a lot of power in the governor’s office under state of emergency. So there will have to be, I’m certain, some allotments, which are governor-directed cuts and services, but she has promised no cuts to some large areas like social services and education, and those make up almost 90 percent of our budget.

EICHER: If Congress does allocate money to help states fill budget shortfalls, is there a way to do it so that it won’t set a bad precedent for the future? Or is it just a moral hazard all the way down?

MASTERSON: Well, I certainly think it’s moral hazard. It’d be hard to not set a new precedent. States typically, well, not typically, states have to work within their budgets, unlike the federal government, because we can’t print Kansas buffalo bucks, but the federal government, through quantitative easing and print dollars and reserve currency, but states really need to live within their means, and I think it’s appropriate for states that aren’t living within their means to have some consequences. That’s how we typically learn. And it’s really important under these times of fear—I think that’s why Scripture talks a lot about fear and worry, that we hold to what is right. And there’s sometimes consequences for those decisions.

EICHER: And so you’ve got Republicans headed one way, the Democratic governor headed the other way. How do you see this resolving? Somebody’s going to have to give, right?

MASTERSON: Correct. And we’re in an election year in Kansas and we’re in the year in which the entire legislature turns over during this election year. The entire House and the entire Senate is up for election, so there will be electoral consequences, whichever way we go, the people will decide whether they think we went the right direction or not, in the public debate.

EICHER: Probably goes without saying Kansas isn’t unique among the states in facing some kind of budget crunch. But they’re not all in the same position in terms of ability to weather the storm. You’re a fiscal conservative, so what lessons do you think state lawmakers across the country should take from this?

MASTERSON: I think that the real lesson, and we’ve seen it all throughout history, is you need to be prepared. The governmental problem that happens, I mean, even as a conservative, it’s hard to say no to spending. There’s never a bad thing to spend money on, it seems like. And so when times are good, we raise spending. And when times are bad, we have trouble cutting spending, so you raise taxes and it’s a vicious cycle. We had this debate just two years ago when we were talking about the massive increase in our spending saying, hey, if something happens—if there’s a recession or if there’s any of this list of things that happen—we won’t be able to weather the storm and, of course, here we are and we’re looking for a bailout. I think the main lesson learned is down times come whether you anticipate them or not, and you need to be prepared for them.

EICHER: Is there not a case to be made, I wonder—this is such a unique situation. No one foresaw this weeks or months or years before it actually happened that something on the order of this pandemic would strike. But here the government’s ordering everything to shut down and when you shut an economy down, that has consequences. So does the government not have some kind of responsibility to the people they’ve told to stay indoors and not go to work?

MASTERSON: Well, I think that’s a fair question because the government doesn’t create wealth, government takes wealth and distributes it for need. I’m not saying that’s—there’s a purpose for that, for a combined function, but so there is a need, but you have to have a growing economy in order to support the people. Everybody can’t— I mean, that is the definition of socialism, even communism, right? To have everybody dependent upon government. I do think as this pandemic is analyzed and litigated and debated, it’s going to be interesting to see where it lands. I do think it’s in these times of fear that we need to worry about our fundamental liberties, particularly religious freedom. And that was under attack even here in Kansas. We hit a point where one of the governor’s executive orders made it illegal to be the 11th person in an open church. But you could be number 50 at Home Depot and it didn’t seem to matter. We need to be—it reminds me, it’s going to be a paraphrase of Benjamin Franklin that if you’re willing to give up essential liberties for temporary security, you deserve neither, right? I think we’re going to find out when this thing’s litigated—I’m surprised how many people are willing to give up some of our fundamental rights and freedoms out of fear.

EICHER: Well, it is interesting having to deal with now not just a public health crisis, but a financial crisis, you’ve got some painful decisions there. What do you think is going to be the biggest challenge before I let you go?

MASTERSON: I think the biggest challenge is going to be to determine where you pull spending back. And then rebuilding the fundamental liberties and how this crisis affected the government’s authority to just shut things off. We need to make it clear, we’ve not reviewed some of the emergency powers in quite some time and I think there are a lot of people who are shocked at the breadth of power and ability for government to shut down a private business.

EICHER: Senator Ty Masterson is a member of the Kansas state legislature. Senator, thank you so much for your time.

MASTERSON: Well, thank you for including me.

(Photo/Kansas Historical Society)

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