Back in February, Bill Gates gave an interesting lecture regarding the effects of unsustainable State Budgets on public education. He brings up a key point, one which lawmakers everywhere, but especially Massachusetts, should take note of – unfunded liabilities will not be remedied by increased revenues, but by increased reform. You can see the video here –
In the American economy, Federal, State, and Local government spending accounted for 36% of our GDP in 2010. However, in that same year, government revenue only represented 26% of our GDP, leaving a 10% deficit. This is nothing new; since 2000, the government has been running a deficit every year, recently exacerbated by falling revenues and a sharp upturn of spending at the beginning of the current recession.
Gates goes on to explain that 49 states are required to keep balanced budgets, but that many of these states are forced to do some finagling in order to make the budget appear balanced. As Gates puts it, this sleight of hand is so detestable that, “The guys at ENRON never would have done this.” Looking at the numbers correctly, only 4 states are not currently running deficits, which leads Gates to conclude that these increased deficits are, “systemic,” a circumstance of the way state governments are operated, and not a circumstance of economic factors.
Narrowing his focus to the state of California, Gates brings up a graphic which predicts that by 2040, health care costs will have increased from 26% of total government spending to a staggering 42%. In order to keep current tax rates, the California state government would have to cut spending by ½, which would result in higher costs to attend state universities and community colleges, and further teacher layoffs. This would force the state to consider whether their cuts will be based on seniority, which may result in a lower quality of teachers, or to cut the least capable teachers, which will require further funds and effort in order to provide proper evaluation. In this scenario, the University of California system will be unaffordable in 5 years, which will be a strong blow to education in the state. The result, Gates claims, is a battle between young and old for government spending, a scenario in which we all ultimately lose.
Granted, Gates uses California as an example, but Massachusetts is among those 46 states currently running a deficit, the same deficit which Gates calls “systemic”. We have to understand that the problem is that the government is spending irresponsibly, and must take action to correct its inadequacies. We won’t run into debt ceiling crises and credit downgrades if the government properly prioritizes spending, asking, “What do we want to keep?” instead of “What do we want to cut?”