States Should Cut Budgets, Not Borrow, to Balance Budgets, Pew Poll Finds

Lawmakers should cut spending or raise taxes before borrowing to balance budgets, according to a poll of residents in five states that account for almost half of the nation’s projected deficits.

More than two-thirds of respondents in Arizona, California, Florida, Illinois and New York said that governments should spend less, according to a report released today by the Pew Center on the States and the Public Policy Institute of California.

The states polled make up one-third of the U.S. population and 45 percent of projected state budget gaps, according to the report. Spurred by drops in revenue during the recession and increased need for services, borrowing by state and local governments grew at an average annual rate of 85 percent from 2000 to 2007, according to the report.

“Borrowing for long-term projects is important to state governments in the same sense borrowing is important to individuals with home ownership or education,” said Mark Baldassare, chief executive officer of the Public Policy Institute of California, in a conference call yesterday. “Debt becomes problematic when you have a large portion of current expenditures covered by borrowing.”

Tipping Point

In 2009, outstanding debt for U.S. municipalities totaled more than $2.3 trillion, doubling since 2000. The five states polled had $919.5 billion in debt in 2008, with California responsible for 37 percent.

“At a certain point borrowing becomes an unrealistic option,” said Susan Urahn, managing director at the Pew Center on the States.

Illinois doubled its debt in a decade, hitting $124 billion in 2008. In fiscal 2009, it borrowed $9.4 billion, more than three times the year before, according to the report.

Illinois, which has the largest projected 2011 budget gap of the five polled states at $15 billion, is on Standard & Poor’s negative watch list, meaning its rating could be downgraded soon. Moody’s Investors Service downgraded Illinois debt in July 2009, leaving it in the bottom two states along with California. The negative outlooks make borrowing more expensive, according to the report.

The Washington-based Pew Center on the States and San Francisco-based Public Policy Institute of California used random digit dialing to speak with more than 1,000 residents. The poll has a margin of error of plus or minus 4 percentage points, Baldassare said.

To contact the reporter on this story: Ashley Lutz in New York at alutz8@bloomberg.net.

To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net.

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