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My rambling thoughts about state financial issues....
blaisepascal
Imagine an organization with these qualities:

1) By law, the organization is not allowed to borrow money for operating expenses -- more specifically, it isn't allowed to budget an operating deficit. It is allowed, with sometimes major jumps through hoops, to borrow to buy long-term assets.

2) There is pressure from those who pay this organization to minimize its revenues. Those who pay want to pay no more than is necessary to supply important services. Virtually everyone has a different idea as to what services are necessary, and how much should be necessary to pay them. The net result is that everyone thinks that the organization is supplying more than it should, and it paying too much for what it is, and should cut back and charge them less in the process.

3) This pressure to keep revenues to just what is necessary also makes virtually impossible any sort of build up of accumulated capital. Running budget surpluses would show that revenues are too high and should be lowered.

As such, because of 1, 2, and 3, the organization has high cash-flows, but very little in the way of cash balances.

3) The revenues for this organization follow the business cycle: when times are good, the revenues are high. When times are bad, they are low.

4) Conversely (or perversely), the cost of services tend to be either non-cyclical or anti-cyclical (when times are bad, costs go up, and vice versa). The only way to make the cost of services conform to lower revenues is to cut services provided in hard times.

Is it any wonder States are having major troubles?

It seems to me that a combination of two things would be useful: Allow operating deficits and raise taxes.

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