States pay price for binge in spending

USA Today reports:

State and local government spending has been rising three times as fast as revenue amid warnings from governors that their finances are nearing crisis stage.

As many Americans face stagnant wages, high gas prices and job uncertainty, new government figures show that state and local governments boosted spending 7.8% in the second quarter compared with 2007 while revenue rose 2.5%. Government is on a hiring binge, too, even as private-sector jobs disappear.

In a move to curb spending, California Gov. Arnold Schwarzenegger took sweeping action Thursday to pressure the Legislature to pass an overdue budget. He signed an order laying off up to 22,000 part-time and temporary state workers and cutting the pay of 200,000 others to the minimum wage of $6.55 per hour. The state is on track to spend $15 billion more than it will take in during the next year.

The robust public spending reported Thursday by the Bureau of Economic Analysis means that government can provide more services, such as smaller class sizes, bridge repairs and expanded health care, but it also could bring higher taxes. The added spending is financed mostly by debt and budget reserves.

State and local governments are on track to spend more than $2 trillion for the first time in 2008 — about 13% of the nation's gross domestic product.

A key factor driving higher spending: new employees and higher compensation.

Even California, despite years of budget woes, has continued to add employees. "It's the strangest thing. Government keeps hiring even when times are tough," says Jack Kyser, chief economist at the Los Angeles County Economic Development Corp., a private business group.

When government workers can vote,this is the outcome.