Bush, States and Cities: Fiscal Code Orange?

By Neal R. Peirce

Feb 23, 2003

WASHINGTON -- Is it time to declare a fiscal Code Orange -- a condition of serious financial peril -- for America’s states and cities?

A seasoned intergovernmental professional, requesting he not be identified, suggests to me the situation is just that serious -- and likely to reach Code Red if we don’t watch out.

Foreign terrorists alone, he adds, can’t be blamed for this danger alert. It’s a direct result of what he’d categorize as “blind and insensitive” policy directions that our government -- especially the Bush White House -- are now pursuing.

Personally, I’d put the immediate peril of a U.S. attack on Iraq at the top of the list. Its cost, according to such experts as Delaware’s Joseph Biden, the Senate’s leading Democrat on foreign affairs, may be as much as $80-$100 billion. The 1991 Gulf War cost $61 billion -- almost $80 billion in today’s dollars -- and in that case foreign allies picked up 90 percent of the cost, and we had no plans for regime change and long-term occupation.

Assuming a $100 billion total, the National Priorities Project has broken down the cost in taxpayer dollars, by state and city. The figures are disturbing: California $10.1 billion, Texas $5.7 billion, Illinois $4.3 billion, Michigan $2.9 billion, for example. Or by city: Chicago $775 million, Detroit $179 million, St. Louis $75 million, Houston $447 million, Seattle $228 million.

The fiscal stakes are immense, even ignoring the moral or military-strategic stakes in an Iraq war that we wage against the will and advice of much of the world. Oregon taxpayers, for example, would pay $368 million toward a $100 billion Iraq war. The same dollars would pay 7,090 elementary school teachers, buy 1,636 fire trucks or place 58,963 children in Head Start.

Small wonder, both on moral and fiscal grounds, that some 80 American cities, from New Haven to San Francisco, Atlanta to Portland, have passed resolutions opposing the war.

But others, including my Code Orange intergovernmental source, see an alarmingly insensitive White House, even without the Iraq issue.

A prime example: slow and paltry federal assistance for local “first responders” -- police, firefighters, emergency medical personnel -- who will represent out first line of personal defense in any terrorist attack.

The terror peril is linked inextricably to foreign policy and intelligence failures -- clear federal roles. Cities, counties and states, gripped by their worst fiscal crisis of modern times by the recession, have been spending billions to provide extra protection since 9/11.

But the Bush administration failed to press hard on a promised $3.5 billion first-responder aid package. And Congress dawdled. The federal fiscal year 2003 budget, belatedly passed this month, earmarks only $1.2 billion for first responders and in hard fact actually reduces overall federal aid for local law enforcement and disaster recovery from $11.7 billion in 2002 to $6.4 billion for 2003.

Just as alarming, the Bush budget proposed for 2004 barely corrects that, asking only for $8.4 billion for all law, disaster aid and first responder assistance -- even while it asks a staggering, pre-war, $379.9 billion for the armed forces.

One would have thought an administration headed by an ex-governor, with former state chief executives in several Cabinet slots, would have more sensitivity. But trace the dollars where you will, this administration’s fiscal plans spell deep trouble for mayors and governors.

Take Bush’s idea to lift federal taxes on dividend income (channeling most benefits to the 1 percent of taxpayers who earn over $300,000, with no comparable favor for wage earners). That could cost the states $50 billion in the next decade, because so many state income tax forms “piggy-back” on the federal. Governors and legislatures would have a nasty choice: take the political flack for raising taxes in the face midst of a recession, or cut funds for critical services. Either way, they’d deepen the recession.

A companion Bush proposal would let people with spare cash (up to $45,000 a year) set up absolutely tax-free investment accounts-- part of what would be cumulative $1.8 trillion losses to the federal treasury in the next decade. Meanwhile, Mr. Bush would cut child-care and after-school programs, chip away at vocational training, end the Hope VI program that’s remade so many ravaged public housing projects into exemplary communities, and make earned-income tax credits (many poor people’s best fiscal safety ring) harder to get.

Maybe it’s intentional: A red-ink drowned federal government will likely be unable to partner with states and localities in any meaningful way -- for years and years to come.

But if Mr. Bush intends that, why didn’t he run on such a platform? Virtually nothing in his 2000 campaign suggested he’d advocate rigid ideological positions, foreign and domestic, leading to this kind of result. Having trailed in the popular vote by a half million votes, a consensus-based government of national unity would have been more appropriate.

Is there a solution? Maybe, in 2004 -- regime change.