Ghosts of budgets past

Christmas is a time to count our blessings, even when they’re accompanied by hardship. The economy is slowly improving, the stock market has recovered much of the value it lost after the housing bubble burst, and U.S. businesses are reporting healthy profits. At the same time, unemployment remains stubbornly high and banks continue to repossess tens of thousands of homes every month.

The downturn cut federal, state and local governments’ revenue sharply, and many are still struggling to meet the demand for services. In Washington, policymakers are divided over whether to try to narrow the staggeringly large budget deficit or to keep borrowing money in an effort to stimulate growth. The latter debate has lent a Dickensian tinge to the holidays, as Republicans and Democrats battled at length over tax cuts for the rich and unemployment benefits for the (temporarily) poor.

Looking back over the past three decades, though, we are reminded that today’s troubles are more familiar and less formidable than they might seem. Yes, the downturn was steeper and the recovery slower than anything since the Depression. And no, it won’t be easy to put everyone back to work, or for governments at all levels to close the gap between program spending and tax revenue. But there’s something reassuring about the similarity between the dire warnings sounded today and those printed on this page years ago.

April 7, 1983

“A task force headed by a panel of corporate executives has pawed through the records in Washington for some months to find ways to make government more efficient. It is now making recommendations, some of which would make Ebenezer Scrooge wiggle with delight.

“For example, the task force says that the government could save a bundle by cutting off people who get a minimum issue of $10 a month in food stamps even though their incomes put them on the borderline of eligibility. Three of every four families now getting the minimum include members who are disabled or elderly.”

The federal budget deficit in fiscal 1983 was just under $208 billion, or 6% of the U.S. gross domestic product. It’s now about $1.3 trillion, or 10.6% of GDP. This month a White House task force composed largely of lawmakers recommended a much larger package of cuts and spending restraints, including reductions in future benefits for retirees, veterans and the ailing poor.

July 9, 1988

“Gov. George Deukmejian whacked $472 million from an already-decimated state budget on Friday, and, acting as if it were Christmas in July, proclaimed that ‘the economy is booming and California is ready for the future.’ Next to Deukmejian, Scrooge and the Grinch seem like generous fellows.

“This was the budget that went to the governor with the lament of the Legislature’s chief budget architect that, after nearly $1 billion in legislative cuts, it stopped just short of dooming California to a Dark Age. That still was too extravagant for Deukmejian, who pushed it over the edge by slashing another half a billion.”

The budget in question was the one for California’s general fund in fiscal year 1988-89, which was $36 billion. The cuts made by Deukmejian and the Legislature represented about 4% of the total.

Nov. 26, 2001

“After three years of being Santa Claus with huge state budget surpluses, Gov. Gray Davis now has to play Scrooge. This is not a happy role for Davis going into a reelection campaign. But he would serve Californians best by being upfront about the severity of the state’s fiscal condition and the need for tough medicine to cope with it….

“After the disclosure of an alarming $12.4-billion drop-off in state revenues from the $80-billion general fund, Davis moved to freeze spending and to order a 15% cut in the budget he’ll introduce in January. But it’s not safe to assume a quick recovery.”

Fast-forwarding to this year, the Legislature cut $7.5 billion from state programs to reach a deal on an $87.5-billion general-fund budget for fiscal 2011. Gov. Arnold Schwarzenegger then vetoed nearly $1 billion in spending to create more ample reserves. That’s a total cut of about 9%. Shortly after the deal was struck, state officials announced that a new budget gap of up to $28 billion would emerge over the next 18 months.

Dec. 7, 1990

“Scrooge himself couldn’t have planned it any better. Just two weeks before Christmas, the Orange County Board of Supervisors is facing new cutbacks — to be voted on immediately — that would freeze hiring and new construction. The board will also consider new revenue-raising measures, including a controversial proposal to impose booking fees on cities that use county jails, and even charging the sheriff’s deputies who work in them for meals.

“The cost-saving proposals are contained in a mid-fiscal year budget report that provides a snapshot of a bigger problem: Government at every level has lower-than-expected revenues and an increased demand for services. Things are not expected to get better anytime soon, either.”

Last year, Orange County laid off 210 social-service workers in response to sagging revenue. Schwarzenegger, meanwhile, ordered furloughs for 150,000 to 200,000 public employees in 2009 and 2010 to conserve cash.

Dec. 19, 1991

“There’s little to cheer about in this holiday season. Day after day the economic news is unsettling. The massive downsizing at General Motors is only the latest downer in a string of setbacks to an economic recovery….

“The tricky challenge for the President and Congress is to come up with a growth plan that encourages long-term savings, investment and job creation, while providing short-term stimulus…. Adding flexibility to the system is further complicated by the budget deficit, which must be held in check or it will undermine future U.S. competitiveness in the global economy.”

The recession proved to be comparatively mild, and the 1990s would witness the longest period of sustained growth in U.S. history. Some of that growth was ersatz, though, built on a bubble in tech stocks that popped in early 2000.

Dec. 7, 2002

“Even Scrooge McDuck might be hard-pressed to think of something this mean: Although the lame-duck Congress came up last month with a $90-billion plan to bail out the insurance industry in the event of a new terrorist attack, it failed to reach agreement on a federally funded extension to temporary unemployment benefits.

“As a result, almost a million unemployed Americans will have the House of Representatives and the White House to thank for seeing their benefits cut off three days after Christmas.”

This year, Senate Republicans blocked the renewal of extended unemployment benefits before Congress recessed for Thanksgiving, cutting off checks for about 1 million Americans who’d been unable to find work for more than 26 weeks. Lawmakers restored the benefits this month as part of the deal to renew all the Bush-era tax cuts. It’s not an unalloyed blessing — the tax cuts and spending increases in the law are projected to cost nearly $900 billion over the next five years, widening the budget gap that Congress must eventually close. But as challenging as that problem may seem, we’ve solved ones like it before.