Most of the states have more tax money than they expected. What should they do about it?

By Nancy Jane Moore

The New York Times reports this morning that over 40 states found themselves with a budget surplus this year.

The article makes it sound like it is the state itself that has the budget surplus, but given that in many cases the surplus comes from property taxes, the reporter appears have lumped in local government fat as well. An increase in property tax revenue is not a big surprise in jurisdictions that prospered during the housing boom.

The state with the most fat, according to The Times, is Texas, which has $7 billion more than they expected -- close to triple second-place California's $2.7 billion. Apparently they're going to give a lot of it back in the form of property tax cuts. (Since Texas doesn't have an income tax, the money comes from property taxes and sales taxes, plus a smidgen from corporate taxes.)

Now I know the boom in taxes that went along with the boom in house prices hit some people hard, so it's reasonable to adjust the property taxes somewhat -- especially for working and middle class homeowners in neighborhoods that boomed unexpectedly. But there are a lot of other things Texas needs to spend its money on. The state is notorious for lousy social services and mediocre schools, just to mention basic services. And second-place California cut a lot of services a few years back when it hit fiscal crisis, as did most of the other states.

So putting a priority on restoring services comes to mind as an important thing to do. I note that The Times says one reason for the surplus is a drop in Medicaid expenditures.

Given that every report on poverty in the US points out that the percentage of really poor people stays about the same -- 37 million people or 12 percent of the population according to the last report I saw -- I don't think the drop in Medicaid spending was due to a lack of need, but rather to a drop in providing necessary medical services to the truly poor.

It's pretty obvious who suffered to give those states their nice flush bank accounts. Why is it that I suspect the people who benefit from the surplus won't be those who suffered from the deficits?