In the short run, government has three ways to react to a budget deficit: raise taxes, borrow money, or reduce expenditures. In the long run, the government has to increase taxes in order to pay back the loan plus interest, so government has only two ways to react: raise taxes or reduce expenditures.
According to a recent article in Governing, Minnesota and Wisconsin, my two home states, are choosing the second strategy. Their state governments are starting to share services as a means to cut expenditures. From the article (link via the Wall Street Journal‘s Real Time Economics blog):
The Gopher and Badger states are looking to find efficiencies and save money on everything from sharing amusement ride inspectors to buying ammunition and tires. The task has not been easy, but in the year and a half since the report’s release, Minnesota and Wisconsin have shared resources, consolidated services, bartered and even joined forces on contracts for package delivery, software and institutional food.
The Show-Me State would be wise to follow the example of the Badger and Gopher states. Missouri borders eight states, so certainly there exist many opportunities to consolidate services in the style of Minnesota and Wisconsin. Raising additional tax revenue may be a simpler strategy to implement, but it doesn’t result in the same long-term savings and efficiency gains as sharing programs across state borders.
