When the stimulus is not enough

The stimulus isn’t completely bailing out New York state.

New York will use $500 million of federal stimulus funds to plug their shortfall. But they will also be increasing taxes: the income tax, taxes on hospitals, taxes on HMOs, and some sin taxes. The excise tax on beer is up from 11 to 14 cents.

The same goes for neighboring New Jersey. The stimulus will fill their budget gap, but it will also fund new education programs. New Jersey is also repeating the same mistakes that brought them into bad fiscal straits, such as granting localities a holiday from contributing to the pension fund.

What’s most interesting about how states use the stimulus, is not what these states do today, but how they think about their budgets going forward. The stimulus is, in many cases, reinforcing structural deficits and giving states the cover to seek higher taxes and expand programs. They are unlikely to roll these back once federal funds recede.