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State Deficits and Jaws Charts

Jun 24, 2010    •    246 Views    •    EST. TIME TO READ: 1 minute

As a prospective buyer, Daily Show reporter Jason Jones went to check out the Arizona State Capitol Building when he heard it was for sale for $735 million. Once sold, the capitol would then be leased back to the state for $60 million a year. Why sell it? Because Arizona has a $3.4 billion budget gap.The problem, though, is that the solution is short term. It is a temporary fix that leaves all fundamental spending and revenue issues untouched. 

Other states facing similar crises have devised equally short term solutions. Several are trying to sell prisons. Hawaii has shortened its school week. States have postponed paying workers until the fiscal year ends to avoid recording current spending.

New York’s Lieutenant Governor Ravitch, appointed by Governor Paterson to deal with his state’s budget crisis, explained that while cities can declare bankruptcy, states cannot. Consequently, states lack a “triggering event” that would force businesses, labor, and political groups to compromise.

The result is a graph that Ravitch calls a “jaws chart”. On a “jaws chart,” a line representing state revenue is rising very gradually while the line showing state spending is much steeper. The two together look like the shark in Jaws with his mouth open. 

The Economic Lesson

There is a difference between a debt and a deficit. The debt refers to the total amount owed by the municipality or the federal government. The deficit is the amount by which spending exceeds revenues during one fiscal year.

 

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