Even though most states are required to balance their budgets, in practice they don't do it, and "years of irresponsible budgeting" have led to the current crisis, Clinton said Tuesday at a symposium in Philadelphia designed to bring attention to the eroding financial condition of state governments.
"We shouldn't let this crisis pass without using it as an opportunity to reform budget systems up and down the line," Clinton, a former Arkansas governor, said at the National Constitution Center. "And they essentially need to be more conservative and responsible."
He also expressed support for immigration legislation making its way through the Senate as well as an Internet sales tax, saying both would broaden the tax base. And he said states and cities should work to attract private investment to infrastructure projects.
Turning to Washington, Clinton lamented reductions in federal discretionary spending, especially the sequester, the term for automatic spending cuts that went into effect this year. "The sequester shows you the consequences of the meat ax," he said.
He got no argument from Philadelphia Mayor Michael Nutter, who also addressed the State Budget Crisis Task Force symposium and said that federal cuts have seriously hurt city and local governments, hampering their ability to deliver essential services to citizens.
The sequester has transferred costs onto local governments, said Nutter, the immediate past president of the U.S. Conference of Mayors. In Philadelphia, he said, deep cuts to a program that helps homeowners avert foreclosure will potentially result in more blight. The school district, meanwhile, is facing an existential budget crisis that has forced it to lay off 3,800 employees and eliminate sports, music, art and all after-school programs, although a potential infusion of state aid may soften the blow before school starts.
"This is not a sustainable model for cities. The federal government cannot balance its budget on the backs of cities and local governments," said Nutter, a second-term Democrat.
A top Treasury Department official said the federal government, after running trillion-dollar deficits as it tried to stabilize financial markets and stimulate the economy, has to begin getting its own fiscal house in order.
Having sent more than $280 billion to state and local governments between 2009 and 2012, largely to be spent on education, infrastructure and health care, "we need to begin pulling back the federal safety net," said Mary John Miller, Treasury's undersecretary for domestic finance, who was taking part in a panel discussion.
"As we see unemployment coming down, as we see the housing market beginning to recover, as we see the economy growing ... we see that we need to now turn our attention to reducing our federal deficits," said Miller, adding the administration of President Barack Obama is nevertheless "eager to work with state and local governments" to ease the impact of the sequester.
The nonpartisan task force, led by former Federal Reserve Chairman Paul Volcker and former New York Lt. Gov. Richard Ravitch, issued a report last year that said U.S. states are grappling with long-term budget problems that threaten their ability to pay for basic services such as law enforcement, local schools and transportation. The group cites rising Medicaid and pension costs, reduced federal aid and eroding tax revenues as a few of the challenges facing the states.
Panelists at Tuesday's symposium variously called for more flexibility in how states administer federally funded programs, a reduction in unfunded mandates, and an overhaul of the federal budget process.
"You will not solve this problem until you change the process," said John Sununu, a Republican former New Hampshire governor and chief of staff to President George H.W. Bush. "I don't care what you do to Medicare, Medicaid, you will not get effective changes until the legislators and the president can say, 'The devil of budget rules made me do it. I had no choice.'"