The next great collapse, after the market, could be state governments.

Massachusetts and California have put the U.S. Treasury on notice that they will likely need, like a foundering investment bank, a federal bailout. Other states are pondering drastic actions or suing everybody in sight.

Some short-term loans may stave immediate crises, but the message is spreading nationwide: State governments will suffer if these conditions persist, and drastic actions to protect finances and services will be necessary.

Of course, Massachusetts and California aren’t exactly shining examples of bureaucratic efficiency. Both have massive overheads, immense entitlement programs and dense populations. This market has proven the bigger you are, the sooner you fall. These giants are teetering. There are lessons here for Maine.

Trends happen later here. As the credit squeeze continues and the Dow downspirals, the pressure on Maine will grow, not only from these concerns, but the related drop in tax revenue that will inevitably come.

For a state that’s now building its next budget, these are uncertain times.

Until late last week, Gov. John Baldacci allowed this budget process to move forward in the typical fashion, with the added mandate to lop 10 percent off the top. Leaving initial control of the budget, however, in the department’s hands might be a short-term solution.

Given the examples from across the country, there was justification for the governor to exert greater influence on the budget process. Departments may feel reluctant to trim their pound of flesh; the governor may have to do it for them. He set the example Friday by ordering immediate cuts in his office.

This is an unsavory role Gov. Baldacci must be willing to fill. He used executive orders and curtailments to help fill a recent budget hole, during the last legislative session. Those tools – and others – are more in play now, than ever.

Budgets are living documents. The American economy is on life support. History tells us that government agencies, when pressed to make reductions, are masters at stymieing and slowdowns, rather than making the brutal decisions that are necessary. Only under pressure, it seems, do real reductions get made.

Well, the pressure is here. When even the governor who played the Terminator is searching for help, the situation is dire. This fiscal heaviness is flowing from the top down. So far, it has toppled the market.

Now it’s heading for the states.


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