Sunday, January 10, 2010

State Budget Woes - The Next Front

In times of prosperity, state and local governments cannot spend money fast enough. The most glaring example of overspending is in the area of employee benefits. State and local pension funds hold $ 1.9 trillion in assets, but have an estimated $ 5.6 trillion in liabilities. This is the state-and-local version of social security -- promise the moon, but don't provide the funding. Let future generations of the unborn foot the bill for the current generation.

It gets worse. State and local governments in California, New York, Massachusetts, and New Jersey are in dire straights. They have paid off their union allies, postponed needed infrastructure spending, and wasted enormous sums of money. In order to do all of this, they have borrowed money in the municipal bond market and created enormous unfunded liabilities. These governments have been completely irresponsible.

Some states (Texas to name one) have not embarked on this profligacy. Their finances are strained, but manageable.

But now, California is "demanding" that the federal government bail them out. This means that taxpayers in other states are being asked to bail out the profligate states. Always, of course, the request is made in the name of "fairness" and protecting education and health care for the poor. But, the reality is very different. California and New York have public employees retiring at benefit packages that exceed $ 250,000 per year. To fund that nonsense, Governor Schwartzenegger is asking citizens of Texas and Virginia (with average incomes of $ 40,000 per year) to pony up additional taxes to support this largesse.

Don't be fooled. If the federal government bails out California, New York, New Jersey, Massachusetts and the other profligate states, it will be rewarding corruption, wasteful spending and ideology and punishing those who budget wisely and whose governments are relatively free of corruption and rhetorical hypocrisy.