Bankrupt State Governments, Much more Taxpayer Discomfort, and No End In Sight

Fascinating, if depressing, evaluation in the February 11, 2011 concern of The Week magazine relating to the dire economic straits of our state governments. As a word of caution, please do not read the following if you have a weak stomach or you really feel the economic climate is going to get extremely healthy in the up coming couple of many years (it is not):

– According to the Illinois state comptroller, Illinois is generally a “deadbeat state” that had to raise its individual revenue tax rates 66% and has simply stopped paying the money it had previously committed to schools and a host of other creditors. The Week had reported in 2010 that bullet suppliers to Illinois law enforcement agencies had stopped shipping them bullets because the state government had not paid its outstanding bullet expenses.

– California is issuing nonredeemable IOUs in an attempt to maintain its creditors at bay.

– Arizona has sold off its state Property and Senate buildings, certainly a a single time, desperate grab for money.

– Arizona’s state Medicaid fund has stopped covering organ transplants.

Camden, New Jersey, the second most harmful city in America, just laid off 167 of its 373 police officers.

– The National Association Of State Spending budget officers expects state tax receipts to fall off six.5% below 2008 levels and it estimates that it could be up to five years prior to tax receipts recover to 2008 ranges.

– Despite this fall off in revenue, Medicaid and state employee pension obligations will carry on to rise beneath contracts signed when the economy was healthier. Thus, if overall revenues go down, Medicaid and state employee pensions go up, in all likelihood schools, roads, bridges, social support applications, and so on. will obtain less and less funds more than time.

– One social program that is already in deep difficulty is the money used by state and neighborhood governments to bury indigent men and women who have passed away. For instance, in Wayne County, Michigan, the county that incorporates Detroit, the local government finances are so negative and quick that the local coroner can not afford to bury 185 bodies and has to just store them in a vault. Some of the bodies have been there for above two many years, with no sign that funds will be obtainable quickly to bury them.

– Federal stimulus funds, which had been delaying the pain of revenue shortfalls, are practically all used up.

– All but ten states are expected to post deficits this year requiring spending budget cuts or tax hikes to get back in balance.

– In complete, all states are expected to be about $140 billion brief of income to cover charges, with five states, California, Texas, New Jersey, New York, and Texas accounting for about half of the $140 billion. Every U.S. household would have to be assessed an extra $1,200 in taxes just to cover the shortfall.

– Andrew Cuomo, the new governor of New York, is proposing deep cuts in state Medicaid rewards to the poor, wage freezes for state workers,and the elimination of some state agencies.

– New California governor, Jerry Brown, is proposing $12.five billion in budget cuts that will hit state universities, welfare applications, and wholesome care for the poor along with the continuation of tax improve for a selection of state taxes.

– State government employee pensions systems are facing a $1 TRILLION shortfall in unfunded pension obligations. To cover this shortfall, each U.S. household would have to come up with just under $9,000 in additional taxes which does not include the $1,200 estimate above to just close the existing spending budget deficits.

Nasty, ugly situation. Can experts quoted in the write-up provide an insights on how to resolve the dilemma:

– Felix Rohatyn, an investment banker who steered New York City by way of a negative spending budget time in the 1970s: “I do not like to play the scared rabbit but I just do not see exactly where the end of this is.”

– Jerome Powell of the Bipartisan Policy Center: “Governments are the largest employers in the nation. To have spending cuts and tax increases is going to be a burden on economic development for years to come.”

– New Jersey governor Chris Christie: “No one can be shielded from this reality any longer – not policemen, not firefighters, not teachers.”

– Economic analyst Meredith Whitney who predicted the sub prime mortgage collapse: “The debt crisis in states and cities is the largest threat to the U.S. economic system. It has tentacles as broad as something I’ve observed.”

Fantastic, even the so-referred to as specialists do not see an ending to this fiasco that is a very good ending. The report concludes there are only two solutions, each of which are quite painful:

1) Significant cuts across the board in all state and local government services which includes either substantial give backs by government employee unions regarding pensions and well being care or substantial layoffs.

2) Changes in Federal law that would permit state and regional governments to go by means of a bankruptcy procedure, purging itself of its debts and obligations, allowing it to start anew with a clean financial slate. However, the report points out that there is a substantial downside to the bankruptcy solution. It points out that the last U.S. state to default on its debt was Arkansas in 1933. Whilst it cleaned up its financials, it ruined its credit rating producing it a “fiscal pariah” for a really extended time, so long that the state government could not get financing to develop a single road for above 16 many years.

Absolutely nothing rather about the situation or the remedies. Even so, the most insightful comment in the article was from Governor Chris Christie when he informed a disgruntled police officer at a current town meeting, “Don’t be angry at the initial guy who informed you the truth.” The numbers are also overpowering, too large to ignore, the truth can no longer be avoided. The above scenario is the reality and at least 1 politician, Christie, understands this reality. Understanding reality is the first step back to dealing with reality.

Sadly, until we locate a way to modify election laws, processes, and mindset, we are going to be stuck attempting to solve the above difficulty with the same men and women that got us into the scenario to commence with, the American political class.

And the identical difficulty the states are facing are orders of magnitude worse at the Federal degree. We are about to hit a $14 TRILLION debt degree inside of weeks at the Federal level, a debt load that will burden every single U.S. household with about $120,000 in debt in addition to the $ten,000 or so that the state and local governments have burdened every single household with.

The big question is when will someone of significance take the exact same stand that Christie took, comprehend reality, and tell it like it is? Given the inept and feeble attempts by Obama and the rest of the political class, each Republican and Democrat, to understand the monetary chaos reality at the Federal level and lead the country by way of the hard selections, we are in a likely death spiral that is only going to get worse.

To break this death spiral, the following measures, at a minimum, need to be implemented by a leader with some courage and backbone, 1 that at present does not reside at 1600 Pennsylvania:

– Step 1 – decrease government budgets and expenditures by ten% a year for five years in order to root out and kill non-essential applications, expenditures and charges, wasteful spending, redundant government functions, and political earmarks.

– Step two – step up law enforcement actions to decrease fraud and criminal embezzlement of government programs such as Medicare.

– Step 3 – eradicate the classic pension benefit for all newly hired Federal government staff.

– Steps four – place Social Security on a strong financial basis by raising the retirement age, minimizing or capping payouts to wealthy Americans, and uncapping the earnings maximum although lowering the Social Safety tax rate.

– Step five – repeal the pricey Obama Care plan and replace it with a system that really addresses the accurate root causes of our health care crisis even though lowering wellness care expenses.

– Step six – bring back most of the U.S. troops deployed overseas, we can no longer afford to police the globe with our troops.

– Step 7 – make Congressional pay raises based on performance and good quality, not automatic.

– Step 8- prohibit any Congressional member who has a net worth of above $3 million to draw a salary whilst in workplace.

– Step 9 – And the most critical step of all, impose strict term limits on all political offices. The real cause why we are in this financial jam is since our politicians carry on to give away fiscal stability and frequent sense in order to get either votes or campaign donations for their following.

As prolonged as they can run for office again, they have and will make the nation’s nicely becoming subservient to their election requirements. Regardless of whether that is providing earmarks to campaign donors, sweetening the spend, retirement, and advantage packages of unions, and so forth., the opportunity to get re-elected has to be removed in order to free up workplace holders to do the right point.

You can’t ignore reality and the reality is not good. The discomfort will come and the discomfort will be significant. By not taking pre-emptive action at the state and regional ranges, taxpayers and citizens are currently being made to suffer tax increases and service cuts. By not taking action at the Federal ranges, related negative items will happen to good men and women. The longer we wait, the worse the pain will be.

And given the absence of term limits, the absence of a plan to deal with the reality, and the absence of courage and fortitude at all ranges of the political class, with the possible exception of Governor Christie, absolutely nothing will get completed right up until following November 2012, a two year delay that will just make the eventual pain that much worse.

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