It should come as no surprise that state governments from coast to coast are in debt. We've all read the headlines about failed budget cuts and gaps and the doomsday outlook for state governments. But the full picture of how much trouble we are all in should scare even the most optimistic budget forecaster.

Examining the numbers from a recently released state budget report from State Budget Solutions (SBS) revealed that total state debt presently exceeds $4 trillion. That's trillion with a "t." 

The SBS report took into account all state debt and future spending obligations, and specifically found that California had the largest deficit with more than $612 billion and Vermont, North Dakota and South Dakota were among the states with the smallest deficits.

The five states in the worst shape in addition to California were New York ($305 billion), Texas ($282 billion), New Jersey ($281 billion) and Illinois ($280 billion). 

To reach those shocking amounts, SBS took the straightforward approach of adding each state's outstanding official debt, pension and other post-employment benefits (OPEB) liabilities, Unemployment Trust Fund loans, and current budget gap.  While liabilities are not actually debt, they are future spending obligations that states have committed themselves to spending.  And spend they will.  Public pension liabilities alone stand at more than $2.8 trillion, according to figures from the American Enterprise Institute.  

These staggering deficit numbers should be a reality check for every state legislator.  They point to a problem that is getting worse, not better. And while states scramble to cut spending, borrow or plead for help from the federal government, the losers in this mess are always going to be the taxpayers who end up footing the bill for reckless state spending. 

Instead of begging for help, states should be making tough budget decisions to lower state spending by prioritizing state spending based upon performance outcomes. But running a credit card balance and pushing costs off to the future and taking federal stimulus funds is a lot easier than making the tough decisions on resetting state government.

 

States also need to begin implementing Reality Based Budgeting.  Reality Based Budgeting views all of state government -- all of its agencies and functions -- as a single enterprise. New proposals are evaluated in the context of all that state government is responsible for doing, and the strategies for achieving the best results are developed with an eye on all of the state's resources. Agencies and services are not sealed in fortified towers where they siphon large portions of state revenue with few questions asked; they are all under one tent where they can be constantly evaluated to ensure they are delivering the highest priorities as efficiently and effectively as possible. Nothing is sacrosanct.

 

Conventional budgeting never truly considers how to maximize every tax dollar spent. It doesn't analyze the efficiency, effectiveness and necessity of existing state programs and spending. It rarely asks how a service can be improved or purchased differently. It virtually guarantees overspending.  Legislators may be able to get away with this in good economic times, but it is unsustainable in the long-term.

Which is where they find themselves today.  Reality-based budgeting takes a different tack.  Agency budgets become less about requesting funding, and more about offering to deliver specific results for a specific price. These offers can be evaluated and measured against what is most important to citizens, the state's core functions, and legislators can then fund with available dollars the products and services that are most desired.

Due to budget gimmicks and tricks many legislators can convince themselves that they are not in the hole as much as they really are. However, looking at the actual numbers paints a different picture.  This report makes it clear that if legislators don't act immediately and decisively, our country will be facing a budget crisis that we have never seen before.

The time for action is now. Our country cannot afford to continue to carelessly spend while passing trillions in debt to future generations. By utilizing Reality Based Budgeting and making smart decisions based on performance, legislators have the opportunity to dug their way out of the red and save our great, great, grandchildren from shouldering this financial burden.

Comment(s)

State Debt
Why should states stop spending when it is Federal Government’s money that is being spent? The states are “too big to fail.” The Federal government will bail them out.
Most of the $2.9 trillion of muni bond debt has already been guaranteed by insurance companies that are also “too big to fail”. The Federal government will bail out the insurance companies.
The $1.2 trillion (and growing) unfunded pension debt is being converted to muni bond debt as soon as muni-bonds can be sold.
Other state debts, that are currently due but as yet unpaid, have been factored into banks that are too big to fail. The states vendors have been paid and they in turn pay their employees and suppliers. Based on the precedent set by the subprime loan fraud, the Federal government will bail out these banks. Deposits are already insured by the FDIC.
State spending should not be a spectator sport. If you are a citizen of the USA, these grossly mismanaged states are spending your money and you have little or no control over it.

posted by : Don
Saturday, February 11, 2012 at 09:48 PM  | Permalink

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