NCPA - National Center for Policy Analysis

Debt: The Shame of Cities and States

October 7, 2011

The nation's states and municipalities face a crisis in government: a number of states, as well as a number of counties and cities, labor under a heavy weight of debt, deficits and future obligations.  This state of affairs is generally blamed on an Iron Triangle of public employee unions, compliant governors and legislators, and a complacant electorate.  The proliferation of benefits has rapidly outpaced growth in state revenues, leading to what was measured in 2008 to be a $3.35 trillion gap between the states' resources and their pension and health care commitments, says Morton Keller, Spector Professor of History emeritus at Brandeis University.

Depressed revenues following the economic collapse have brought the problem of state solvency to the forefront, recognized as the crisis that it already was long before the collapse.  Each state has sought to narrow or eliminate deficits according to their own state culture and political interests.  Yet the content of these deficit-reduction packages is largely predictable based on the color of the state.

  • While blue states occasionally wrangle with plans that favor entitlement cuts over new taxes (like Governor Cuomo in the Empire State), these are the exception to the rule.
  • Democratic leadership in Illinois, Connecticut and California has embraced plans tilted strongly towards revenue enhancement.
  • Meanwhile, Republican governorships such as those in Ohio, Indiana, New Jersey and Wisconsin are addressing the growing entitlement bulge, with varying degrees of success.

While some laud these efforts, others look down the road and see default or bankruptcy as the only natural end.  Whatever the end result, it must be conceded that states emerging from this crisis will need to rethink their priorities and restructure their financial foundations.  In doing so, it would be prudent to take a lesson from James Madison.  Madison advocated that public policy be pulled and tugged by all interested parties, and that out of this competitive framework emerge the best policies.  If states engaged in this sort of interplay, they would become more adaptable and able to lift themselves not only out of this crisis but those in the future as well.

Source: Morton Keller, "Debt: The Shame of Cities and States," Hoover Institution, October 1, 2011.

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