NCPA - National Center for Policy Analysis

The Amount of Hidden Debt Will Stun Taxpayers

April 10, 2013

Taxpayers around the country will soon be grappling with massive amounts of debt they had no idea they were responsible for. The hidden debt is the result of $7.3 billion in promises that were made by state legislators but never approved by taxpayers, says Steven Malanga, a senior fellow at the Manhattan Institute.

  • Illinois is now facing a lawsuit charging that state officials made misleading remarks about the state's pension system and failed to disclose the enormous amount of unfunded obligations.
  • In Sacramento, California, the city faces more than $2 billion in obligations, mostly pensions and retiree health care; the city only has 477,000 residents and an annual budget of $366 million.
  • In Chicago, retiree health care expenditures are projected to increase from $109 million in the 2013 budget to $541 million in a decade.

Collectively, state and local governments are estimated to owe $7.3 trillion and most of this debt was never approved by taxpayers. Despite the fact that most state constitutions and many municipal charters limit borrowing and mandate voter approval, politicians have crafted ways to avoid these limitations.

  • In New Jersey, legislators proposed $8.6 billion for refurbishing school buildings that voters would have never approved. To get the funds, the legislature created an independent borrowing authority, the School Construction Corporation, which took on and squandered more than $7 billion in funds. When the money was gone, the authority dissolved, leaving taxpayers responsible for the debt.
  • In New York, only 5 percent of the state's $63 billion in outstanding debt has ever been authorized by voters.

To address the staggering debt load at the state and local level, taxpayers need to push the government to stop offering defined benefit pension plans, instead opting for defined contribution plans and individual retirement accounts. Additionally, independent borrowing authorities must be curtailed and only debt with voter approval should be incurred.

Source: Steven Malanga, "The Debt Bomb That Taxpayers Won't See Coming," Wall Street Journal, March 29, 2013.


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