If You Thought The Federal Government's Finances Were In Bad Shape...

Many times in this blog we have talked about how dangerously high the Federal government's debts and spending are and how that debt and spending threaten the very solvency of the country. Just in the last three fiscal years during which the Democrats controlled Congress,  including the first two years of the Obama Presidency, the national debt will have gone up about $4 TRILLION or about $35,000 per U.S. household. It is on a trajectory to go up another $8 TRILLION in the next decade and that is probably a best case scenario. This comes out to over $100,000 per household. All of the standard measures of sound fiscal policy, e.g. annual deficit as a percentage of GDP, total national debt as a percentage of GDP, etc. are raising red flags of how dire our nation's Federal government finances are.


But, wait! There's more. If you thought the Federal government was in bad financial shape, consider some statistics for some local and state governments that appeared in a recent New York Times article by David Brooks:

• In New Jersey, employment benefit packages for state employees are 41% higher than similar benefit packages for those working for the average Fortune 500 company.
• New York City schools are in bad shape, possibly because the city has allowed over 10,000 former policemen and police women to retire before the age of 50.
• In California, a state very, very close to bankruptcy, in-state police officers receive 90% of their salaries when they retire at age 50.
• An average California corrections officer can earn over $100,000 when overtime is taken into account. The article points out that California spends more money on its prison system than its school systems.
• Unfunded state government pension obligations total about $2 TRILLION. According to a source quoted in the article, a political scientist at the City College of New York, government employees at all levels of government earn, on average, make $14 more per hour in wages and benefits than their private sector equivalents.
• Buffalo, New York has 50% fewer citizens than it had in 1950 but the same number of local government employees.

Want some more torture? Consider the following facts from the November, 2010 issue of Reason magazine and the article that provided a blueprint for financially saving the country:

• During the Great Recession, the private sector of the economy shed almost 8.5 million jobs but all levels of government actually added government employees during the recession to the tune of 100,000. Thus, there were fewer and fewer private sector jobs and their taxes to support more government employees, putting tremendous strains on the government budgets below the Federal level.
• In a July report, the national conference of State Legislators estimated that the states face a total budget gap of $84 billion for the next fiscal year, with almost half of all states thinking that their deficits will be more than 10% of their total budgets.
• In a June analysis, the National Governors Association estimated that the cumulative budget shortfalls for state governments over the next three years will be almost $300 billion. Despite their own estimates, the same Governors are recommending budgets that are actual 3.6% HIGHER for fiscal 2011.Talk about insanity. Fewer private sector jobs are available but state and local governments expand. Governors know they will have less money in the coming years but recommend that state government budgets be increased. Population bases shrink substantially but the governments supporting substantially fewer citizens does not. It's crazy.

Why are we in this situation. Two possible causes:

• Mr. Brooks suggests that it all comes down to the political class looking to spend taxpayer dollars to buy votes for the perpetual re-election. Take care of the public employee unions with high salary raises during economic boom times and promised future pension increases in lean times, essentially kicking the financial time bomb of pensions down the road to future generations, and you will most assuredly get most of the union votes and a good chance of re-election, fiscal sanity and prudence need not apply.
• The Reason article debunks the claims by state and local politicians that the economic downturn caused their budget problems. The article calculates that between 2000 and 2008, i.e. good economic times before the full impact of the recession took hold, the national population grew 8% and the CPI inflation indicator grew 25%. Thus, a rough estimate of how much state and local government should have grown to take into account more people and inflation ( Buffalo, follow closely) would be about 33%. However, during the good times and before the Great Recession, overall state government spending actually increased about 60%, almost twice as much as it logically should have. Thus, the political class has no one to blame but themselves. They increased their power and statue at the expense of their taxpaying constituents well before they can blame the economic downturn. Thus, ego, not recession, got most of the states into the budget mess they are in today.

The sad part of the whole situation is that the state and local governments are now so hamstrung by these outrageous commitments to unions and pensions, they have very little money left for helping out their citizens. By overpaying police and corrections officers, both active and retired, the state of California neglects its school systems. The New Jersey Governor recently suspended work on a new tunnel into New York City from New Jersey because it was getting too expensive and also because the state has such high commitments to its public sector unions that there is little money left over for such projects, even though the long term financial benefit of the tunnel is high. Buffalo's city government is 50% less efficient than it was 60 years ago simply because it has the same number of public employees serving  half as many people, despite productivity and efficiency enhancements in the way we live and work, e.g. computers, communications, etc.

Mr. Brooks really nails the underlying problem with the following thoughts:

"Many of us would be happy to live with a bigger version of 1950s government: one that ran surpluses and was dexterous enough to tackle long-term problems as they arose. But we don't have that government. We have an immobile government that is desperately overcommittted in all the wrong ways.... Someday there will be a political movement that is willing to make choices, that is willing to say 'this but not that.'"

"Immobile government," what a wonderful vision that also applies to the Federal government and the political class running it. Politicians seem to spend most of their time in office running for their next re-election, never willing to say no to any group or organization in order to scrounge up as many votes as possible, logic and fiscal sanity be damned. We never run surpluses and we never see them tackle long term problems. Problems like the War On  Drugs, the energy crisis, failing public education, illegal immigration, impending fiscal insolvency of Social Security and Medicare/Medicaid, etc. are never solved. Seems like the same paralysis is also happening at the local and state level. Be scared, be very scared.




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