Congress has managed to pass a three-day continuing resolution for a budget that began on October 1, 2010 for fiscal year 2011. Good show!
And out in the hinterlands where budgets are balanced every fiscal year officials wait with baited breath to see if federal cuts will effect their already stressed budgets. And they keep fighting the good fight.
The shrinking muniland work force:
Conventional wisdom is debunked by the simple chart above from the Federal Reserve Bank of Atlanta.
The chart shows that municipalities have been decreasing their labor forces for several years. Municipalities must balance their budget which means that employment reductions are made early and often.
FRB Atlanta’s President Dennis Lockhart spoke in West Palm Beach, Fla., about the current phase of American economic history, which he termed the “Great Rebalancing.”
Spending cuts have begun at all government levels, and some improvement in revenues is now being reported. The extent of cuts is being discussed, quite literally, as we speak.
The reduction in municipal payrolls reduces, but does not eliminate, crushing pension liabilities. Every worker let go from employment ends their “years of service” for which pension benefits are calculated.
While this is a tragedy for workers and their families it is a positive gain for taxpayers. As many have identified, pension liabilities are the “elephant in the room” for municipal solvency. With the help of the data horses at the FRB Atlanta and other Reserve Banks we’ll keep an eye on employment levels.
States broke? Maybe they cut taxes too much;
There are two sides to a balanced municipal budget. Costs must match revenues. We generally hear about the cost side of the ledger as being out of balance and needing to be reduced.
McClatchy convincingly argues that municipal budget stress comes in part from the revenue side of the ledger. Years of tax cuts have helped bring budgets to the precipice. Chop chop your revenues and your budget falls down.
If state and local taxes were at the same percentage of state personal income as they were 40 years ago, you wouldn’t have all these budgetary problems,” says Timothy J. Bartik, senior economist at the Upjohn Institute for Employment Research in Kalamazoo, Mich.
In Texas, which faces a $27 billion budget deficit over the next two years, about one-third of the shortage stems from a 2006 property tax reduction that was linked to an underperforming business tax.
In Louisiana, lawmakers essentially passed the largest tax cut in state history by rolling back an income-tax hike for high earners in 2007 and again in 2008.
The fiscal mess called Illinois marches bravely onward:
Illinois Comptroller Judy Baar Topinka may be one of the strongest women in America as she faces the mountain of bills coming due at the state treasury. She warns in her office’s quarterly report:
Actions taken in the first three quarters of fiscal year 2011 have allowed the state of Illinois to gain revenue and avoid financial catastrophe in the short-term, but a massive bill backlog and substantial long-term challenges remain as it enters the final quarter
President Obama’s home state is drowning in debt. It’s a disaster for Illinois citizens. And they are not likely to receive any special federal support. Buckle up.
Good pictures are worth a 1,000 words:
Excellent maps from Data Pointed that visualize changes in population between the 2000 and 2010 census. These would be even more useful if we could overlay income levels and municipal debt levels. Mashup anyone?
And on the weak visualization front we have interactive charting on municipal population changes at the Wall Street Journal called Populous Metropolis. I’d rate this effort D-. Please try again.
Enron, Lehman and the City of Los Angeles?
Frank Keegan is the national editor for The Franklin Center for Government and Public Integrity. He writes at Watchdog.org and delves into the various ways that muniland masks pension liabilities with off-balance sheet magic. And the critical need for transparency.
Actually, governments lie about how big their actual pension debt is, and then hide the lies off the books. Double deception.
Other calculations put assets, on average, at about 50 percent of what is required, and show some states having to increase taxes and cut programs equivalent to about a third to three-quarters of 2008 operating revenues just to write those guaranteed pension checks. Pensioners get paid before bondholders. That is why bondholders worry.
If unfunded pension obligations were the only hidden debt states and municipalities racked up, they might be able to dance past a fiscal event horizon beyond which there is no return.
But politicians use a wide array of deceptions ranging from borrowing for stock market gambles to deferring essential capital projects and shorting catastrophe funds to hide how deep in the hole they really are.
Efforts at openness include a proposed public employee pension transparency act that would deny federal tax exemption for interest on municipal bonds issued by governments that hide pension liabilities.
Removing bondholder tax exemptions for lack of transparency would straighten out the problem real quick. Bring on the creative solutions!
Pockets of light in muniland;
Robert Hershey, Jr. of the New York Times does a nice flyover of the relative value of investing municipal bond funds or individual securities. Muniland has some very good values now due to the panic caused by “she who will not be named” and other factors.
It’s not investment advice so you still need to do your homework.
* Washington Post Writers Group: ‘Booster socialsim’ in Arizona
* LA Times: Muni bonds catch a break
* Bond Buyer: Could a New Gift Rule Shutter Some Financial Advisors?
* Vision of Humanity: United States Peace Index