MuniLand

Conservatives are working in legislatures across the country to eliminate or reduce state and local tax rates with the stated purpose of promoting job creation. These legislative efforts have received support from the American Legislative Exchange Council (ALEC), an ultra-conservative lobbying group. Oklahoma Governor Mary Fallin is the latest beau ideal for ALEC’s fiscal austerity drive as she leads the charge to eliminate her state’s income tax. She writes in the introduction to ALEC’s latest edition of “Rich States, Poor States”:

I have been committed to these fundamental principles for years, and we are seeing incredible results because our legislators have had the courage to stand with me in support of conservative governance. Oklahoma’s economy is outperforming the national economy, and our success stands in stark contrast to the record of dysfunction, failed policies, and outrageous spending that occurs in Washington, D.C. Oklahoma could teach Washington a lesson or two about fiscal policy and the proper size and role of government – and so could the tax and fiscal policy reforms espoused by ALEC.

I’m all for state and local governments shrinking their workforces and learning more efficient ways to deliver government services. There is nothing sacred about the current level of the government’s labor force, especially at a time when the non-public sectors of the society are continuously seeking to deliver goods and services with fewer economic inputs. It is only fair that we ask similar efforts of the public sector.

But as Governor Fallin excoriates the federal government for “outrageous spending,” I think she needs to be made aware that a large portion of federal spending is flowing to social entitlement programs that support enormous parts of her state’s economy.

As seen in the chart above, each Okie paid an average of $4,685 to the federal government and received $6,934 on average in federal spending in return. Oklahoma received $7.9 billion more in federal funds than it paid to the federal government, and a large portion of those funds came from wealthier, more liberal states like California, New York and New Jersey. The excess transfer from the federal government was larger than the $6.4 billion in state taxes that Oklahoma collected in 2004.

Today both USA Today and Bloomberg reported a study from Professor Robert Brame of the University of North Carolina claiming that one in three people under the age of 23 had been arrested at least once. These shocking findings, based on self-reporting surveys the Bureau of Labor Statistics conducted with youths on their law-enforcement histories, represents a huge jump from 1965, when one in five under-23-year-olds reported that they had been arrested. Has the nation gone wild, or have the police gone wild arresting young people?

U.S. Census Bureau data shows us that the size of the combined 15-24 age group has remained fairly constant as the nation gets bigger and older. Meanwhile, expenditures for police protection at the local, state and federal level have sky-rocketed 125 percent in constant-dollar terms between 1982 and 2002, according to a report from the Bureau of Justice Statistics (page 5, table 2).

The Bureau of Justice Statistics report also details the rise in employment for local police officers, from 590,463 in 1982 to 888,321 in 2007 — an increase of 43 percent (Page 8, table 11). To put that into context, U.S. population rose 36 percent between 1980 and 2010.

A quick and dirty way to evaluate the credit quality of a borrower is to look at his debt load relative to revenues. It’s not a perfect measure — it doesn’t take into account whether that debt is repaid over many years or whether it’s all due at once, for instance — but it suggests why investors view some states as better risks than others. I’ve made a set of charts so we can compare debt loads and revenues for the states in a simple, visual way. The amount of debt load is indicated by the full height of the bar. (Please note the vertical scales of the charts vary. California is the highest borrower by far.)

I’ll do another series of charts that includes pension liabilities and other post-employment benefits, and I’m warning you now: that set will look scary. Here is a link to these data and charts in interactive format. Feel free to embed and use them elsewhere (crediting Reuters of course).

Tax collection data is from the U.S. Census Bureau and debt load data is from Standard and Poor’s.