Yesterday I wrote about local governments spending $100 billion a year on police, but I realize that I didn’t provide much context for how that fits into overall spending. Here are a few datasets from the U.S. Census Bureau’s 2011 Annual Surveys of State and Local Government Finances to provide a framework.
I’m not sure anyone in muniland loves numbers more than the members of The National Association of State Budget Officers (NASBO). They are the geek squad who oversees the influx of tax and other government revenues. It’s the daily state money show.
One of the best muniland research teams, Blackrock, is out with its State of the States and Local Governments report. If you have time to read the 12-page report, you will get a very balanced roadmap of the challenges that municipal governments are facing.
There have been hundreds of articles written about how a number of U.S. states have unfunded pension liabilities. These massive shortfalls have been researched by numerous groups, and although they differ on the size of the shortfalls, they all agree that pension liabilities are creating a troublesome drag on many state budgets. The Pew Center on the States is one of the first groups to dig down and analyze the condition of city pension funds and the promises made for retiree health benefits. Their new study, A Widening Gap in Cities, reports a mixed picture.
California narrowly averted its own fiscal cliff last week when voters approved a state ballot issue – Proposition 30 – that raised income and sales taxes. Income taxes will increase 3% for seven years on those earning over $250,000, and a supplemental 0.25% sales tax increase will take effect four years. Prop 30 is hoped to generate $8.5 billion in annual revenue and cover about half of the state’s deficit. The other half will be made up through budget cuts.
Much as the Simpson-Bowles report aspired to be the foremost guide to reducing the federal deficit, the Volcker-Ravitch report on the state budget crisis that was released yesterday hopes to serve a similar purpose for state government spending. Paul Volcker, the former Fed chairman, and Richard Ravitch, who helped New York City work itself out of bankruptcy, led the State Budget Crisis Task Force, the group that produced this report. The task force also included two former U.S. Treasury Secretaries as members. The bottom line of the report is that there is less money to go around and that states should become better managers of the shrinking economic pie:
For openness in finances, debt management and budget process, Massachusetts is the gold standard among states. The legislature and executive branch have collaboratively embraced a five-year budgeting process and committed to sharing the results with taxpayers and the public. Because of the state’s efforts to reach out to the investing community, I predict that its transparency will lead to lower borrowing costs and more stable funding sources in the future. The state is rated AA+ by credit rating agencies for creditworthiness, but I’ll assign it the highest rating, AAA, for transparency.
New Jersey Governor Chris Christie got a lot of media attention this week when he announced that Warren Buffett “should just write [the government] a check and shut up,” on CNN’s Piers Morgan Tonight. His great one-liner obscured the more profound question he was being asked, which was: Shouldn’t the wealthy pay a higher proportion of taxes? Beliefs about progressive taxation vary widely, but income taxes at every level of government are structured so that the wealthy pay a higher proportion of taxes.
Government has expanded tremendously at every level in the United States over the last several decades. Expenditures have risen; constituencies have gained new subsidies; and loads of debt has been taken on. It’s unstable and it’s time to go on a diet.