John Hood isn?t the only one spending time these days documenting American state budget crises; The Atlantic?s Megan McArdle tackles the topic in the magazine?s latest issue.
Such fiscal problems have been building for a long time. Politicians love to bestow goodies on their constituents, especially retirement benefits for public-sector workers?largesse that some future sucker ultimately has to pay for. Decades of this kind of behavior have left a lot of states with growing structural deficits. Many states have tried to paper over these shortfalls by issuing bonds or raiding special funds such as pensions; as a result, the overall debt of state and local governments has risen from $1.7 trillion in 2004 to $2.4 trillion in 2010, a 40 percent increase. The unfunded liability of the pension systems should also be added to that figure; according to economists Joshua Rauh and Robert Novy-Marx, that liability is more than $3 trillion, just for the states alone. Even when tax revenues eventually recover, this problem will not go away.
McArdle even turns to a well-known expert for commentary:
In 1933, despite cuts, Arkansas could not stay solvent; it defaulted on $146 million worth of transportation bonds, a traumatic process that haunted the state for years. That was the last time a U.S. state defaulted on its bonds, but some economists are starting to worry again. ?In California and New York,? says John Hood of the John Locke Foundation, ?the fiscal crisis flirts with bankruptcy.?
