Probably the top reporter/commentator on cities and states is Neal Peirce, who now describes the new Volker-Ravitch State Budget Crisis Task Force report on the condition of state finances. It makes for grim reading.
In a time without the dangers the economy as a whole faces, this might be front page headline material. It still should be.
"States' pension funds are already seriously underfunded and unlikely to produce the high yields (6 to 7 percent yearly) predicted before the recession. Plus, states and localities, without any reserve funds for the purpose, have promised workers hundreds of billions of dollars worth of retirement health benefits.
"Today Medicaid is states' biggest budget challenge. The program has already surpassed state outlays for K-12 education and is likely to grow somewhere between 8.1 percent a year, if the health care reforms of the Affordable Care Act are implemented, and almost as rapidly, 6.6 percent yearly, if they aren't."
Mr. Peirce wonders why the report failed to consider the solution of freeing cities to raise property taxes to whatever levels they like. He also suggests new taxes on professional services and print and Internet advertising
The trouble is that the unmanageable burdens of government cannot be shifted to private persons and families without becoming an unmanageable burden for them. Private households have been reducing spending and debt ever since the recession began in 2008. Governments just keep on growing. Would it be too much to ask them to cut back to the budget levels of the pre-recession years? Were we so badly serviced then?
Of course, the service levels of, say, 2006 or 2007 were fine, but salary and pension funds, plus Medicaid, just keep expanding. I wonder if all the liberals who want more funds for schools and universities realized that they were done in by the successful demands of other liberal interest groups, including the public employee unions.
Then there is the demographic challenge that Peirce describes. That is not new, but its magnitude is. Who is going to pay for all the old timers as their numbers more than double? We have highly skilled seniors graduating into retirement (and Social Security) while the bottom of the income ladder is broken for the 22 year old graduates trying to get employment for the first time. How can they support an even larger cohort of elderly folks when they are sitll living in their parents' basements?
The only answers--again, other than bankrupting the private sector in the vain hope of rescuing the public sector--are reduced federal committments and spending, on one hand, and a pro-growth agenda for public policies on taxes, regulation, litigation and energy production.
Neal Peirce has been a visionary on state and local economies and a champion of government reforms for a half century. Generally he also has supported increased government, however. His sober account of the financial calamity facing the states is an indication that prudence must now become the vision of the future and the most important of government reforms.
