Video: The coming collapse in the state budgets

posted at 9:30 am on December 20, 2010 by Ed Morrissey

While you’re watching this excellent 60 Minutes story on the coming implosion in state governments, remember one key statement about halfway through this from Steve Kroft: the Great Recession didn’t cause this budget insanity, it merely exposed it.  The overspending has been going on for decades, especially in places like Illinois, California, and New Jersey, as well as ridiculous union contracts that have California spending more on its public employees than it does on the entire state-owned public university systems it operates.  Illinois has gotten so bad that landlords are evicting legislators from their business offices and police officers attempting to put gas in the tanks of their patrol cars have their state credit cards declined at the pump.

Chris Christie makes it clear when discussing the rail project he had to cancel.  “We don’t have the money,” Christie explains, “we literally don’t have the money.”  He’s not the only one, either (via The Right Scoop):

The “ride to the rescue” in Porkulus didn’t produce any improvement in behavior. Instead of either facing the music and making cuts in expenditures — especially in reducing bureaucracies — the states used the Porkulus bloc-grant funding to paper over their budget gaps and punt on the hard decisions. The federal government shouldn’t have borrowed money to provide that fig leaf the first time, and they won’t get an opportunity for Round 2 fig-leafism with a GOP House.

That leaves the states on their own to do what they should have done years ago — cut spending and press for pension reform in the public-union contracts. Will the states finally take control of their budgets? If they don’t, prepare for another collapse in the banking sector.


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Comments

The Republican house won’t bail them out but Bernanke will.

xrayiiis on December 20, 2010 at 12:38 PM
All 50 states? Plus the cities that default?

Jenfidel on December 20, 2010 at 1:19 PM

First come first serve. They will spend until it is impossible to do so anymore.

xrayiiis on December 20, 2010 at 1:28 PM

In the cavalcade of governors toward the end, I wonder how many were from red states.

Kafir on December 20, 2010 at 1:29 PM

If we end up bailing CA out after that slap in the face, I’m gonna have a conniption.

forest on December 20, 2010 at 10:05 AM

The federal government has no money to bail itself out much less California. Of course that won’tstop them from trying.

darwin on December 20, 2010 at 10:24 AM

Yep, they will borrow the money to bail them out, and then put it on my kids’ tab. That pisses me off alot more than it would if the Feds actually had the cash and wasted it on something like bailing out states that aren’t even pretending to try to straighten themselves out.

forest on December 20, 2010 at 1:31 PM

Will the states finally take control of their budgets? If they don’t, prepare for another collapse in the banking sector.

Nope! They’ll whine, b!tch, and bellyache for fed bailouts. When that doesn’t work, they’ll roll out new taxes. If you chew gum…you’ll be taxed. If you blink more than twice a day, you’ll be taxed. Sounds silly I know, but I really don’t think libs are far from doing things like this, to justify the way they do things.

As bad as it is, they’ll continue on the same path, hoping for that different result.

capejasmine on December 20, 2010 at 1:57 PM

Another quick fix–with unemployment as high as it is, and plenty of quality people looking for work, all public union affiliated positions should have salaries reduced 50%, and benefits reduced to a simple 401K match up to 5%.

When the yowling starts, and they all go on strike, eliminate half the positions, and hire permanent replacements for the remaining half. The rest can go pound sand and look for honest work like the rest of the country.

AttilaTheHun on December 20, 2010 at 2:02 PM

They will bail them out with printed money until it all collapses. Bush allowed run away spending during good times. Obama is spending us into worse times while promising that spending will bring good times. Meanwhile it’s already coming down on our heads.

One only need look to Reagen to know that the only proven method of increasing revenue in a down economy is to grow it through tax rate cuts, capitol gains cuts and spending cuts. We are so deep in the hole that the cuts now must come from entitlements. Not only do few have the courage to make the necessary cuts, this administration is expanding entitlements and accelerating us toward the cliff.

I pray we can stop it, but it may be too late, especially since those that know how to and want to are powerless to do much about it.

Quit making fun of the Tea Party and Glenn Beck and Fox News and Art Laffer and Steve Moore and Steven Schiff, etc. They are right and folks are starting to realize it, although 60 Minutes claims that “no one is talking about it.” I told you so is going to be little consolation when we crash hard. Will anyone stomp on the brakes please? Anyone?

Ordinary1 on December 20, 2010 at 2:03 PM

All 50 states? Plus the cities that default?

Jenfidel on December 20, 2010 at 1:19 PM

Thats all 57 states.

BobMbx on December 20, 2010 at 2:11 PM

I’m of the opinion that Federal bailouts of the states are going to be less certain than some think. Voting to bail out CA, or IL carries a significant backlash potential from the voters at home for each representative not from one of those states. Those representatives, in order to support a bailout without fearing retribution from the electorate, will need to demand structural changes on the states receiving bailout funds which, I’m not sure those states are prepared to accept. I think it could end up in a stalemate.

State bankruptcies are, I suspect, a non-starter because there isn’t any legal precedent to follow for such an action and there are some major legal concerns about how a state bankruptcy would be administered which would need to be sorted before any actual bankruptcy proceeding could commence.

I suspect, that at least some of the states are more likely to repudiate at least part of their outstanding debts and negotiate with their larger creditors for “hair-cut” repayment terms on the balance of their debts. Some states might even attempt to pull off some straight swaps of assets for debt relief. Debt repudiation is the most straightforward approach, but the downside is that a state repudiating debt won’t be easily able to borrow money for a decade or two following repudiation.

martin.hale on December 20, 2010 at 2:23 PM

The Republican house won’t bail them out but Bernanke will.

xrayiiis on December 20, 2010 at 12:38 PM

And there’s a reason to bail out the states, not that it’s a good idea on principle. If the states default on their debt payments (many muni and state bonds are owned by foreign governments), it could have some pretty nasty consequences. You could see the start of a panic among foreign investors that leads to a run on the dollar, and a major meltdown of US wealth including individual, household wealth, or a massive downgrade of federal creditworthiness, leading to a huge and systemic risk to US liquidity as lending costs skyrocket.

The federal government and US voters can start taking action by passing legislation that allows states to tax state pension benefits. Retired state employees earning $100k for life should e force to accept cutbacks, in the form of taxes, like everyone else. There’s no other ‘legal’ way to reduce pension outlays that are bleeding state budgets.

bayam on December 20, 2010 at 2:25 PM

In New Jersey, many of us hope is that this will spur local efforts by residents to control the deficit-creating fiscal irresponsibility on the part of our local governments as well.

For example, I live in a small city of 3,700 nestled along the shore of the Delaware River. Our population, as well as our population of school-aged children, has dropped somewhat significantly over the years.

But property taxes and fees, spending and local borrowing have all climbed, and have been out of control for a while.

After Jim McGreevey was elected Governor in 2001, and the State went on a spending spree, local governments, including ours (all Democrat), began mirroring the McGreevey fiscal model. His deputy Chief of Staff at the time is our Mayor’s wife.

McGreevey personally spent our New Jersey Transportation Trust Fund (TTF) right into the ground. It, along with federal transportation money, was the primary source of capital for any new road and bridge projects, including much needed repairs.

With just a few years of McGreevey in charge, no new projects of any kind could be undertaken by the TTF. None. ALL new transportation revenues (largely from fuel taxes) became earmarked for debt service by the time Jon Corzine became Governor in 2005.

Jon was supposed to be the financial genius who would solve our state’s fiscal woes! But Jon’s basic problem was that he was unwilling and politically unable to do that. His base of support comprised the biggest offenders statewide.

Borrowing, income tax hikes for the “rich” and cigarette suit revenues eventually became the only ways to get any “new money,” along with a stillborn effort by corzine to put everything on the backs of road toll payers.

A state law suit also finally settled the issue of the obviously improper use of borrowing to meet current budget expenses.

But the locals, meanwhile, had taken the McGreevey model and set it to work on their levels. In 2002, for example, in my small town town, the annual debt totalled a little under $4.5 million dollars. Today (2009 numbers), the annual debt for my town is WELL OVER $22 million dollars.

In just 7 years, the accumulated debt of our little city has increased five-fold!

So, what Chris Christie is doing on the state level will also have to be addressed as well through exposure and struggle on the local level, in towns statewide that as recently as a few years ago, were relatively stable.

The old NJ urban areas, of course, are still hugely dependent on the State, as they increasing have been since the late 1960’s.

This fight Chris Christie has taken on, has really just begun!

So, no . . . you cannot have Chris Christie. Not yet. we’d like to survive first.

Trochilus on December 20, 2010 at 2:28 PM

So we’re one of four states with a surplus. Of course, we’re far too heavily taxed IMO (as the one of the poorest states in the country, it seems unreasonable for our tax burden to be so high) so that accounts for some of it, and I’m sure our blue state friends will chime in and b!tch about how we take more in federal dollars than we pay in, but not to be overlooked is the fact that unions are virtually nonexistent here, either in the private or the public sectors. I think that speaks volumes.

So does thinking ahead and saving for a rainy day: I notice Alaska is also on the list of states in the black. You know who that benefits? ;o)

NoLeftTurn on December 20, 2010 at 2:58 PM

NoLeftTurn on December 20, 2010 at 2:58 PM

New Jersey pays among the highest per capita taxes in the nation, and has absolutely the lowest return on dollars paid in to federal coffers of any other state in the nation.

New Jersey gets back only $0.61 . . . that’s 61 cents for every dollar paid in in federal taxes.

We used to be 49th, but we have since slipped to last place.

Gee, thanks Lautenberg & Menendez!

Trochilus on December 20, 2010 at 3:21 PM

So what states are actually fiscally solvent? I think Utah is, any others?

Vanceone on December 20, 2010 at 3:53 PM

Actually although I like Christie, I don’t want him to run for President but to show how to turn around a deeply troubled State. NJ is needed to show how to stop the bleeding then other States, like VA and IN, can show how to shed government functions heading towards a balanced budget and TX can demonstrate how to foster a positive business climate.

Basically it comes to hitting the public sector unions or decertifying them, reducing the size and amount of government functions, cutting staff, cutting pensions, selling off parts of the government that are no longer needed, and stopping the bleeding of Medicare with its nebulous ‘help’ that rarely shows up and is never cost effective.

The problem with a ‘social safety net’ in the hands of government: it is inefficient, caters to unions and large businesses, is not fully paid for, has high overhead, and is a debt burden that isn’t fully funded with those services ‘expanding’ over time. In trying to help the ‘needy’ the absolute destitute and unable to cope with the world are left on their own and the ‘needy’ never get enough ‘help’ to actually get them through in life and causes dependency. That has got to stop.

We the people are to care for our poor and sick, government is there to prevent lawlessness, not to ‘uplift’ society but to ‘protect it’ from those who would harm it. These positive functions are supposed to be ours, as a people, not handed off to government. It makes us stronger when we do give to the poor and charitable institutions and, instead of a hand-out, we give a meal to teach what sacrifices are necessary to help the ‘needy’ not only to ourselves and our children but to the ‘needy’ who are in need of our help more than the hand-out.

Or have we forgotten these lessons so hard won by our grand parents and great-grand parents?

ajacksonian on December 20, 2010 at 4:22 PM

You know…

States all across this country, especially California, are sitting on Trillions of dollars of oil, shale, coal, and other energy resources that they could harvest and sell to become solvent overnight.

… It would provide thousands of jobs, boom the economy, and add to our national security by becoming less dependent on foreign sources of energy.

Releasing regulations and red tape would cause an explosion in entrepreneurship, innovation, and more efficient ways to get at the energy…

But we can’t have THAT, now can we…?

Seven Percent Solution on December 20, 2010 at 4:31 PM

The House better have the guts to not give $ to the states. We must stop borrowing/spending.

Paul-Cincy on December 20, 2010 at 4:34 PM

This fight Chris Christie has taken on, has really just begun!

So, no . . . you cannot have Chris Christie. Not yet. we’d like to survive first.

Trochilus on December 20, 2010 at 2:28 PM

What he said.

russcote on December 20, 2010 at 4:36 PM

great story Ed. thx.

ted c on December 20, 2010 at 4:38 PM

The problem with a ‘social safety net’ in the hands of government: it is inefficient, caters to unions and large businesses, is not fully paid for, has high overhead, and is a debt burden that isn’t fully funded with those services ‘expanding’ over time. In trying to help the ‘needy’ the absolute destitute and unable to cope with the world are left on their own and the ‘needy’ never get enough ‘help’ to actually get them through in life and causes dependency. That has got to stop.

ajacksonian on December 20, 2010 at 4:22 PM

Right on, right on, right on! ;-)

The problem is that there are too many of the wrong people in elected office who would use the compulsive power of the government to force citizens to fund a statist generating/sustaining hammock in the disguise of a social safety net. It is wrong, immoral, and will expedite the nation’s slide into the financial abyss.

When a candidate running for the Presidency in 2012 is able to convince a solid majority that it is their best interest to stop voting for anything that supports the premise of “free stuff paid for by other people,” we might actually have a chance to save the US as we have known it.

itzWicks on December 20, 2010 at 4:40 PM

Saw a segment on Fox this morning about pensions for school teachers in New York. They are guaranteed an annual pension equal to 70% of their salary after 35 years of teaching. So if they earn $100,000 the last year they are working, they will receive a pension of $70,000 a year and can retire in their mid-late 50s. And, their pension is not subject to local or state taxes.

What a sweet deal for people who work only 9 months out of the year and graduate students who can’t read, spell or do simple math. But they can chant “Obama is great, mmmm ….. mmmm ….. mmmmm”.

Thank you legislators. Thank you unions. You have done a bangup job of destroying our country from within. May your states end up with guvs like Chris Christie who tells all of you to pound sand and settle for the kind of dismal pensions found in the private sector.

fogw on December 20, 2010 at 4:49 PM

forest on December 20, 2010 at 1:31 PM

They’re already borrowing money, mostly from the fed.

dogsoldier on December 20, 2010 at 4:53 PM

Seven Percent Solution on December 20, 2010 at 4:31 PM

You are so right. We need Conservative Super Majority to make it so. Let’s pray it happens in time.

Ordinary1 on December 20, 2010 at 4:54 PM

How much land do the states own in the form of parks and other comparable areas that aren’t part of their core tasks as a State government?

If they go bankrupt, do they auction off assets to pay debt?

I’m honestly not sure how this would/could work; but it’s not like they’d auction/sell the State Congressional buildings first… I’m not sure how they go about raising funds once the “borrow forever” plans ends.

gekkobear on December 20, 2010 at 5:23 PM

When a California city manager can make $800,000 a year there is a serious problem.

mixplix on December 20, 2010 at 5:27 PM

Sell State land for State money woes and give Federal land away to folks who won’t get their benefits to solve Social Security woes.

txmomof6 on December 20, 2010 at 5:30 PM

How long before the whole house of cards collapses?

lewis1940 on December 20, 2010 at 5:33 PM

How long before the whole house of cards collapses?

lewis1940 on December 20, 2010 at 5:33 PM

It’s happening right now.

Rebar on December 20, 2010 at 5:42 PM

States go bankrupt. Federal government steps in and takes over one by one under the pretense of bailouts. Fast forward. No more states. Just one big totalitarian central government. Oh and BTW, that Constitution thing? Suspended indefinitely. No longer workable in this “National Security” crisis. Game over.

infidel4life on December 20, 2010 at 6:04 PM

The end deferred, but it will end.

tarpon on December 20, 2010 at 6:21 PM

I was nearly on the floor laughing at the look of shock and incredulity on the face of kroft. I’d bet any amount of money the guy lives in new jersey or new york, has never voted for a fiscal conservative (let alone a republican), will never vote for a fiscal conservative and will practice his best propaganda over the next two years to help the fascists hold the White House. Liberalism is truly a mental illness.

peacenprosperity on December 20, 2010 at 6:22 PM

And, their pension is not subject to local or state taxes.

And they will retire in the South because the cost of living is so high, vote for the same type of scum that gave them the sweetheart deals that destroyed thier states and then ruin ours.

peacenprosperity on December 20, 2010 at 6:26 PM

these guys

http://usdebtclock.org/2015-current-rates.html

have added a lot since i’ve been there last. now you can see each state’s debt…and peer into the future on the national debt

and here’s your cheerful summary from zerohedge:

http://www.zerohedge.com/article/245-trillion-us-national-debt-144-trillion-unfunded-liabilities-2015

there’s only a couple of options. restructuring, repudiation, and inflation.

some form of pension repudiation will sometimes happen (SS, Medicare, healthcare)…a lot of inflation..the power of 10 percent per year can work wonders. we do have a small problem with colas…but i’m sure someone can figure something out.

of course all this give enormous power to the central government…picking winners and losers, varying the value of your savings…i’m sure all this gives the elites a thrill up their legs

r keller on December 20, 2010 at 6:44 PM

peacenprosperity on December 20, 2010 at 6:26 PM

Right on, I’ve seen it happen to NH and Vt. In this forsaken state (RI) the beat goes on between Dems. and unions. Noone will conceed a nickle to help save this joint. What is worse, is the general elections find ALL bond measures passing with wild majorities.

IT’S THE FAULT OF THE POPULACE!!!

FOWG1 on December 20, 2010 at 6:56 PM

Basically it comes to hitting the public sector unions or decertifying them, reducing the size and amount of government functions, cutting staff, cutting pensions, selling off parts of the government that are no longer needed, and stopping the bleeding of Medicare with its nebulous ‘help’ that rarely shows up and is never cost effective.

The problem with a ‘social safety net’ in the hands of government: it is inefficient, caters to unions and large businesses, is not fully paid for, has high overhead, and is a debt burden that isn’t fully funded with those services ‘expanding’ over time. In trying to help the ‘needy’ the absolute destitute and unable to cope with the world are left on their own and the ‘needy’ never get enough ‘help’ to actually get them through in life and causes dependency. That has got to stop.

We the people are to care for our poor and sick, government is there to prevent lawlessness, not to ‘uplift’ society but to ‘protect it’ from those who would harm it. These positive functions are supposed to be ours, as a people, not handed off to government. It makes us stronger when we do give to the poor and charitable institutions and, instead of a hand-out, we give a meal to teach what sacrifices are necessary to help the ‘needy’ not only to ourselves and our children but to the ‘needy’ who are in need of our help more than the hand-out.

Or have we forgotten these lessons so hard won by our grand parents and great-grand parents?

ajacksonian on December 20, 2010 at 4:22 PM

+1

tartan on December 20, 2010 at 7:56 PM

Seven Percent Solution on December 20, 2010 at 4:31 PM

The sad and terrible thing is the government is taking land away from development and adding regulation to make existing development harder. Fire them all and eliminate the EPA. It was started by executive order anyway.

gitarfan on December 20, 2010 at 7:59 PM

The coming collapse of State budgets……

……followed by the coming seizure of Private property.

The states/Fed Gov will NEVER be without power/ ability to dole out the goodies.

PappyD61 on December 20, 2010 at 8:18 PM

NJ, armed with Christy, is so far ahead of California, where we are diving deeper into liberalism everyday and soon will have Governor Moonbeam back in charge. There will be shock and awe when California hits the wall.

GaltBlvnAtty on December 20, 2010 at 8:36 PM

When a California city manager can make $800,000 a year there is a serious problem.

mixplix on December 20, 2010 at 5:27 PM

Anybody good at Sim City?

Ordinary1 on December 20, 2010 at 9:25 PM

According to Michelle Obama, the real crisis is fat kids..

TN Mom on December 20, 2010 at 9:51 PM

Ed a much quicker & faster loading link

instead of the crappy CBS player is HERE:
http://www.youtube.com/watch?v=nP3b0_fnPxQ

Okay onto my thoughts for insolvency:

1.)

Seven Percent Solution on December 20, 2010 at 4:31 PM

Perfect idea. The FIRST EO issued by the hopeful Republican President in 2012 should be to ABOLISH the EPA, CPSC, & OSHA. All created by Nixon’s EOs.

2.) Allow for an orderly process of State Bankruptcy whereupon the one or several State(s) being unable to discharge their debts and Financially Insolvent cease to exist as States any longer and revert to Territories to be Administered by the Federal Government until such time as they can once again be Financially Solvent. So pretty much-here’s your taxpayer bailout but now-no welfare, no “bennies”, no Federal Funding of Any Kind until that bailout loan is repaid In Full. Also no voting in any Federal Election and any members of the House and Senate immediately become Non-Voting Members of that body for the duration of their term and the One or Several States cease to have members in that body as of the next Federal Election.

3.) Please buy (or at least READ) Broke by Glenn Beck. It is very eye-opening.

4.) Please stop demonizing teachers in general, go after their UNIONS specifically. Thanks. It makes you (and the rest of us) look like complete a-holes.

SgtSVJones on December 20, 2010 at 10:16 PM

the downside is that a state repudiating debt won’t be easily able to borrow money for a decade or two following repudiation.

martin.hale on December 20, 2010 at 2:23 PM

Actually, I think that’s the upside.

RegularJoe on December 20, 2010 at 10:19 PM

So what states are actually fiscally solvent? I think Utah is, any others?

Vanceone on December 20, 2010 at 3:53 PM

Yes, Utah is solvent, I can attest to that.

scotash on December 21, 2010 at 2:59 AM

So the question becomes, will the government be ready for when I come to collect the money they borrowed from me and are unable to pay back?

withmanitisimpossible on December 21, 2010 at 6:56 AM