States Are Broke and It’s Only Getting Worse
Matt | On 05, Dec 2010
If you thought your bills were mounting, you may want to take a quick look at your state and local governments. They should be up late in the midnight hour smoking cigarettes over their debts!
The New York Times ran a very eye-opening piece in today’s paper about just how serious municipal debt is for our government outside of Washington. Not only is the federal government trillions of dollars underwater in deficits, but states are even more cash-strapped.
The kicker is that by law states must balance their budgets on a yearly basis. The federal government does not have to. So, states are much more pressed to make ends meet (i.e., paying for services, salaries, pensions, and managing tax revenue). Some states, like Arizona, are considering the sale of state buildings just to bring in some extra money. Others are making cuts in Medicaid and pensions, where allowed by law, to make ends meet.
A lot of this debt is now coming to light because of funny accounting practices by states. It’s all coming home to roost because this is shaping up to look a lot like the financial crisis that started a few years back. The federal government is already cutting back stimulus and bailout money that has saved states in the past.
The reasons for all of this debt are pretty simple. Residents without jobs cannot pay taxes on income they aren’t making. People with homes in foreclosures usually aren’t paying their tax bills either. More needy residents have put a drain on states’ resources. The problems compound during a recession of this magnitude.
It’s looking pretty ugly, folks….