The Double A Lounge

I don’t think it’s any secret that many state governments around this country are in trouble. They have spent many decades on spending more than they should and now a true test has come forth. Since a state relies on income from sales and property taxes, the means by which a budget is created often rests on projections about these sources of income. A foreclosed home isn’t going to produce much for property tax income. So many people don’t have jobs they won’t be spending as much so there goes the projections for sales tax revenue. Add to that gridlocked legislatures and fiscal commitments that were shepherded through during the good times then it’s not hard to see why there is so much trouble now.

Times are not good anymore. Many states had a yearly budget fight even when times were good. Everyone thinks their program should become some kind of indestructible monolith that no one can touch from now till the end of time. We have all these financial commitments that were put in place well before this economic downturn happened. Look at things like pensions and medical coverage for those who once worked for the state. Very generous pensions and full medical coverage. All of that costs money and lots of it. Multiply those costs by the number of people who get it now or will get it and we get some huge numbers.

If anyone was offered a good pension and free medical for their retirement, who would turn that down? Not me, that’s for sure. If you already have it, then you won’t be too thrilled if it’s changed to require you to pay into it. I certainly wouldn’t be. I really wonder what people were thinking when they designed these things for state workers. One defense could be that this was the best way to ensure that the state could hire and retain the very best. If you could compare the quality of employees employed by the state versus the private sector, it would be very interesting to see what the difference would be. There are plenty of quality employees in the private sector too and they certainly don’t get the same free ride for their retirement. For some reason, public employment is treated as a public service instead of the employment that it is.

So now there is all this talk about having constitutional conventions. Indeed, many state constitutions do need to be updated or completely redone. The recent legislative crisis in New York State is a great example. California is another state that badly needs to have their state constitution redone. If states like New York and California can’t get their state budgets in order, how are they going to get the state constitution right? The process for getting it done would need to be as depoliticized as possible. That will be a very tough task since so much is at stake.

Some good reading on these topics:

Economist.com – California: The Ungovernable State

Economist.com – Public Sector Pensions: Unsatisfactory State