State Budget Crisis Report (SBCR): Introduction

A valuable report (with a 28-page summary), that I expect will yield a series of blogs, was released yesterday with this introduction:

State finances are not transparent and often include hidden liabilities as well as rapidly growing responsibilities which are difficult to control.  While state revenues are gradually recovering from the drastic decline of the Great Recession, they are not growing sufficiently to keep pace with the spending required by Medicaid costs, pensions, and other responsibilities and obligations.  This has resulted in persistent and growing structural deficits in many states which threaten their fiscal sustainability.

Major fiscal threats include:

•      Medicaid Spending Growth

•      Underfunded Retirement Promises

•      Eroding, Narrow, and Volatile Tax Bases

•      Impact of Federal Deficit Reduction

•      Local Government Fiscal Stress

In addition, budget gimmicks and inadequate reporting mask and encourage fiscal problems, and make them more difficult to solve. While none of our states is on the brink of financial collapse, these threats loom large.

All true, but……

Based on my experience with the fiscal affairs of Union County, New Jersey IS on the brink of financial collapse.

Also, where this committee seems to be deficient is in ignoring a major cost-driver and the key reason we are doomed.  For example, on page 2 of the summary they aver that:

Pressures on local governments, caused by the weak economy and cuts in state aid, are constraining education spending, law enforcement, aid to the needy, and the institutions that make up the culture of our cities.

All true but they would have had more credibility in my eyes had they continued:

In addition, campaign donors are receiving fewer and lower no-bid contracts, there are less sinecures to dispense, and it’s getting increasingly hard to backdoor pension and health care benefits to political operatives that you make legislative aides.

Perhaps they didn’t put that part in because it’s not true but I suspect the ivory tower denizens of this task force don’t go to a lot of freeholder meetings or come across a lot of dodgy audits in their travels and readings which is why their report is a useful summary of the lesions but blind to the agents of our cancer.

6 responses to this post.

  1. Posted by Anonymous on July 18, 2012 at 1:19 pm

    John, did they make the 1.1 billion dollars into the pension plan this year?

    Reply

    • It’s in the 2012 budget, as far as I know, but that’s a blip. They are paying out about $9 billion a year and the honest value of their assets is way below the $70 billion when you consider the ‘alternative’ (made-up value) investments they have in there.

      Sure they get employee money and the localities make their full (actuarially determined which means it’s still understated) payments but the trajectory of this plan is down, and fast.

      Reply

  2. Posted by Anonymous on July 18, 2012 at 3:06 pm

    wont they be paying out less as the years go by because of the pension reform?

    Reply

    • The only real reform was the COLA elimination and if that gets overturned in the courts, as it logically should, there would be no savings and likely back-payments due that will speed the demise since contributions are being further downsized on the presumption that COLAs are gone.

      Reply

  3. Posted by MJ on July 18, 2012 at 5:36 pm

    Let’s just call it like it is–it is only a matter of time before there is a collapse of some sort. Peter Schiff was talking about that today. All of the made up stories and made up numbers in the world can’t trump the truth. Those who have been depending on pensions and health benefits to sustain them through retirement are in for a real wake up call. Perhaps they will get pennies on the dollar. They are fooling themselves into belieiving that this arrangement will go on forever. However, it is interesting that in spite of all of the information out there, there is no resistance from those already in the system to fight to restore it to sustainable levels. Taxes will be the death toll for NJ if the corruption doesn’t do them in first when the throat slashing begins for the fight over resources for the muckity mucks.

    Reply

  4. When contributions diminish funds will not longer be available to retirees. The Feds cannot supplement the pensions since they have no money and the states certainly have no money. If private sector jobs are not created in the next four years, and this administration is holding back the creation of jobs due to their tax policy towards small business, then retirees will be cooked and have to accept smaller pensions and benefits.

    Reply

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