Monday, August 2, 2010

We're far from alone when it comes to fiscal chaos

Every summer, members of the Governmental Research Association (GRA) - an association comprised of organizations devoted to government research from across the United States - get together to exchange research ideas, discuss topical issues and recognize outstanding research products.

It should come as no surprise that at this year's conference, held in New York City last week, a primary topic of discussion was the fiscal difficulties facing state and local governments.

Among the many sessions that focused on those difficulties was a luncheon address by New York Lieutenant Governor Richard Ravitch that described the political dimensions of that state's budget challenges; a panel discussion on state finances with budget officials from New York, New Jersey and Connecticut, as well as an official from the Standard & Poor's bond rating agency and the vice president of the California Taxpayers Association; a panel discussion on city finances with a group of officials and experts from New York City, Philadelphia and Boston; and a session on the "roots of dysfunction" with a panel of researchers from New York, Chicago, Louisiana and New Jersey.

Those sessions and discussion with fellow GRA members revealed several common themes, which might sound familiar to those who have followed recent budget deliberations in Madison and locally:

  • Stimulus dollars were enormously important in staving off deep budget cuts and/or tax hikes in 2009, but state and city governments now are alarmingly ill-equipped to deal with the loss of those dollars, especially given that the expected economic recovery has not meaningfully materialized.

  • Unfunded pension and retiree health care liabilities are huge problems virtually across the board, yet very little can be done to reduce their fiscal burden in the short-term because of legal protections.

  • Elected officials are maddeningly unwilling and/or incapable of responsibly dealing with their complex and difficult budget challenges. A researcher from Rutgers University, for example, lamented the unwillingness of legislators in his state to acknowledge and use fiscal data, while a New York budget official cited one anonymous legislator who publicly decried the irresponsibility of raising taxes to fill the state's huge budget hole while pushing behind the scenes for pork barrel spending in his district.

  • There is a feeling among government insiders in many states (and most notably, California and New York) that the political class has given up - they know the problems they face demand difficult and unpopular solutions, so they have resorted to posturing and kicking the problems down the road for someone else.

Despite the pessimism that permeated these sessions, the "misery loves company" dynamic certainly came into play. Indeed, while we tend to think of our state and some of our local government budgets as hopelessly imbalanced, it was perversely satisfying to realize there are others in worse shape.

California and Connecticut, for example, are being dragged down by immense unfunded retirement liabilities, while Wisconsin's state retirement system is in reasonably good shape. And Philadelphia and New York City are just as dependent on state aids as Milwaukee, yet their capacity to weather continued state cuts is far inferior given the huge reductions in personnel and depletion of reserves they have already implemented.

An interesting perspective also emerged, albeit from an unlikely place. State leaders in New Jersey - widely known as a hotbed of irresponsible budgeting - instituted a strict property tax levy cap as part of an initial package of state budget cuts, which also included sharp reductions in state aids to local governments. Instead of leaving local elected officials to fend for themselves, however, state officials have engaged them to identify the reforms in state law they would need in order to live within the cap without slashing valued services. A scenario in which state and local officials here would attempt to work together in similar fashion certainly would be refreshing.

Overall, it's clear that state and city budgets across the country are in a state of disarray. At the GRA conference, the hope was that strong leadership based on solid data and sound research would emerge to address those challenges.

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