Abuse behind fiscal crisis

Everyone knows state governments are swimming in red ink, but how deep exactly is the fiscal hole?

The nonprofit watchdog group State Budget Solutions has conducted an extensive analysis of state government finances, and the results are not unlike what one might find when auditing a college freshman after a first-credit-card spending binge.

Reuters summed up the dismal findings: “State Budget Solutions combined states’ major debt and future liabilities, primarily for pensions and employee health care, unemployment insurance loans, outstanding bonds and projected fiscal 2011 budget gaps. It found that in total, states are in debt for $4.2 trillion.”

And keep in mind that state government fiscal calculations “do not offer a full picture of the states’ liabilities and can rely on budget gimmicks and accounting games to hide the extent of the deficit.” (If you did that, it would be called “illegally cooking the books,” but never mind.)

Other estimates of state liabilities are lower. The American Enterprise Institute puts public pension shortfalls at $2.8 trillion; the Pew Center on the States at about $700 billion, and so on.

But that is the truly frightening aspect of this whole debt crisis: No one seems to know how much is really owed. To put it another way, if you knew you were in debt by about $4 trillion, you’d be screwed, but at least you’d know how screwed you were.

But if you owed so much money that a dozen different accountants couldn’t even agree on the amount, well, that’s a whole different level of screwed, isn’t it?

How did it get so bad? One clue comes from a joint investigation by the Chicago Tribune and WGN-TV, which uncovered massive pension abuse by Illinois public-sector unions.

Two union lobbyists, the Tribune reported, “stand to receive more than $1 million each from a state pension fund,” thanks to a legal loophole that allowed them to count their years as union employees toward the teacher pension fund because of a single day of substitute teaching in 2007.

It is a similar story across the country; wherever you find an empty public purse, you will nearby find a bloated but still-ravenous government employee union. Sadly, it is the public that suffers for this gluttony. Bankrupt state and local governments have little choice but to cut services and/or increase taxes in an effort to balance their books.

Cuts mean less money for garbage collection, fire and police departments, social services and, yes, education. Higher taxes drive businesses to more hospitable climes, leading to fewer local jobs.

As Walter Russell Mead pointed out, it didn’t have to be this way: “Reasonable reforms could have made things much less painful.”

In Ohio and Wisconsin, Republican Govs. John Kasich and Scott Walker, respectively, pushed collective bargaining reforms in an attempt to rescue their states from fiscal collapse — and were met by vilification campaigns, rowdy protests and vows of electoral vengeance from unions.

In Ohio this week, after a massive public-relations campaign (one union-coalition group raised more than $24 million for the battle), Buckeye State voters were convinced to toss Kasich’s reforms.

But this decisive victory may not deter other governors from attempting similar reforms for one reason:  To many politicians, the financial danger ahead is more frightening than the unions behind.

Matt Patterson is senior editor at the Capital Research Center.

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