From the Wall Street Journal:
... States projected a collective $145.9 billion budget gap for fiscal year 2010, which began in July, equivalent to 9.2% of the previous year's total state expenditures. Apart from voter backlash against cuts, the economic cycle raises spending as the newly unemployed turn to government programs like Medicaid for help. The result is a lagged effect on state finances, with tax revenues usually taking as long as five years to reattain prior peaks, according to Mr. Boyd. ...
Besides the near-term crisis, the other similarity states have with the old GM is an overhang of debt. Between 2000 and 2008, state debts—distinct from other municipal debts—almost doubled to about $1 trillion, according to the Census Bureau. However, that is only 7% of gross domestic product, and low rates mean interest charges have been manageable, reaching $47 billion, or 3.7% of total expenditures, in 2008.
The bigger issue is retirement obligations. Like GM, many localities have struck generous deals with public-sector workers. In part, this reflected a desire to appease unions with promises for tomorrow that didn't have to be paid for until well after the next election. In a new study, the Pew Center on the States estimates there was a $1 trillion funding gap on $3.35 trillion of state health-care and retirement obligations as of fiscal year 2008.
Last year, Jersey City balanced its budget with tens of millions of dollars in one shot revenue gimmicks. One of them was deferring $15.5 million in pension contributions under a special, one-year-only state law.
This year it's not so easy. Mayor Healy wants to raise property taxes 25 percent. Since he's not around to talk about the budget with his constituents, he's not around to offer or hear out alternative plans. He'll just tell his flunky council majority to vote for his tax increase, and it will be done. People will have to sell their homes, but it will be done. Inevitably regular people will have to deal with the consequences of the mayor's reckless management and ineffectual leadership.
All governments are having a hard time right now. I don't blame the mayor for what's happened in the country. I do blame him for failing to deal honestly and openly with Jersey City's fiscal problems.
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Meanwhile in Trenton, the State Senate is prescribing hard medicine for a syndrome it helped create. It passed several bills that include serious changes to public employees' pensions and benefits:
The bills largely affect future hires and are expected to save local governments at least $314 million next year by requiring workers to contribute 1.5 percent of their salary to their health care coverage. But they are expected to save much more over time as new hires replace current workers in the system.
“It’s a long-term fix, it is not a quick fix,” said Sen. Barbara Buono (D-Middlesex), the majority leader. “Don’t underestimate what we’re doing here today. This is the New Jersey Legislature, where things are maddeningly incremental.”
The action now shifts to the Assembly, which is expected to introduce its versions of the bills on Thursday. ...
The bills cap at $15,000 the amount of unused sick leave future hires can cash in when they retire, eliminates some disability and injury leave programs, limits participation of part-time employees and changes the calculations of benefits to factor in more years of service.
In the last six years, the legislature and governor have shortchanged the pension system by about $10 billion. Therefore, the system is underfunded by about $34 billion—put another way, half of its total obligations. So the Senators are a little too eager to credit themselves for partially repairing what they broke.
D.C.
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