Unlike the U.S. Government, most state governments have a balanced budget amendment, except … the feds are bailing out some states, thus enabling unhealthy spending patterns.
Writing in the Wall Street Journal, Meredith Whitney says that 30 percent of the bonds issued by California this year, 40 percent of Nevada’s new debt since 2009, and 30 percent of Illinois’ debt is partially underwritten by a federal program known as “Build America Bonds.” Whitney says that without this program, states could not afford the spending levels they have undertaken. Overall, 28 percent of all spending by states comes from the U.S. Government, which–given the latter’s financial situation–means it come from the printing press and bonds that must be repaid by today’s children.
Whitney never mentions Minnesota, but she does have one comment that is worth remembering here: “Until now, the states have been able to evade the need to rein in spending largely because the federal government enabled them to do so through record high federal allocations, and by creative accounting that put off funding well over a trillion dollars of state-employee pension and other retirement obligations.” (Emphasis added).
Fore on the problem of public employee pensions, see our Pension Reform Project.