When an errant SUV crashes through your picture window, you may not notice that your barbecue tipped over and caught your house on fire. So it is with the U.S. economy these days.
All the focus on our national debt, sequester cuts and federal tax increases is obscuring a smoldering problem in the states. Declining tax revenues, budget deficits and underfunded pensions have legislatures scrambling for revenue. Many states are taxing and borrowing more just to make ends meet.
The State Budget Crisis Task Force, led by former New York Lieutenant Gov. Richard Ravitch and former Federal Reserve Chairman Paul Volcker, studied fiscal conditions in six heavily populated states — California, Illinois, New Jersey, New York, Texas, and Virginia — which together account for a third of the nation’s population and almost 40 cents of every dollar spent by state and local governments.
Their conclusion: The recession has made the situation worse, but the problem with state finances is structural, and the current trajectory of taxing and spending is unsustainable.
The issue is huge because state and local governments spend $2.5 trillion a year and employ 19 million people — 15 percent of the nation’s workforce.