When I read Richard Ravitch’s Wall Street Journal op-ed entitled “More Detroits Are on the Way”, I felt a little like someone who reads the obituaries to see if he’s listed among them. I wondered if he included Chicago. I wasn’t disappointed:
The largest single expenditure in most state budgets is for Medicaid. Unfortunately, health-care costs have been rising faster than either inflation or state and local tax revenues, and most economists believe they will rise even faster in the next few years.
But the most critical piece of the states’ fiscal dilemma is that they are borrowing to cover their operating deficits. They do this directly—by issuing debt securities—but also indirectly. Some states, like New York, make contributions to their pension systems in promissory notes rather than cash. States and cities also sell assets and treat the proceeds as operating revenues, in effect selling off the family silver to stay afloat.
In 2009 Arizona sold its capitol buildings for more than $700 million. In 2008 Chicago leased its parking meters for 75 years for nearly $1.2 billion. In 1991 New York sold Attica Prison for $200 million to itself through a bond issuance, providing a temporary revenue boost but costing taxpayers far more in the long run in interest. While state constitutions contain various balanced-budget clauses, they generally don’t define revenues or prevent such creative accounting.
If you haven’t devised a method of living within your means going forward, selling assets or borrowing to pay operating expenses isn’t a success-oriented strategy. It’s just trying to manage your own decline.