State Budget Cuts Have Little Effect On Deficit Problems, Indicating The Issue Is More Systemic Than Budget Related

Wednesday, August 29, 2012 08:39
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State Budget Cuts Have Little Effect On Deficit Problems, Indicating The Issue Is More Systemic Than Budget Related

Tags: debt | economy | municipal bonds

Cuts in state budgets have done little to help state deficit problems. Budget gaps have narrowed but the total amount of debt has barely changed. This indicates a more systemic problem stemming from unfunded pension liabilities and increasing healthcare costs coupled with lower tax receipts.

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State Budget Solutions (SBS), a nonpartisan budget reform organization, compiled the data using reality-based budget assumptions. Its calculations are higher than the Pew Center for the States but Pew says it uses states’ own methods of calculations.
 
The SBS says state calculations cloak the true extent of state liabilities while the SBS calculations take into account years of nonpayment of pension liabilities, borrowed funds, and inaccurate discount rate assumptions.
 
California came in unsurprisingly as the state with the highest debt and Vermont came in as the state with the lowest. State-issued bonds and lease obligations and retiree pension benefits are the primary sources of the debt.
 
State budget gaps make up the least component in the debt picture. This means bringing states back into the black will require much more than simply balancing state budgets. A systemic problem also may have greater implications for municipal bond investors since state-issued bonds are one of the primary sources of the debt concerns.
 

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