Saturday, January 22, 2011

State Budgets and Media Panic

One of the things I love about sociology is the Debunking Motif. So heads up all you journalism and media majors: shoe leather. Get out and do your homework. Do not swallow, hook, line and sinker, what politicians (of all people) tell you about budgetary matters.

According to this latest Center on Budget and Policy Priorities analysis (h/t Global Sociology), most of the rhetoric regarding the "dire" financial status of states throughout the country is creating unnecessary panic. Let's just look at a few of the myths the study debunks.

On Bond Indebtedness:

Some observers claim that states and localities have run up huge bond indebtedness, in part to finance operating costs, and that there is a high risk that a number of local governments will default on their bonds. Both claims are greatly exaggerated. Interest payments on state and local bonds generally absorb just 4 to 5 percent of current expenditures — no more than they did in the late 1970s.
Regarding pension obligations:
Some observers claim that states and localities have $3 trillion in unfunded pension liabilities and that pension obligations are unmanageable, may cause localities to declare bankruptcy, and are a reason to enact a federal law allowing states to declare bankruptcy. Such claims overstate the fiscal problem, fail to acknowledge that severe problems are concentrated in a small number of states, and often promote extreme actions rather than more appropriate solutions.
On the folly of closing budget deficits with cuts only:
Some states and cities have sold income-producing assets such as toll roads, lotteries, or parking meters, and a few have sold buildings that they then had to lease back at more expensive rates. In nearly all cases the state or locality would have been better off in the long run simply raising additional revenues.
On the exaggerated claims of state and local debt portending a European-style meltdown:
Some who claim there is a state debt crisis have likened states’ problems to those in Greece or other European countries. There is no way directly to compare the state debt situation with a national government’s debt situation.
And finally, on the alarmist notion of allowing states to declare bankruptcy in order to restructure their debt (namely, pensions and retirees):

There are no modern instances of a state defaulting on its general obligation debt. One has to reach back to the period before and during the Civil War, when several states defaulted, or the single state that defaulted during the Great Depression (Arkansas), to find examples. It would be unwise to encourage states to abrogate their responsibilities by enacting a bankruptcy statute. States have adequate tools and means to meet their obligations.

That's what I thought. These various proposals about state bankruptcy have been floated by bloggers and other know-nothing media pundits in the last few weeks. Their agenda is rather straight forward: let's use the recession to renege on our pension and health care obligations to retirees, the sick, the elderly and the poor.

As the report blisteringly notes, most of the problems related to states being unable to dig out of the financial mess we've been through the past three years is directly related to partisan politics and the gridlock associated therein.

Meaning, we won't begin to recover economically in the U.S., or globally for that matter, until partisan rhetoric and ideology is shelved, and common-sense solutions and studies (such as this one) are enacted.

It would also help if Big Media bothered to look at analyses like this, which are readily available via the net or institutes of higher learning, and ask questions of our elected officials thusly.

I know, I know...keep dreaming, right?

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