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Those who think Congress and President Barack Obama avoiding the “fiscal cliff” equals financial redemption for America are sorely mistaken.
If they do, it would be only a temporary fix for a country that borrows 46 cents of every dollar it spends.
And it doesn’t even touch the festering wound undermining the solvency of most capitals throughout the country: state debt.
According to the nonpartisan nonprofit State Budget Solutions (www.statebudgetsolutions.org), state debt alone is on average more than $37,000 per private worker and $13,000 per capita. Overall the figure is more than $4 trillion.
It’s important to emphasize why measuring debt per private worker is important. Private sector workers are the ones who create wealth. Government redistributes it, so those who generate the money that everyone else uses are ultimately responsible for the tab.
Unfortunately, the $4 trillion number is actually conservative because it does not include things like planned transportation projects or other capital projects in a state that are not paid for. It is, however, much more accurate than individual state assessments of debt, which disguise pension and other post retirement benefits for public employees by using misleading budget tactics and outrageous projections for investment returns on their pension funds.
Those methods mean the true financial position of a state is shrouded, even though all except Vermont require a balanced budget. It’s obvious no one knows what is going on because public employee unions have so far been silent on the issue that could decimate their members’ retirement. If they understood the problem, there would be union rioters in most state capitals like those in Lansing, Mich., earlier this week after a right-to-work law passed.
To retire debt in Alaska, for example, every resident would have to write a check for $31,141.
The other states in the top five for per capita debt are: New Jersey, Hawaii, Connecticut and Illinois.
According to State Budget Solutions’ analysis, Hawaii’s debt as a percentage of its Gross State Product (GSP) is over 79 percent – the highest in the U.S.
New Jersey is second, with its debt at 60 percent of GSP.
By comparison, Greece’s debt to GDP ratio is about 179 percent.
Who knew that the states with some of the best beaches in the United States were beginning to share so much in common with the island country roiling financial markets around the globe?
Not every state is in horrible shape. Residents of Nebraska, for example, are on the hook for $4,249 apiece. Tennessee, Indiana, Florida and Idaho are also in strong financial positions on a per capita basis.
But the vast majority are in trouble and won’t be able to tax themselves out of a hole, especially high-tax states like New York and California, where residents have gotten a break by being able to deduct state taxes from their federal tax burden. That loophole may soon be no more, meaning there will be little room to maneuver before high-income earners leave and businesses look elsewhere for opportunity.
Outmigration is already happening. Thousands are fleeing to Texas from California. Florida is the number one destination for the thousands each year leaving New York, which lost 3.4 million residents to outmigration from 2000 to 2010 – and $45.6 billion as a result. Both Texas and Florida have no income tax. Fewer high earners will only make states in perilous financial shape even worse.
No doubt some will clamor for a bailout. It’s already been discussed.
But who are they going to ask for money? The states who managed their finances well? That is not fair. And Washington is broke. They might have to go straight to America’s banker: China, which is on a land and resource grab around the globe.
None of America’s financial problems are intractable. But to fix them, states must come clean about their balance sheets and stop spending more than they collect in taxes. Who wants to run on that platform?
Marta H. Mossburg is an independent columnist. Contact her at email@example.com.