

Crisis for 46 State Governments Facing Greek-Style Deficits - startuprules
http://noir.bloomberg.com/apps/news?pid=20601109&sid=atxrhPqbty_4&pos=10

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tptacek
How similar are any of these crises to Greece?

My home state, Illinois, is in one of the worst crunches of all; by the
numbers, we're in worse shape than California. But the cause of our problems
doesn't look like an intractable macroeconomic problem (unlike Greece's).
Rather, the politicians in Springfield have been pilfering pension funds to
effect stealth loans to finance other parts of government, and deferring
contributions to pension plans, so that the budget process never has to come
to grips with how expensive these plans are and reduce them or offset them
with wage and headcount cuts.

Nothing other than politics appears to prevent Illinois from fixing this.
Eventually it will have to, because we'll flip out if they raise taxes.
Whereas there aren't many (tractable) political decisions that Greece can make
to right itself.

~~~
hga
But that's exactly the problem in Greece; at base, promises have been made
that can't be kept.

Income sources are running out: tax receipts due to the recession, new taxes
due to voters, people willing to lend the state money at rates it can afford
(if Illinois can't officially borrow money, no doubt it's like Massachusetts
or New Jersey who create off book liabilities like a zillion "independent"
"authorities").

But the promises can't be cut back because those directly benefiting from them
are too powerful and are willing to use extreme means (e.g. " _If You Don't
Give Us 150 Percent Pensions, We'll Kill This Child_ "
[http://reason.com/blog/2010/06/25/if-you-dont-give-
us-150-pe...](http://reason.com/blog/2010/06/25/if-you-dont-give-
us-150-percen)).

Unlike Greece it's not a sovereign _nation_ , it has no theoretical option to
drop out of the US dollar and issue a devalued Illinois currency. Although if
it's like California and New York soon enough it'll be issuing IOUs _and_
demanding that taxes be paid in cash on payments made to companies.

And there's no provision for bankruptcy of a state (there is for
municipalities and the like:
[http://en.wikipedia.org/wiki/Chapter_9,_Title_11,_United_Sta...](http://en.wikipedia.org/wiki/Chapter_9,_Title_11,_United_States_Code)).
States are in theory sovereign entities with governmental rights and
responsibilities split between them, municipalities and the Federal
government.

It's going to get messy.

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CapitalistCartr
Both US states and Greece have the same root problem. In neither can the
political leaders inflate the currency to get out of the consequences of their
years of fiscal mismanagement. The trick of currency inflation, since the
advent of fiat money, has saved many administrations around the Globe.

~~~
kiba
Doesn't currency inflation just delay the day of reckoning? If the political
will doesn't want to fix the root problem, than all the inflation in the world
won't fix anything.

Can you name the administrations that has been saved?

~~~
drinian
Every federal government since the second World War, and especially since
Reagan. Deficit spending is closely tied to currency inflation.

~~~
hga
Neither saved Jimmy Carter, though, and taming inflation (started by Carter's
appointment of Paul Volcker as Chairman of the Fed in August of '79) was a
major factor in saving Reagan's first term.

As far as the "just delay the day of reckoning" question, by partly
liquidating debts denominated in the currency in question inflation and/or
devaluation does a lot more than that. It allows repayment of less real value
than was borrowed.

Hmmm, I should also point out FDR's actions WRT to gold, especially outlawing
all contracts that were written in terms of gold. The problem back then was
deflation, but this no doubt also changed the game after the Great Depression
when inflation later became the big issue.

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yummyfajitas
Virtually all of these states could make significant progress on their budgets
by cutting the pay of government employees. Teachers, police officers and
assorted bureaucrats all tend to be overpaid for the work they do.

The fact that not a single state is even attempting to do this suggests they
are all just waiting for the feds to bail them out.

~~~
hga
Missouri is not in crisis (yet). The (Democratic) Governor has laid off more
than 2,000 state employees and he and the (Republican) Legislature have
proactively cut the budget in other ways (local education funding is about to
take some significant hits, e.g. busing). Or in the case of state higher
education they struck a compact with the schools that if state funding didn't
drop they wouldn't raise tuition (that's lasted two years but is not expected
to hold for too much longer).

Except for the usual borrowed from the Feds unemployment deficit I don't think
we're in bad shape (yet).

------
kiba
What are the four states that is not in an economic crisis right now?

~~~
mkramlich
Idaho, Idaho, Idaho and Idaho

but seriously, they didn't seem to say in the article

~~~
kiba
I checked out Idaho's economy: <http://en.wikipedia.org/wiki/Idaho#Economy>

Some highlight:

Low income taxes(1.6% to 7.8%) but high sale taxes(6%)

Electronic manufacturer being a biggie industry. Accounts for 25% of tax
revenue and 70% of all exports.

But it doesn't seem to have anything special in term of economics.

The state constitution doesn't reveal anything special either. It just said
that the budget should be balanced, which I think is part of all other states'
constitution.

~~~
mkramlich
I was joking about Idaho. Well, half-joking. Actually I figured that since
Idaho had probably one of the smallest economies and smallest populations
among the 50 US states that it would also have one of the smallest state
budgets, and also a pretty "traditional" industry mix (producing non-
discretionary and/or physical products or commodities) as opposed to things
which are more frothy or flaky like finance, services, entertainment, etc.

------
mkramlich
is that the kind of deficit where taxpayers will have to take it up the ... ?

