Meredith Doubles Down: Move Over Munis, Here Comes The "Hidden State Financial Crisis"

Tyler Durden's picture

There are those who thought that following the material pushback by every chatterbox on CNBC that the muni situation is actually nice to quite nice, contrary to what Meredith Whitney had prophesied, that the scourge of Citi would slink back into whatever hole it is she crawled out of. And then there is Meredith Whitney, whose occasional appearances on TV have resulted in 25 weeks of consecutive, and material outflow from municipal funds. Undaunted by her critics, she has now doubled down, and shifting away from munis, is now focusing one level higher: on the state financial crisis. Her conclusion, sure to set off a firestorm of angry responses tomorrow when the Op-Ed hits the print version of the WSJ: "Defaults in a variety
of forms by states and municipalities are already happening and more
are inevitable. Taxpayers have borne the initial brunt of these defaults
by paying higher taxes in exchange for lower social services. And state
and local government employees are having to renegotiate labor
contracts that they once believed were sacrosanct." And sure enough, she refuses to abandon her muni thesis: "Municipal bond holders will experience their own form of contract
renegotiation in the form of debt restructurings at the local level.
These are just the facts. The sooner we accept them, the sooner we can
get state finances back on track, and a real U.S. economic recovery
underway." Yes, well, one can argue that the sooner Ms. Whitney accepts that the modus operandi in the developed world is to preserve the status quo no matter the cost, and kick the can down the road indefinitely, the sooner we can all get back to a state of vegetative existence in which nobody questions anything and the world is one swell place until everything blows up.

Meredith Whitney: The Hidden State Financial Crisis, posted in the WSJ

Next month will be pivotal for most states, as it marks the fiscal
year end and is when balanced budgets are due. The states have racked up
over $1.8 trillion in taxpayer-supported obligations in large part by
underfunding their pension and other post-employment benefits. Yet over
the past three years, there still has been a cumulative excess of $400
billion in state budget shortfalls. States have already been forced to
raise taxes and cut programs to bridge those gaps.

Next month will also mark the end of the American Recovery and
Reinvestment Act's $480 billion in federal stimulus, which has
subsidized states through the economic downturn. States have grown more
dependent on federal subsidies, relying on them for almost 30% of their
budgets.

The condition of state finances threatens the economic recovery.
States employ over 19 million Americans, or 15% of the U.S. work force,
and state spending accounts for 12% of U.S. gross domestic product. The
process of reining in state finances will be painful for us all.

The rapid deterioration of state finances must be addressed
immediately. Some dismiss these concerns, because they believe states
will be able to grow their way out of these challenges. The reality is
that while state revenues have improved, they have done so in part from
tax hikes. However, state tax revenues still remain at roughly 2006
levels.

Expenses
are near the highest they have ever been due to built-in annual cost
escalators that have no correlation to revenue growth (or decline, as
has been the case recently). Even as states have made deep cuts in some
social programs, their fixed expenses of debt service and the
actuarially recommended minimum pension and other retirement payments
have skyrocketed. While over the past 10 years state and local
government spending has grown by 65%, tax receipts have grown only by
32%.

Off balance sheet debt is the legal obligation of the state to its
current and past employees in the form of pension and other retirement
benefits. Today, off balance sheet debt totals over $1.3 trillion, as
measured by current accounting standards, and it accounts for almost 75%
of taxpayer-supported state debt obligations. Only recently have states
been under pressure to disclose more information about these
liabilities, because it is clear that their debt burdens are grossly
understated.

Since January, some of my colleagues focused exclusively on finding
the most up-to-date information on ballooning tax-supported state
obligations. This meant going to each state and local government's
website for current data, which we found was truly opaque and without
uniform standards.

What concerned us the most was the
fact that fixed debt-service costs are increasingly crowding out state
monies for essential services. For example, New Jersey's ratio of total
tax-supported state obligations to gross state product is over 30%, and
the fixed costs to service those obligations eat up 16% of the total
budget. Even these numbers are skewed, because they represent only the
bare minimum paid into funding pension and retirement plans. We
calculate that if New Jersey were to pay the actuarially recommended
contribution, fixed costs would absorb 37% of the budget. New Jersey is
not alone.

The real issue here is the enormous over-leveraging of
taxpayer-supported obligations at a time when taxpayers are already
paying more and receiving less. In the states most affected by
skyrocketing debt and fiscal imbalances, social services continue to be
cut the most. Taxpayers have the ultimate voting right—with their feet.
Corporations are relocating, or at a minimum moving large portions of
their businesses to more tax-friendly states.

Boeing is in the political cross-hairs as it is trying to set up a
facility in the more business-friendly state of South Carolina, away
from its current hub of Washington. California legislators recently went
to Texas to learn best practices as a result of a rising tide of
businesses that are building operations outside of their state. Over
time, individuals will migrate to more tax-friendly states as well, and
job seekers will follow corporations.

Fortunately, many governors are addressing their state's structural
deficits head on. Unfortunately, there is a lack of collective
appreciation for how painful this process will be. Defaults in a variety
of forms by states and municipalities are already happening and more
are inevitable. Taxpayers have borne the initial brunt of these defaults
by paying higher taxes in exchange for lower social services. And state
and local government employees are having to renegotiate labor
contracts that they once believed were sacrosanct.

Municipal bond holders will experience their own form of contract
renegotiation in the form of debt restructurings at the local level.
These are just the facts. The sooner we accept them, the sooner we can
get state finances back on track, and a real U.S. economic recovery
underway.

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topcallingtroll's picture

It's about time they stopped that

mogul rider's picture

I thought them stealing Granny's Pension cheque yesterday solved all that?

Meredith Please! They're working at it, honestly they are.

Not that having your grandparents move in due to the cheque bouncing is not an inconvenience granted, but hell, we're in this for the gipper, or gupper, sipper or whatver that dick's name was....

oops

QQQBall's picture

Hidden States? Who knew? Like #51 and #52?

topcallingtroll's picture

According to Obama there are 57.

Fiat2Zero's picture

Start counting the potholes boyz, they'z gonna all get bigger.

ebworthen's picture

 

There are so many who still believe in the dream.

What full udders for the bankers and elites to milk!

Meredith is right but she is a sun shower, a passing drizzle on the parade of the delusional public toward perdition.

IRA's, 401K's, Savings, Pensions, equity in property...so much milk...

All they need do is make certain that they ape the young, pit them against their own Parents, anyone not "favored", anyone who can be marginalized, look how easy it was for Hitler, for Stalin, for Mao.

So easy, there is an app for that I'm sure...or two...or three...or...

 

bob_dabolina's picture

Merideth, 

Show me your books, and I'll show you my cock....which you want.

-Chuck ;)

ebworthen's picture

Careful with posting drunk...

Hephasteus's picture

That wasn't posting drunk. That's his resume to the IMF.

topcallingtroll's picture

This shit is going to get interesting again some day.  I think they can kick this can down the road at least several more years.  Europe looks like they can kick the greece can down the road several more years too.

 

but I think Merideth is ultimately right, and imminently fuckable.

Re-Discovery's picture

'Eminently', unless she is spread eagled in front of you (sorry, proper usage is a pet peeve of mine.  Agree with the sense of the statment however.)

topcallingtroll's picture

Yeah after I did that I was just too lazy this time to deal with it.

 

It would be imminent if she came within reach of my boner.

Re-Discovery's picture

Depending your definitions. 'Within reach' may not rise to the level of fuckable or fucking as someone like . . . say  . . . Bill Clinton may define it.

 

 

topcallingtroll's picture

My boner is pretty open minded.  It has rarely turned down anything faintly resembling a female, especially drunk. 

If it is within reach it is imminent.

Re-Discovery's picture

As is mine.  I do think imminent would also have to include some aspect of consent on Meredith's part.  Unless you are an accomplished rapist, i.e Clinton o the IMF guy.  Meredith is a big chick so, at least in her case, she would need to be 'within reach' as well as willing to oblige.

falak pema's picture

Are you guys thinking of launching a "yes we can!" boner club? You know, what happened to the last guy who joined that club; he ended up in ...well maybe you could play poker with him once there...5 card stud...and the last one to lose it wins jack pot to pay the jail keeper for a hooker. 

Sutton's picture

Harvard Ave. in Rockville centre NY is a disgrace.  Ridiculous potholes for 15-25k property taxes.

Nice job Skelos

ebworthen's picture

 

Tyler, oh lordy Tyler, please, not the commercials with audio, anything but commercials with audio...

 

A_MacLaren's picture

Four words:

Firefox with Adblock Plus.

PulauHantu29's picture

"I'll gladly pay you Thursday for a hamburger today."

Meredith Rocks!

monopoly's picture

Meridith does a really good job with facts. There are a few out there that will tell the truth. But it is going to take time for it all to come together. It will, but do not know when. This volatility is really gettng annoying. Went to cash this week. But still have all my physical.

topcallingtroll's picture

It's going to take longer than we want.  I suspect this Greek thing and muni thing will be playing out for years.

 

I am troubled by the lack of junks on my topcalls.  This means I am probably wrong because there are too many of you going to cash.

I never see a kind word about gold and silver anymore.   What's with all this pessimism about gold and silver?  You guys getting pessimistic about the pessimistic scenario or something?

Seasmoke's picture

dont fight the Fed, but you sure as hell can fight the states.....they will be the first for who the end of the road will come up for the rusty can.....still not sure who will be first.....illinois, NJ or cali ???

Uncle Keith's picture

Never, never a mention of raising taxes on the Overly, Obsenely Wealthy. 

 

At what point does Everyone Sing in Unison: "Too Few Ended Up With Too Much"?

 

The refrain? "It Was Never A Sustainable Idea".

 

I expect to see this analysis incorporated into any all future commentaries. Henceforth, it will be mentioned whenever there is a talk of "Solution". 

Coldfire's picture

What are they waiting for? Jump, fuckers!

AldoHux_IV's picture

The real issue here is the enormous over-leveraging of taxpayer-supported obligations at a time when taxpayers are already paying more and receiving less. In the states most affected by skyrocketing debt and fiscal imbalances, social services continue to be cut the most. Taxpayers have the ultimate voting right—with their feet. Corporations are relocating, or at a minimum moving large portions of their businesses to more tax-friendly states.

\It aint just the states, and it points to the problem-- corporations getting away with too much.

uniman's picture

When and if the US Federal finances finally overtly go up in smoke, that will be the great opportunity for We the People to rush the prison gates.  If their system of money disintegrates, so goes their systems of control.  That will be the perfect time for the people and the States to reconsider the meaning of the 10th Amendment and to regain control.

Although I'm sympathetic to the anarcho tendencies that many have, I think those are ideals that civilization can aspire to and careful develop, but not something that's likely to easily emerge after the Fall . I think it's much more likely that a reasonably free and prosperous system could emerge if the people, the States, and the 10th amendmernt were back in control.  This is a scenario that's close enough to today's warm and fuzzy known-reality to be accepted by large numbers of people, even if in a fait-accompli fashion.

Unfortunately, in today's Planet of the Ape's world, too many people _really believe_ statism is just and effective (or at least extremely lucrative.)  Just as they resort to such desperate measures now to preserve their system, the Crash will spawn a plague of those people who will fight hard to regain control.

But it is fun to imagine watching the former Feds and Banksters revert back to their feral ways.  They could launch their own insurrection, build IEDs, and generally throw sand in the works.  They'd have to hide from their own drones and perhaps civilization could muster some bounty hunters to dig them out of their spider holes.  Maybe they could take over Cuba and hatch plots to retake the mainland.  Whatever they do, it will be time to spank those monkeys, choke the monster, and whack it back to size!

Enjoy the ride

SilverFiend's picture

Does this mean that it will no longer take 7 guys to mow the shoulder of the road in my state?  One guy mowing,  two guys holding the stop signs to take it down to one lane.  One guy to drive a state vehicle to lead the motorists 100 yards through the work zone.  And two guys standing around talking.

huckman's picture

Any surprize that the number one actuary collage in the nation University of Wisconson,