As a reminder, America’s state and local governments are going broke.
In the most high profile example of what can happen when the fiscal nightmare rubber meets the ratings agency road since Detroit, Moody’s cut Chicago’s ratings to junk last week after the Illinois Supreme Court struck down a pension reform law that would have paved the way for Mayor Rahm Emanuel to push through legislation aimed at closing funding gaps for the city’s worker retirement funds. Pension costs are 18% of revenue in Chicago, more than double the amount of the next closest major US city.
Meanwhile, in Louisiana, LSU is facing funding cuts of 82% after falling oil prices blew a $1.6 billion hole in the state’s budget — if the cuts are implemented in full, the school will face the university equivalent of bankruptcy.
These are but two examples. As we pointed out earlier this month, nearly half of US states face funding gaps with 17 states reporting negative Y/Y revenue growth in 2014. The situation is so bad in Kansas (where tax cuts pushed through by Governor Sam Brownback have bankrupted the state government) that schools are being forced to beg for emergency funding in order to pay salaries (perhaps Varoufakis has some ideas).
Here’s a look at which states are in trouble:
Bloomberg has more on the deterioration of state and local government finances in the US:
Six years after the recession ended, many U.S. states are hard pressed to balance budgets because of a sluggish recovery and their own policy decisions. The fiscal fragility raises questions about how they will weather the next economic downturn.
A majority of states are making cuts, tapping reserves or facing shortfalls despite an improving national economy and stock markets at record levels, according to Standard & Poors and the Nelson A. Rockefeller Institute of Government. State revenue hasn’t rebounded to a prerecession peak adjusted for inflation, and other factors are putting pressure on budgets.
Alaska, Oklahoma and energy-producing states saw receipts fall with global oil prices. Kansas overestimated revenue after tax cuts, while New Jersey faces a shortfall thanks to unfunded pensions.
“The extent of the weakness is really impressive,” said Donald Boyd, who tracks state finances at the Rockefeller Institute in Albany, New York. “There’s a lot of pressure on governors and legislators.”
Thirty-two states faced budget gaps in fiscal 2015 or 2016 or both, according to an April 27 report by Standard & Poors. The fiscal year ends June 30 in all but four states…
Spending on education, roads repair and other services is threatened. Some Kansas schools are closing early, while Alaska Governor Bill Walker on Monday threatened furloughing as many as 15,000 workers if lawmakers don’t act on a $3 billion gap. Alabama Governor Robert Bentley has warned of impending cuts, including the closing of 15 of 22 state parks…
The situation has become so bleak in some states that even Republican governors loath to raise taxes have proposed higher levies.
In Nevada, two-term Republican Governor Brian Sandoval has proposed $1.1 billion in new or continued taxes to pay for education and initiatives such as expanding full-day kindergarten.
He has said he has no choice with a shortfall caused by declining mining and gambling revenue, as well as a need to bolster an education system that has the worst high-school graduation rate in the U.S.
There you have it. Things have gotten so bad in America that Republicans can no longer rely on gambling money to fund terribly-performing high schools and have now had to take the previously unthinkable step of not cutting taxes in order to ensure that 5-year olds can go to kindergarten.
Speaking of Nevada, gambling, and a nonexistent economic recovery, we'll leave you with the following quote from Steve Wynn as it seems particularly appropriate here:
If you were to ask me, since we’re making forward-looking statements, what will the second quarter look like in Las Vegas? Weak. Do you hear me? Weak. So I’m trying to lower expectations here. This notion of a big recovery is a complete dream.