"These Problems Aren't Going Away" - States Are Woefully Unprepared For The Next Recession

It's no secret that the finances of most US states are in shambles. For many, overly generous pension benefits have led to severe underfunding that threatens to drain state coffers, like in Illinois, where pension liabilities ballooned by a cumulative 1,067% between 1987 and 2016 while revenues for the state's general fund rose just 236% during that time.

Wirepoints

While regular readers are no doubt acquainted with our musings on the looming pension crisis (a problem that is increasingly global in scope), the Wall Street Journal has apparently only just stumbled on to the story, writing in a story entitled "Many States Are Likely Unprepared for Next Downturn" that "many US states have been slow to improve their finances nine years into the economic expansion. That raises a risk they won't be prepared when another downturn hits, making them susceptible to big spending cuts that make the next recession worse."

The problem for most states is that aging populations mean that more money is being spent on medicaid and pensions while revenues have largely been stagnant. And while a booming economy might temporarily boost revenues, "some of these longer-term pressures are definitely not going away," said Gabriel Petek, managing director at S&P Global Ratings.

An aging population is also putting pressure on state Medicaid budgets and pension funds. State pension contributions were 78% higher in 2017 than in 2010, according to census data. And state Medicaid payments were 59% higher in 2016 than in 2010, according to the Centers for Medicare and Medicaid Services.

Many US states have depleted or nearly depleted emergency funds. With some states like Oklahoma having only 1.6% of expenditures in their rainy day funds.

Measured as a share of spending, 21 states had smaller rainy day funds in 2017 than they did in 2008, according to data from the National Association of State Budget Officers compiled by the Tax Policy Center.

[...]

North Dakota had only 1.5% of its expenditures in a rainy-day fund in the 2017 fiscal year, down from 16.6% in 2008. Oklahoma’s rainy day fund had 1.6%, down from 9.3%. New Jersey emptied its rainy day fund in 2009 and has yet to begin refilling it.

Many states also have lower credit ratings now than they did during the crisis, which will raise the cost of borrowing during a recession.

Many states governments have seen their bond ratings downgraded during this expansion for not taking the appropriate measures to get their fiscal houses in order. Eleven states have lower bond ratings than they did in 2010 while only five have higher ratings, according to Moody’s Investors Service. Fitch Ratings lists seven states with worse ratings and six with better ones since the recession. And analysts at S&P Global rate 12 states lower than in 2010 and 10 states higher.

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"It’s very important in our view that during the good times the states should be building up their fiscal resilience and that really stands out as an area that’s been lacking throughout this recovery," said Gabriel Petek, managing director at S&P Global Ratings.

At stake are widely used public services like roads, police and schools. A recent Supreme Court ruling requiring online retailers to pay state sales tax could help boost revenues while a Trump's tax plan will help raise taxable income in some states. But with President Trump's trade war threatening to hammer agricultural states (which could seriously impact nationwide GDP figures), states are finding themselves in a tough spot. Boston Fed President Eric Rosengren explains, US states are simply referring to do what needs to be done to prepare for the next recession. "There are levers that all the states could think about in terms of preparing for the next economic downturn," Rosengren said. "It doesn’t seem like there is that much movement in that direction right now in many states."

Comments

TBT or not TBT 1982xls Thu, 07/12/2018 - 23:56 Permalink

Snake Plissken in Escape from New York had explosives injected into his neck to make him do his job .    A solution like that could be good for municipal workers and law makers.    Their heads blow off when their pension allocations and promises run out so they better not spend them .   So they either get jobs or get their heads blown off    

In reply to by 1982xls

SumTing Wong Four Star Fri, 07/13/2018 - 10:23 Permalink

I think we just need to get people to agree to inject poison in their bodies. How could we pull that off to save government pensions? How could Australia do it? Maybe by withholding payments from parents? Offer the government cheese, and people will shoot up whatever it is you tell them to. And then you have demographics back on your side.

Me? I plan to work until at least 75. And I chose a career in which this happens regularly.

In reply to by Four Star

MoreFreedom powow Fri, 07/13/2018 - 09:57 Permalink

America's REAL WOES are simple to fix.

The problem for most states is that aging populations mean that more money is being spent on medicaid and pensions while revenues have largely been stagnant.

The only simple fix, is eliminating or significantly reducing the socialist ponzi schemes of taking from workers for retirees and the poor who can't pay for their health care.  That will leave them without what politicians promised.  It will cut government spending by around half.  I'm all for it, even though I'm in my early 60s. It will be especially good to renege on government employee pensions given they're overpaid, overcompensated, and mostly produce nothing of value.  It creates incentives for government workers to demand 401Ks like the private sector so they control the money, but that forces politicians to pay for government retirement as liabilities are incurred rather than expecting future taxpayers to cover the bills.

The sooner they cut spending on these programs, the less painful it will be, and if not it will collapse like Detroit.  But what politician wants to do that?  Detroit is still run by Democrats, and it's not getting any better.  Illinois and Chicago are also on the verge of reneging on their pension or bond promises.

In reply to by powow

MonsterSchmuck Thu, 07/12/2018 - 23:49 Permalink

Isn’t that the plan?

Shaking the sheep down and out of their meager wealth requires a quick hard drop. Then they don’t know what and who hit them, and where all their shit went.

Right, Goldman, BoA, Citi...? 

NoDebt Thu, 07/12/2018 - 23:53 Permalink

"It’s very important in our view that during the good times the states should be building up their fiscal resilience and that really stands out as an area that’s been lacking throughout this recovery"

Hysterical.  Everyone knows the next downturn will be the "widowmaker".  Nobody is holding a motherfucking thing back for a "rainy day".  Why do you think the MIC is trying so hard to make sure it never happens?  

When the next dowturn hits it won't be by accident.  It will be on purpose.

 

Endgame Napoleon NoDebt Fri, 07/13/2018 - 08:36 Permalink

Wonder how many billions that sales-tax coffers are deprived of in those states, when billions are sent out of the country in remittances?

Nationally, remittances total $28 billion per year, not spent in US businesses, going out of the USA just to Mexico and just from illegal aliens. This does not count the yearly deluge of 1.5 million new legal immigrants, sending billions in remittances to umpteen different countries while collecting pay-per-birth welfare and other freebies in many cases.

Elimination of the USA’s Shadow Remittance Foreign Aid Program might bail out those pensions or boost solvency in other ways, like bolstering rainy day funds.

In the prime of life, those youthful, womb-productive, strappin’ illegal aliens cost states a lot—$113 billion per year—across the nation in welfare and other maintenance costs.

States use tax money to provide a free education to the US-born instant-citizen kids of illegal aliens. Their noncitizen kids are entitled by law to the same.

States must hire more teachers—more future pensioners—to provide this freebie so that cheapskate employers have access to hordes of laborers, willing to work for beans due to streams of welfare for US-born kids that cover their major monthly household expenses.

States must hire more pension-collecting police and firemen. States must pay for more prison space, the more people we let in the USA. 

There is a special Medicaid fund to take care of every member of every illegal alien’s household, not just the pregnant women and the instant-citizen kids. It was set up by Congress to make sure hospitals do not go broke from dispensing so much uncompensated care.

Those instant-citizen kids qualify legal and illegal immigrant parents in single-earner households, strategically staying below the income limits for welfare in traceable earnings, for free EBT food at $450 per household on average, free monthly cash assistance in some states and up to $6,431 in refundable child tax credits, even though they pay no income tax and little SS tax when eligible for welfare due to measly, part-time, taxable earnings. 

If we had fewer illegal aliens in the country, and a more reasonable flow of non-welfare-eligible legal immigrants, states would have fewer expenses for the young and womb-productive households, working for limited amounts of [traceable] income. 

In reply to by NoDebt

MrNoItAll Fri, 07/13/2018 - 00:01 Permalink

The only "expansion" since 2008 has been in debt. That is worldwide, at the national and state level. There has been no "recovery", no "good times", just debt and more debt combined with market manipulation and lies and propaganda. So, how exactly were states supposed to rebuild their rainy day funds and beef up their pension funds, especially given the FED-manipulated near-zero interest rate returns.

Endgame Napoleon MrNoItAll Fri, 07/13/2018 - 09:35 Permalink

Little anymore incentivizes the following activities:

  1. investment in US enterprises [inside of the USA] that employ tax-paying US citizens and
  2. hard work. 

Womb productivity of citizens and noncitizens, on the other hand, is incentivized in 50 different ways, in increasing amounts per birth, and the incentives have worked, creating the largest generations in US history: the Millennials and Generation Z, not the retirement-age Baby Boom generation, which is a smaller generation than the other two.

But the working-age Millennials—and many in the smaller, middle-age Geneation X who are not in the dual-high-earner households of assortative-mate parents, concentrating two of the few good-paying jobs with benefits under fewer roofs and halving the size of the college-educated middle class—are massively underemployed and, thus, not beefing up the tax base much. 

  1. 101 million working-age US citizens out of the labor force;
  2. 78 million gig pieceworkers;
  3. 42 million EBT-eligible citizen and noncitizen womb producers who qualify for that program [and other monthly welfare programs] by working only part time, keeping traceable income in single-earner, womb-productive households with US-born kids under the ultra-low income limits for welfare, with an additional wage booster from .gov: up to $6,431 in yearly, refundable child-tax-credit cash.  

Current Solution:

  1. Give dual-high-earner parents—enjoying two, big-ole, salaried, non-job-creating, non-risk-taking jobs per household—a non-refundable child tax credit of a few thousand to spend on kitchen redos or even more vacations in their above-firing, voted-best-for-moms jobs, where low-paid and high-paid parents are often absentee mornings, afternoons, days and weeks beyond PTO & pregnancy leave, thanks to 1) the crony-mom job network and 2) computers that do more of their work. 
  2. Give non-welfare-eligible, single, childless citizens and non-welfare-eligible, single parents with kids over 18—with no spousal income, no child support and rent that absorbs more than half of their monthly, earned-ONLY income—in the many states where per-capita income is $20k or below a kick-in-the-head tax break bigly enough to finance a Costco membership.

Obama’s stimulus gave the same group of dual-high-earner parents an income tax break of a few thousand, while giving the lower-earning, single, non-womb-productive employees and the single earners with over-18 kids a payroll tax cut bigly enough to finance a Costco membership.

The only difference between Obama’s stimulus and Trump’s was Obama’s hoisting of the refundable child tax credit for non-income-tax-paying citizens, legal and illegal immigrants from its current $6,431 for maximum womb productivity to over $8,000 for womb productivity in excess of 4 kids.

It did NOT work, so Congress tried the same thing for employees, adding on large tax cuts for bigly businesses that mostly bought back their own stock and bigly tax breaks for a few heirs. Not clear that the heirs will invest that money in creating businesses, here in the USA, that employ US citizens. 

Not clear about the size of the income tax break for most of the 78 million self-employed gig pieceworkers. Since their income from self employment is often modest, Social Security taxation is what most of them feel.

The self-employed pay twice the rate of SS tax on every $80 gig—15.3%, unlike the 7.65% SS tax up to the $128,400 SS-taxation cap paid by employees. This includes the dual-earner parents—keeping two safe & salaried jobs with so-called “employer-provided” health insurance, made possible by a $260-billion tax exclusion for their employers under one roof—who got the non-refundable child tax credit of a few thousand. Most gig pieceworkers are not in the family-friendly crony-parent job network and likely did not see that much in income tax savings.

 

 

In reply to by MrNoItAll

peippe Fri, 07/13/2018 - 00:13 Permalink

no kidding it's just about over...

take a look at the kiddies that get pulled over these days, cops checking window tint, 

the very same ass-clowns who drive around with, guess what? heavy window tint, 

then there's the headlight color compliance, muffler comp, maybe inspection to see 

if you altered the air filter (no  I am not making that up) It's a joke out there, most 

kids don't even get a license on time because apparently money is tight so it's 

just the younguns who enjoy it but tolerate crap I did not grow up with, hope this 

sad system gets starved hard & fast. no pun intended. sorry kiddies, sorry about the 21st century. : (

Yen Cross Fri, 07/13/2018 - 00:14 Permalink

 If Trump wants to MAGA, the last thing he should be doing is trying to expand infrastructure.

  The U.S. is entering a consolidation phase, and he should focus on updating and streamlining existing infrastructure.

  Most of the states that need funds are blue, and have misappropriated funds[taxpayer $'s] set aside for infrastructure repairs and management for decades.

rickv404 Fri, 07/13/2018 - 00:21 Permalink

Interesting to see how long these states will fully fund their Medicaid expansion, particularly when they end up getting less than the 90 percent coverage promised by the feds.

Chief Joesph Fri, 07/13/2018 - 00:31 Permalink

States should be abolished altogether.  They are an arcane idea, held over from colonial days.  They have become a useless second tier of government, that really has little benefit to anyone. Most of them are seriously in debt, and there are at least 5 states that are totally bankrupt. (Illinois and New Jersey are great examples).  Or, just look at Medicaid as an example.  The 1966 Medicaid legislation made states 100% responsible to provide the poor with health coverage.  Today, the federal government picks up 52% of the tab the states are suppose to be paying.  Same with federal/state costs sharing on infrastructure repairs, like highways, education, national guard, you name it.  The feds have to cover the states' costs these days.  So, why have states?  

dchang0 Chief Joesph Fri, 07/13/2018 - 00:43 Permalink

States act as bulwarks against the domination of the leftist megacities.

Think about it this way. Look at Washington State. One deep blue city, Seattle, dominates the rest of the red counties. The border of WA contains the influence of Seattle like a cage around a rabid animal.

If the USA were under just one giant government, then the biggest megacities, all deep blue, would dominate all US politics, crushing the 99.999% rest of the landmass that is all red and rural in every election and every vote in Congress.

That is one reason the Democrats want to abolish the electoral college--they want to use the massive population size of the blue megacities to drown out the votes of the red counties and states.

In reply to by Chief Joesph

divingengineer Zorba's idea Fri, 07/13/2018 - 00:44 Permalink

If you make decent money due to a combination of skills, education, hard work and personal drive get ready. You are going to be getting slammed hard in the coming years.Tax Donkey is right, the wealthy won’t pay shit, you will shoulder the load until you buckle under and get in the free cheese line.

Its already happening, it will intensify.

 I look to the future, not with hope, but with a sense of disdain, I can see it coming.

In reply to by Zorba's idea

platyops Fri, 07/13/2018 - 00:38 Permalink

The California pension system is known as "CalPers" has a leadership team made up of people who are promising a 7.5% ROI!

The next downturn on the DOW will prevent that from happening.

CalPERS is already several hundred billion dollars in the red. The democratic leadership mainly Governor Brown keeps saying the state is in fantastic shape. May he should say Fantasy Land shape instead?

Keep Stacking!

BetterRalph Lost in translation Fri, 07/13/2018 - 05:40 Permalink

CA needs the corrupt leadership replaced with loyalty, honor and integrity to the rule of law, the Constitution, the President, and the PEOPLE!

We can't get that when we have a Senator doing trans national arms trafficking of military grade stuff, while passing BULLET BUTTON Laws and large cap mag laws on the AR platform.

It's like a TRAITOR want's the PEOPLE DISARMED.

In reply to by Lost in translation

lizzoilz Fri, 07/13/2018 - 01:12 Permalink

Tyler and Shepwave writers might finally be on same page

 

From Shepwave

 

Friday could be a critical day of trading. 

Two weeks ago, on June 28th, the Dow Transportation index hit a key mark.  An area that has come into play SIX times in the last year alone! (Notice the other key areas hit by the other major U.S. equity indexes and/or ETFs on that day.) Is there a coincidence that June 28th was the ShepWave TIME-CYCLE TURN DATE? Probably not.

Then notice that the rally that has proceeded from the June 28th lows has  indeed hit some key targets. Targets which were given in advance. This applies to all of the major U.S. equity indexes--and we could be seeing a shake up coming soon.

YOU JUST CAN'T MAKE THIS STUFF UP!

The recent Island gap patterns may bring some unexpected turns in the markets for traders not paying attention.

BetterRalph Fri, 07/13/2018 - 01:57 Permalink

Hardening the public for surviving easily "without money temporarily" ,  would be worth it.  But I think it will take a new mindset and a couple years of a different paradigm shift in nutrition and medicine. The current hospital system would need to change 100%.

systemsplanet Fri, 07/13/2018 - 03:57 Permalink

This report does a great job analyzing real pension liabilities by state:

https://www.alec.org/app/uploads/2017/12/2017-Unaccountable-and-Unaffor…

 

"If the Pension Protection Act were applied to the public sector, every single state would be considered at risk of defaulting on their pension obligations assuming a risk-free rate of return."

 

GA has only 36.2% of the $143,074,967,721 owed to retirees and was listed as one of the least transparent in it's reporting. Yikes!

I am Groot Fri, 07/13/2018 - 04:43 Permalink

Illinois and New Jersey are floating in the bowl and about to be flushed by their totally idiotic Democrat leadership, or major lack therof. Kommiefornia is right behind them lining up to turn into a giant used tampon dumpster fire before it dies. Every city in America that is controlled by left wing progressives is a total shithole.

Obamanism666 Fri, 07/13/2018 - 05:00 Permalink

In the coming years the Pensions will be used for health issues create by the lack of health, fitness and eating. The lack of health in old age will be encouraged by Big Pharma/Banks to have  more profits (AKA Goldmann statement " there is no Profit in a cure for cancer").

If Free healthy meals where offer in local government areas and staff on hand to spot health issues and improve health through basic exercise and healthy eating (only if is free people like free stuff). In 10-15 years this might improve enough peoples health that they will have more money for other stuff than medical issues.