Mounting Debts by States Stoke Fears of Crisis

[groovedaddy]

The State of Illinois is still paying off billions in bills that it got from schools and social service providers last year. Arizona recently stopped paying for certain organ transplants for people in its Medicaid program. States are releasing prisoners early, more to cut expenses than to reward good behavior. And in Newark, the city laid off 13 percent of its police officers last week.

While next year could be even worse, there are bigger, longer-term risks, financial analysts say. Their fear is that even when the economy recovers, the shortfalls will not disappear, because many state and local governments have so much debt — several trillion dollars’ worth, with much of it off the books and largely hidden from view — that it could overwhelm them in the next few years.

“It seems to me that crying wolf is probably a good thing to do at this point,” said Felix Rohatyn, the financier who helped save New York City from bankruptcy in the 1970s.

Some of the same people who warned of the looming subprime crisis two years ago are ringing alarm bells again. Their message: Not just small towns or dying Rust Belt cities, but also large states like Illinois and California are increasingly at risk.

http://www.nytimes.com/2010/12/05/us/politics/05states.html?_r=1&nl=todaysheadlines&emc=a2

[Igel]

1. Kick.

My response: 'Well, yeah.'

UCLA in 1992/3 was faced with budget cuts. Recession and all that. The chancellor's response was to not cut the budget but to have faith that in 93/94 the budget would be restored and augmented. On the basis of this faith, UCLA borrowed money. If you make cuts you lose faculty, miss out on innovation and instructional materials, and when you "unmake" the cuts you can't recoup those loses. This was widely supported because people receiving money didn't want to stop receiving money--faculty, staff, students, etc. Of course, everybody found reasons to justify the perfect alignment of their self-interest with the "objective common good."

So in '93/'94 the legislature reduced funding even further--a surprise to nobody. Now, instead of a moderate cut followed by a smallish cut the school had to implement two years' cuts in one go--*and* pay back the loan, making the cuts deeper than they would otherwise have been. It was a bloodbath, with wave of early retirement after early retirement. The objective common good continued to apply to faculty and administrators; not to staff and students.

In the true spirit of Rahm, however, the chancellor's aides weren't those to let a decent crisis go to waste, so they decided to use the severe cuts to reduce, limit, eradicate programs that constituted real public service but didn't emphasis what they thought UCLA's institutional mission was. Leading, of course, to a lot of fighting, reorganization, and more cuts in order to fund restructuring. The planned efficiencies, as planned efficiencies often do, failed to pan out. What was accomplished was that the institution was remade by a portion of the administration who used the crisis to ride roughshod over students and much of the faculty by appealing to the self-interest of the remaining faculty, who, oddly, managed to come up with weighty arguments as to why their narrow self-interest was completely coincident with the common good.

California's budget history, since then and before, is the same story. Even the current budget crunch is the same story. Some of the founding fathers' insights about democracy, voters, and the public purse were dead-on.