The blue states mimic the Greek experience with too much debt

Eileen Norcross:

If there’s a lesson to draw from the financial disasters in Greece, Puerto Rico and Chicago, it’s this: When governments take on too much debt and continually defer their bills, it eventually spells trouble — for both taxpayers and those who rely on government pensions or services.

It takes a long time, a lot of bad choices, and an economic shock or two to put a government on the brink.

Will the tri-state area soon face the same painful choices as Chicago Mayor Rahm Emanuel — trying to decide whether to staff schools or fund pensions?

It’s a question that led me to compile new state fiscal health rankings, using the most recent 50-state set of audited financial reports (from the 2013 fiscal year) and check their vital signs.

Do states have enough cash to cover an emergency? Can they meet their annual budget? Do they have more liabilities or assets? What are the biggest risks?

Three of the bottom five states in our union include New York, Connecticut and New Jersey.

All experienced the same lingering post-recession stress: little cash to cover short-term liabilities and revenues that barely match expenses.

And all three have large, ongoing expenses for public employees’ health care or other post-employment benefits (OPEB) and a tendency to use debt financing.

New York ranks 46th, due to a weak cash position and a small deficit in FY 2013.

The long-run measures show the state uses debt to finance everything from OPEB to local highways and bridges, mass transit and CUNY and SUNY expenses.

Issuing debt isn’t unusual, nor does it spell imminent disaster, but it does add up.
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Unfunded benefits can put stress on a state’s finances, especially during recessions.

Connecticut is next at 47th.

It has more long-term obligations than it does resources. Adding to its deficit is a reliance on bonds, including debt issued to cover pension contributions and pay for OPEB benefits and compensated absences for employees.

New Jersey finishes at 49th, ahead of Illinois.

The Garden State’s cash position was better than New York’s, but its budgetary position was slightly worse, with revenues falling short of expenses, necessitating a $5 billion transfer to cover the gap.

Long-term obligations like the ongoing cost for pensions and OPEB are again the driver and are among the biggest liabilities on New Jersey’s balance sheet.
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This report does not say where California fits in her survey, but it is experiencing the same stresses.  These states add to the tax burden with excessive regulation that hampers business and job creation.  States that are growing like Texas are also facing increased debt burden because of the need to add infrastructure and schools to service the new population.  This debt is more local but it needs to be watched more closely too.