Tuesday, May 25, 2010

You can pay me now, AND you can pay me later

States borrowing off the books? It appears so.

Most states have to run a balanced budget, by state constitution or by statute. But these "emergency" loans from Uncle Barack never have to appear on the state budget. Here is the list of states and borrowings:

Alabama $ 283 million
Arkansas 330 million
California 6.9 billion
Colorado 253 million
Connecticut 498 million
Delaware 12 million
Florida 1.6 billion
Georgia 416 million
Idaho 202 million
Illinois 2.2 billion
Indiana 1.7 billion
Kansas 88 million
Kentucky 795 million
Maryland 133 million
Mass. 387 million
Michigan 3.9 billion
Minnesota 477 million
Missouri 722 million
Nevada 397 million
New Jersey 1.7 billion
New York 3.2 billion
N.C. 2.1 billion
Ohio 2.3 billion
Penn. 3.0 billion
R.I. 225 million
S.C. 886 million
S.D. 24 million
Tennessee 21 million
Texas 1.0 billion
Vermont 33 million
Virginia 346 million
Virgin Islands 13 million
Wisconsin 1.4 billion
Total $37.8 billion

For North Carolina, that's about $210 per person in borrowing. Not very much, perhaps. But that's an additional $400 per person who is actually working and paying federal income taxes. And this is DEBT, not new taxes. How in the world can anyone think that borrowing on the credit of the US, and giving the money to the states, is a good idea? You hear this a lot: "Our state taxpayers can't afford this, so we are going to seek Federal money." IT'S ALL THE SAME MONEY. If you take money from my federal taxes, and give it back to me as a state benefit, there is no net benefit, and nothing of value is created.

But if you BORROW on Federal credit, and give the money to the states, it appears to be free money. Politicians can claim credit for it, and it won't have to be repaid until later. This is exactly the strategy that has worked so well in Greece, for example.

To be fair, this new off-the-books state borrowing appears to be something else: In the long run, this debt will take money from some people, in some states, who are dumb enough still to have jobs. And give that money to other people, in other states, who have figured out that it's cheaper to get free money than to try to earn a living by having a job.

(nod to Doug C, and the Economic Policy Journal)


earl swift said...

If the government were a corporation, they would be sued by the SEC, subpoenaed by congress, and ridiculed by the media for these off the books transactions.

Anonymous said...

@ Earl

Not until it all came crashing down. We laugh at companies like Enron now, but at the time they were a market darling. The money just kept on coming, and everyone was all too happy to believe it could keep coming forever.

earl swift said...

^You are correct. Maybe Greece is a better example of creative accounting that would bring all hell fire. Maybe we should start making states use "green" accounting?


Kindred Winecoff said...

Well, the difference is that the Fed government can borrow at amazingly low rates. The individual states cannot. By that rationale, if any borrowing is to go on, it makes perfect sense for the Feds to do it.

Interest rates are so low right now that it's practically free money. Why not take it?