Bacon's Rebellion

Democracy Thrives in Sunlight

The Burning Fuse

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by

James A. Bacon
in

Image credit: Jason Orender.

Aggregated debt for the 50 states exceeds $4.19 trillion, according to a new report issued by State Budget Solutions. That may pale in comparison to the federal government’s nearly $16 trillion in debt but, then, states have more limited fiscal resources than Uncle Sam. Among other things, they can’t print their own money.

“These budget numbers should serve as a wake up call for every state legislature around the country. Our states are in trouble and no amount of budget gimmicks, political posturing or hiding bills will fix the massive debt that they face,” said Bob Williams, president of State Budget Solutions. “There is no option for status quo or incremental adjustments. Drastic reforms, innovations and political courage are needed to put our states back on the road to fiscal survival.”

The $4.19 trillion figure does represent an incremental improvement from $4.24 trillion the previous year, but the progress in debt reduction is discouraging given the fact that the nation is in its third year of economic expansion and state finances should be improving. SBB’s definition of debt includes bonds, leases, unfunded pension liabilities, post-employment benefits and unemployment trust fund loans.

California is famously the most indebted state measured by absolute dollars, $617 billion. But it also has the largest economy, so the debt burden isn’t as heavy as it is for many other states. Likewise, Virginia, with $64 billion in debt, ranks fairly high in absolute dollars of debt. Yet the Old Dominion’s debt burden, measured as a percentage of the state economy, is one of the lowest in the nation.

In the chart below, I have taken SBB’s debt numbers, aligned them with 2011 state GDP numbers, and shown the debt as a percentage of GDP. States at the top of the list have the lowest debt burden. Nebraska, home of tightwad billionaire Warren Buffett, has the lowest debt/GDP ratio in the country. As for the states at the bottom of the list, Hawaii may be paradise but I wouldn’t want to be a taxpayer there.


Watching its debt and long-term budget obligations is one of the things that Virginia does really well. But that’s no excuse to get complacent. Our economy remains extremely vulnerable to a downturn in federal spending, especially defense spending, and our budget picture could deteriorate in a big hurry. Moreover, we remain mired in institutional dysfunction. There is no serious movement to reform K-12, high ed, health care, transportation or human settlement patterns. The fuse is still burning.

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  1. larryg Avatar
    larryg

    Wow! looks like the Clown Show in Richmond has done not a bad job comparatively!

    DJ will probably say they accomplished it by screwing NoVa, eh?

    what is missing from the overall discussion is what the debt is for – and what is an acceptable number for debt.

    debt should not (obviously) go for operational expenses but debt for infrastructure is an investment that ostensibly has an ROI.

    the problem with Jim B’s approach on this stuff is that it always seems to have a ” I told you so, we are going broke” dimension to it and I’m not really convinced … sure we have problems .. but I just don’t see armageddon waiting in the wings to devour us.

    1. DJRippert Avatar
      DJRippert

      Bag ladies generally have no debt. Does that mean they are among society’s most successful citizens?

      In 2000, the GSP was $261.8B, of which $62.7B came from federal spending.

      In 2012, the GSP was $423.5B, of which $136.1B came from federal spending.

      The overall economy grew 59.8%. However, federal spending in Virginia grew 107%. So, non-federal economic growth was 44%.

      All figures in current dollars.

      The Imperial Clown Show in Richmond has been admiring this problem for quite some time …

      http://hac.virginia.gov/committee/files/2011/11-15-11/VA_Federal_Spending_Impacts.pdf

      They estimate that DoD cuts will reduce the state GSP by $10.5B. Since DoD is less than half of the federl spend in Virginia, I’ll add another $10.5B for non-DoD cuts.

      That’s $21B off the top of VA GSP.

      I estimate the loss in wages and salaries to be $14.6B. Given that these are generally high wage positions, I’ll use 5% as the average state tax rate. That’s $730M per year less in state income taxes. In 2011, Virginia collected $9,530,628,ooo in individual income taxes. The federal cutbacks would result in an 8% drop in state income tax collections. Virginia also collected $798M in corporate tax. An 8% drop would add another $64M in lost revenue.

      Add other, random taxes and we’re going to be about $1B short.

      In 2006, 3.5M federal tax returns were filed from residents of Virginia. However, about 1M paid no taxes. So, we have about 2.5M people filing returns and paying taxes.

      $1B / 2.5M = $400.

      Of course, that $400 will only by paid by those holding jobs and paying income taxes. Lucky us.

      1. James A. Bacon Avatar
        James A. Bacon

        Don, it all depends on how the debt was incurred. Taking on debt to build economically justifiable infrastructure is a good idea. Taking on debt because you can’t balance your budget is a bad idea. Racking up unfunded obligations for your public employee trust fund is also a bad idea.

  2. thebyurokrat Avatar
    thebyurokrat

    Meh. Debt service as a portion of current and future revenues are the real concern. Can you keep paying the bills for the forseeable future? If so, the total debt-load doesn’t matter.

    Not all debt is bad. This is particularly true in growing states that have borrowed to invest in the infrastructure necessary to support larger populations and more economic activity. Simply pointing and shouting “DEBT IS BAD! LOOK AT THIS!!! ARGGGHHH!” obscures this point (and an organization like SBS, headed by the “first” tea-partier, has little to offer but this kind of budget/debt sensationalism.)

    Virginia’s debt is almost all related to infrastructure. When you look around, does it seem like we’ve borrowed too much, or too little?

  3. larryg Avatar
    larryg

    I agree. To render an intelligent view of Virginia’s debt,we need to look at what it is for and if it is primarily for infrastructure the gloom and doom is just not justified.

    When most people sign up for a 30 year mortgage that is going to eat up 1/3 of their monthly income – but it’s for something that will likely retain it’s value or even gain in value then we’d not say they were headed for bankruptcy…. but we go through that same exercise for states and end up saying they ARE headed for bankruptcy..

    the problem with the US budget is that the debt IS for operational expenses and yes..that is a disaster…. and it needs to be dealt with but the same folks who spent the money in the US budget originally and have spent the last few years yammering about cuts – when presented with a cuts scenario – the sequester – have run screaming from the room. so much for leadership.

  4. DJRippert Avatar
    DJRippert

    “Virginia’s debt is almost all related to infrastructure. When you look around, does it seem like we’ve borrowed too much, or too little?”.

    Great point. Virginia has borrowed too little and taxed too little to build the kinds of communities that will keep the talent that fuels new business / new job creation.

  5. Richard Avatar
    Richard

    It’s amazing to me that the same people who deny climate change and the human role in it are the same ones predicting disaster at some point in the future because we’re spending too much money on social welfare, pensions, teachers, bridges, the Capitol dome, and infrastructure. As Chicken Little famously said “The sky is falling, the sky is falling!!!”

  6. TMT Avatar
    TMT

    “Virginia has borrowed too little and taxed too little to build the kinds of communities that will keep the talent that fuels new business / new job creation.” And what type of communities are those? How is today’s Tysons, Reston, or Route 28 Corridor in Fairfax/Loudoun different from the Silicon Valley in California or the Route 128 corridor in Massachusetts?

  7. larryg Avatar
    larryg

    ” It’s amazing to me that the same people who deny climate change and the human role in it are the same ones predicting disaster at some point in the future because we’re spending too much …..”

    I love it! it’s “okay” to have a fiscal disaster but not a climate one!

  8. larryg Avatar
    larryg

    ” “Virginia has borrowed too little and taxed too little”

    this is coming from a guy who is supporting Grover Norquist adherents?

    WTF?

  9. James A. Bacon Avatar
    James A. Bacon

    Hey, that’s funny. It amazes *me* that the same people who deny the impending financial disaster are the same ones who are all wrought up about climate change in the far, distant future!

    1. Richard Avatar
      Richard

      If we don’t so something about climate change now, it may be too late to do anything about it later. Same with fiscal issues, although I don’t think the latter is nearly as dangerous. If we have a fiscal meltdown, it will be temporary and primarily affect those with financial assets (an increasingly small group). If we have a climate meltdown, it affects many many generations and we will lose things that can’t be replaced.

  10. larryg Avatar
    larryg

    touche!

    armageddon indeed!

    but why worry about debt if we’re all going to fry anyhow?

  11. TMT Avatar
    TMT

    Speaking of Climate Change, I received a note from a friend of mine, who has a PhD (a real rocket scientist) and spent his career on thermal modeling, and tought a graduate-level course in heat transfer, including an advanced course in radiation heat transfer. He’s skeptical about the subject.
    Here’s some of the points he made.
    “Gaseous radiation is a complex matter. Pinatubo caused much cooling, but was not in the models. I would like to see a comparison between measured and predicted cloudiness, because cloudiness has a greater impact on earth temperatures than does carbon dioxide.
    “NASA and the EPA have large groups that investigate global warming. If they were ever to find that there is no threat of global warming, the government employees could be out of work. They have attempted to cover their bet somewhat by changing the name from global warming to climate change. The work that NASA contracts out to researchers goes to those who support the theory that global warming is strongly influenced by man. There are certainly reputable scientists who claim that man has little to do with global warming, but I know of none of them who has received a government contract on man’s influence on climate change.
    “Although scientists are reputed to be objective, the reputation is undeserved. They are greatly influenced by their own biases and the availability of jobs and money. I worked directly with a chief scientist at NASA. Although he was not working on global warming, his attitude reflected the bias of scientists. He said that if the data obtained from his satellite did not agree with the generally accepted theory, he would throw the data out.”
    I don’t think this ends the debate, but my friend was a qualified insider.

  12. larryg Avatar
    larryg

    If Global Warming is behind the droughts we are seeing and the increased heat is supercharging the West Nile Virus and the future is for more of the same plus more…

    our deficit/debt issue right now is going to also be super-charged.

    People act like Global Warming is a debate without consequences.

    If GW is real and starts to really affect our climate and weather, it’s going to cost us big time. Look at how much this drought is going to affect food prices.

    how about the drought goes on for a decade … what do you think food prices will look like then?

  13. larryg Avatar
    larryg

    ” Although scientists are reputed to be objective, the reputation is undeserved. They are greatly influenced by their own biases and the availability of jobs and money.”

    is that all scientists whether they work on Ebola or the Mars Lander or Climate Change or have all the “bad” scientists gravitated to climate science?

    this whole concept of essentially impugning all scientists or worse trying to justify impugning one kind of science while saying other science does not have those problems is ludicrous. It’s little more than a corollary to GS skepticism.

    I still do not understand why we never suspect those scientists who worked on polio or cigarette smoking or agent orange or ozone as also being also hopelessly corrupt and just plain evil.

    Confirmation Bias is what this is… read up on it…

  14. larryg Avatar
    larryg

    and when we finally receive harder and harder evidence of climate change and global warming the “skeptics” will say … “see, I told you so”.

    don’t ask me why this happens.. but it does.

  15. TMT Avatar
    TMT

    And how do we address periods of higher temperatures in history? If Washington, D.C. is corrupt about military contracting and stimulus funding, why isn’t it corrupt about Global Warming?

  16. larryg Avatar
    larryg

    hotter periods in history? we are now seeing as hot weather as we have ever documented; Arctic Ice and Glacier ice are at the lowest extents in recorded history.

    It begs the question as to if GW is real and if it is – would the scope and scale of the impacts be far worse than we ever imagined?

    How can we be so sure that they won’t be?

    A prudent person see’s the signs and takes precautions.

    We, on the other hand, are like a cigarette smoker who has developed symptoms but continue to be in denial and continue to smoke.

    Collectively, we are behaving like a smoker….who continues to smoke even when there are warning signs – waiting for, no …requiring an absolute diagnosis before we “believe’.

    1. James A. Bacon Avatar
      James A. Bacon

      Most of the phenomena you describe are the most extreme since the 1970s, when we started keeping serious track of the climate, not in “recorded history.” Another point you ignore: The temperatures this decade are barely higher than the 1930s. There is an undeniable cyclical pattern. One more point: Temperatures have been essentially stable for the past 10 to 12 years. Real-life, recorded temperature increases are falling below the lowest-temperature-increase scenarios of the IPCC report.

  17. larryg Avatar
    larryg

    Jim – do you reject this:

    http://climate.nasa.gov/keyIndicators/

    do you categorize NASA and NOAA the same as you do IPCC?

    1. James A. Bacon Avatar
      James A. Bacon

      Larry, I presume you refer to the Global Surface Temperature data series. I remain agnostic as to the validity of the data. There are lots of methodological issues associated with the compilation of global temperatures, including adjustments for the “urban heat island” effect, the location of temperature series around the globe and the statistical methods used to extrapolate from individual temperature stations to broad geographic areas. Also, it is important to note, these are surface temperatures only. They do not include water readings or atmospheric readings.

      Do I think that NASA/NOAA data may have been politicized just as the Climatic Research Unit data was politicized? Yes, I think it’s a possibility. But I don’t know. That’s why I’m an agnostic, as opposed to a “denier” — although in the mind of true believers, that amounts to the same thing.

  18. TMT Avatar
    TMT

    My dad always talked about the great heat wave during the summer of 1936. He said it was too hot even to sleep on the front porch, so that he and his brothers slept in the front yard (St. Paul, MN). They were not alone in the neighborhood or other cities. See the photo of people sleeping on the grounds of the Nebraska state capitol in the link.
    Moorhead, MN (across the Red River from Fargo, ND) set the record for the highest temperature ever — 114 degrees on July 6. That very same day, Steele, ND hit 121 degrees. http://www.wunderground.com/blog/weatherhistorian/article.html?entrynum=33

    And, as I recall, the 30s produced the great dust bowl in much of the middle of the nation.

    1. James A. Bacon Avatar
      James A. Bacon

      Look at Larry’s NASA/NOAA charts, and the ’30s heat wave barely registers. I doubt they are reporting raw data. They’ve done some “methodological enhancements.”

  19. larryg Avatar
    larryg

    so you both believe that the NASA and NOAA folks could be also fabricating data – right?

    no weaseling here.. be honest.

    1. James A. Bacon Avatar
      James A. Bacon

      No, I don’t believe that they’re “fabricating” data. They’re “massaging” the data. Some kind of massaging is inevitable. You have to make certain adjustments to account for the heat island effect. You have to make certain assumptions regarding which temperature stations to include in your database. You have to make certain assumptions about how the readings from those stations apply to the area around them. Go do your due diligence. You’ll find they’re continually tweaking the data. The question is, to what degree are they tweaking it to confirm their own biases?

      I’m sorry, Larry, you’re not going to be able to depict me as a know-nothing. I’ve read fairly extensively. Admittedly, I am no expert. I don’t understand a lot of the debate, especially the arguments about appropriate statistical methodologies. But I know enough to know that the controversies exist. You cannot sweep them under the rug.

  20. larryg Avatar
    larryg

    naw..you’re weaseling.. you’re essentially accusing them of fabrication of data … as a group – not one or two individuals – but as a group –

    that’s DIFFERENT. In order for a GROUP to do this – there has to be some element of disreputable collaboration to knowingly agree as a group to depict something different than what you know…

    that’s a conspiracy.

    Why do you not think scientists who deal with Polio or Ebola or the Mars Rover or GPS satellites or Hurricane tracking to be engaging in conspiracies?

    there have always been immoral types in science out for their own interests.. sometimes there might even be two or a small team – but your’re talking about hundreds , thousands of people working in different offices in different geographic areas – all “tweaking” data THE SAME WAY – WRONG – and they know it.

    this defies reasonable logic. Everyone at NASA and NOAA are engaged in a conspiracy about global warming. there is not one scientist among them that will rat on the rest?

    …..

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