Even red states get the blues

Our cover story in the current issue of WORLD Magazine shows how a Puerto Rico bailout would create a fiscally disastrous precedent for spendthrift states like New Jersey, New York, California, and Illinois—but not only blue states are in trouble. Two years ago, Paul Volcker, the deficit hawk whose chairmanship of the Federal Reserve brought inflation under control 35 years ago, created the Volcker Alliance to be a watchdog on state-level financial chicanery. Its report earlier this year is depressing but important reading.

The money paragraph is this:

“In 49 states, ‘balanced budgets’ are required by constitution or by statute; Vermont, the sole exception, follows the practice of its peers. In truth, however, there is no common definition of a balanced budget, and many states resort to short-term budget sleight of hand to make it appear that spending does not exceed revenue. The techniques include shifting the timing of receipts and expenditures across fiscal years; borrowing long term to fund current expenditures; employing nonrecurring revenue sources to cover recurring costs; and delaying funding of public worker pension obligations and other post-employment benefits, principally retiree health care. While these actions temporarily solve budget-balancing challenges, they add to the bills someone eventually has to pay.”

The red state of Texas, helped by its strong economy, is not in default danger—but some Texas cities and towns, dizzy with economic success, are spending beyond their means. The Franklin Center for Government and Public Integrity reported in October that Alvin, a Houston suburb of 25,000, is building a $41.5 million high school football stadium plus five schools that will cost about $25 million each (about twice as much as the average public school).

Other school districts are thinking even larger, and the result is that Texas schools, cities, counties, and special taxing districts currently carry $322 billion in outstanding debt. That makes Texas second among the 10 largest states in local government debt, with $8,627 owed per person. And that number is growing: Last month Dallas took on a $1.6 billion school bond and El Paso residents tripled their indebtedness by approving a $430 million bond issue for new campuses, athletic facilities, technology, and security.

Texas observers are getting worried. A new jail in Comal County (northeast of San Antonio) will probably cost $150 million, and local newspaper editor Douglas Kirk complained, “So many taxpayers are asleep that the government entities don’t have to do their homework on pricing. It’s all about empire building for the people who have the ability to tax.”