More Federal Money… More State Budget Problems

By Kenneth Hunter, Guest Blogger

In a matter of hours this past Tuesday, the US House of Representatives passed and President Obama signed a $26 Billion bailout plan that will provide additional Federal funding assistance to states dealing with significant structural budget deficits related to declining and stagnate revenues, along with growing Medicare and education spending.

Despite the fact that Congressional leadership and the White House both state that this legislation is “paid for” thru tax increases and cuts in other spending programs, the reality is that the bailout is a clear indicator that the current structure of “universal-style” public services and entitlements is fiscally unsustainable. Perhaps the most disturbing fact involving this action is that 30 states, including here in North Carolina, prepared and adopted their Fiscal Year 2011 budgets to incorporate these “anticipated” revenues to fill in gaping deficits.

In North Carolina’s case, the General Assembly and Governor Bev Perdue cobbled together a budget that allocated an additional $1.6 Billion in stabilization funding made possible by last year’s Recovery Act, then balanced out with an assumption that an additional Federal bailout would provide them with nearly $519 million.

The budget did include a “replacement plant” to cover the gap if Washington did nothing. Along with raiding numerous reserve funds, the plan included a $139 million reduction in contributions made by the State to their employee retirement system, a balancing gimmick that would be considered criminal by many, and irresponsible to anyone.

Local governments participating in North Carolina’s State-administered retirement (pension) program were forced to increase employer-paid premiums by approximately 35% this year. This will be the first of many employer and employee-side increases we anticipate over the next several years. While cities, town, and counties in the Tar Heel State are doing their best to balance budgets and control spending in real terms, often the product of effective work between elected officials and professional analysts, our elected leaders in Raleigh (like many other state capitals across the country) have simply pulled out the legal pads and started balancing for the sake of numbers, not reality.

Regardless of one’s opinion of the original stimulus and recovery efforts, everyone with any financial understanding realizes that such initiatives relying on significant infusions of cash must end, almost as quickly as they begin. Not only do the resources not exist to keep repeating this trend, but continued “bailouts” will only encourage irresponsible behavior at the state level, perhaps reaching down into localities.

If this level of institutionalized irresponsibility reaches all levels of government, without effective restoration of fiscal discipline by principled administrators and politicians, respecting the interests and inherent liberty and rights of the individual citizen, the integrity of American government will be destroyed at a fundamental level.  Forcing states to take their financial crises seriously, turning to restructuring from the inside rather than holding their hands out for another Federal bailout, is critical to the survival of our Federal system.

ASPA Member Kenneth Hunter is an MPA Graduate of The University of Georgia with more than a decade of experience in local government finance. Kenneth is the Budget & Evaluation Manager for the City of Rocky Mount, North Carolina, and serves on the Executive Committee of theAssociation for Budgeting & Financial Managementand is a Board Member and Webmaster for the North Carolina Local Government Budget Association.

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