State budgets in disarray | Don Brunell

When an errant SUV crashes through your picture window, you may not notice that your barbecue tipped over and caught your house on fire. So it is with the U.S. economy these days.

When an errant SUV crashes through your picture window, you may not notice that your barbecue tipped over and caught your house on fire. So it is with the U.S. economy these days.

All the focus on our national debt, sequester cuts and federal tax increases is obscuring a smoldering problem in the states. Declining tax revenues, budget deficits and underfunded pensions have legislatures scrambling for revenue. Many states are taxing and borrowing more just to make ends meet.

The State Budget Crisis Task Force, led by former New York Lieutenant Gov. Richard Ravitch and former Federal Reserve Chairman Paul Volcker, studied fiscal conditions in six heavily populated states — California, Illinois, New Jersey, New York, Texas, and Virginia — which together account for a third of the nation’s population and almost 40 cents of every dollar spent by state and local governments.

Their conclusion: The recession has made the situation worse, but the problem with state finances is structural, and the current trajectory of taxing and spending is unsustainable.

The issue is huge because state and local governments spend $2.5 trillion a year and employ 19 million people — 15 percent of the nation’s workforce.

The task force identified common threats to state finances, including rising Medicaid costs, shrinking federal subsidies, underfunded public employee pensions, poor budget practices and unstable local governments.

Public employee pensions constitute one of the biggest hurdles, with Harvard University estimating that state and local governments have up to $4.4 trillion in unfunded pension liabilities.
The city of Stockton, Calif. recently became the largest city to declare bankruptcy, and analysts predict that, if bankruptcy judges allow municipalities to renegotiate their pension obligations, more cities may follow suit.

The deteriorating situation has renewed talk of changing federal law to allow states to declare bankruptcy. Critics complain that just talking about state bankruptcies could spook bond markets and increase borrowing costs.

Adding to these woes are looming increases in health care costs. The federal Affordable Care Act extends health care to millions of lower income people by expanding Medicaid — a program partially funded by the states. The federal government promised to subsidize the higher costs — 100 percent for the first three years and 90 percent thereafter — but mounting federal deficits could jeopardize those payments.

Health care costs will be an even bigger headache for state leaders in future years as baby boomers retire. A recent RAND Corporation study found that health care expenses for heart disease, cancer and dementia totaled $288 billion in 2010.

The study reported that about 3.8 million elderly Americans have dementia. By 2040, that number is expected to swell to 9.1 million, costing between $379 and $511 billion a year.

With the national debt approaching $17 trillion, Congress and the president will, at some point, have no choice but to shift expenses to the states.

So what’s the answer? As the old saying goes, when you find yourself in a hole, stop digging.

States may have to freeze cost of living adjustments, adjust pension benefits, raise the retirement age and require greater employee contributions to state benefit programs.

In Washington state, pension reforms and a constitutional requirement for a balanced budget have kept us out of the financial abyss. But our budget process has now been made more difficult by a state Supreme Court ruling ordering the state to increase education funding. To keep Washington competitive, legislators must hold the line on other spending so we can fully fund education without imposing new taxes and fees that will slow economic growth.

There are no easy solutions, but the longer our elected officials wait to address the problems, the greater those problems will become and the more harm they will cause.

More in Business

Avoiding trouble while Tweeting | Don Brunell

Your social media can hurt you or help you when looking for a job.

Lampson beating odds for family-owned businesses | Don Brunell

According to The Family Firm Institute, only about 30 percent of family-owned businesses survive into the second generation and fewer than 12 percent are still viable into the third generation.

Columbia River treaty talks too vital to ignore | Don Brunell

The United States and China are currently renegotiating the Columbia River Treaty.

Bellevue company patent infringement win gives small investors hope | Don Brunell

Until recently, our courts have been little help to patent owners.

Podiatrist opens Enumclaw practice

Go see Dr. Bock at 853 Watson Street North, Suite 100.

American giving has surpassed $400 billion | Don Brunell

“Americans’ record-breaking charitable giving in 2017 demonstrates that even in divisive times our commitment to philanthropy is solid.”

Cementing radioactive wastes could save billions | Don Brunell

According to a recent article in the Tri-Cities Herald, the first phase of the demonstration project, grouting three gallons of waste held in Hanford’s underground tanks was successfully completed last December.

Mining contaminated waters to increase copper supplies | Don Brunell

With worldwide demand for copper soaring and there is new pressure to open new mines, expand existing ones, and add ore processing capacity — all of which have serious associated environmental challenges.

GE’s tumble from grace | Don Brunell

General Electric, once the world’s most valuable company, has been topped by Walgreens.

Vintage items, gifts and more at new Enumclaw shop

Featuring an eclectic mix of merchandise, partners Tori Ammons and Melissa Oglesbee… Continue reading

Jetsons cartoon robots now reality | Don Brunell

In April, the U.S. Labor Dept. reported a record high 844,000 unfilled positions in the hospitality industry — which is one out of eight jobs available today.

New shop a sweet spot in downtown Enumclaw

Cole St. now has a new fudge and bakery shop.