Why Cities (and States) Are Broke: They Spend Too Much. Or, Yet Still More on the Coming War on Public Sector Spending…


As whole states and cities go into whatever passes for receivership when such entities get bustier than Morgana the Kissing Bandit, here are some facts that are worth keeping in front: Governmental units go broke BECAUSE THEY SPEND TOO MUCH. It's not due to downturns in revenue. As with the rest of us who hover anywhere north of the poverty line, cities and states get into trouble because, like sailors on leave (no offense to Navy and Coast Guard readers!), they think their bankroll is going to last forever and not just be magically replaced each time they crack open their wallet, but be bigger and bigger and bigger each time they crack open their wallet.

Consider this poignant tidbit from the must-read "Failed States" cover story in the May 2009 Reason:

In the five years between 2002 and 2007, combined state general-fund revenue increased twice as fast as the rate of inflation, producing an excess $600 billion. If legislatures had chosen to be responsible, they could have maintained all current state services, increased spending to compensate for inflation and population growth, and still enacted a $500 billion tax cut.

Instead, lawmakers spent the windfall. From 2002 to 2007, overall spending rose 50 percent faster than inflation. Education spending increased almost 70 percent faster than inflation, even though the relative school-age population was falling. Medicaid and salaries for state workers rose almost twice as fast as inflation.

Which brings us to present-day New York City, currently in the throes of a budget squeeze reminiscent of Killer Kowalski's Iron Claw snatch:

New York City will spend over $63 billion this year. In Mayor Bloomberg's first year, 2002, it spent $41 billion.

That's an increase of 57 percent in unadjusted dollars. Thanks to unrelenting tax and fee hikes and the economic boom, revenues, including state and federal aid, grew by as much as $5 billion a year….

The city spent it all, and then some. Only once, last year, did it spend less than the year before. That decrease was under 3 percent, though it seemed draconian to hear the wailing over minor cutbacks.

A study found the city could save $1.4 billion a year just by matching its benefit package to prevailing private ones.

Of the 173,000 city jobs lost in the recession, only 20,000 were in government. Which means fewer private workers shoulder the ever-higher cost…. 

Data assembled by the Independent Budget Office tell how bad it is, and how much worse it's getting.

Medicaid costs over $5 billion a year and is expected to rise 7 percent a year.

Debt service will double, to $6.3 billion, in three years….

Pension costs were $1.4 billion eight years ago, and will be $7.1 billion next year.

The price of labor is prohibitive. The city pays its workers so much, and has so many, it can no longer afford them. Fringe benefits are going up 8.5 percent annually….

More here, frrom the The New York Post's Michael Goodwin.

As depressing as these facts appear on first blush, they are in truth reassuring. There is no mystery to maintaining solvent governments. They merely need to spend less than the rate of increase in the overall economy. That is clearly no easy task politically but it is a message that is crystal-clear and easy to understand, both by voters and public-sector interest groups. And given all the attention, and proper outrage, given to recent analyses that public-sector workers are compensated far better than their private-sector counterparts, this should not be a particularly tough sell in the months and years ahead.

Or at least here's hoping. The alternative is as simple as it is grim: An endlessly expansionary state that cannibalizes the private-sector economy in such a way and to such a degree that it kills the goose that's been laying these golden eggs for decades.