Debt and Deception: How States Avoid Making Hard Fiscal Decisions

Abstract

Government borrowing occurs whenever the government forgoes control over some future flow of resources or benefits in order to acquire resources for current use. Based on this definition, the authors identify several ways that state governments borrow, which include widely recognized forms of debt as well as types of actions that are less transparent. Case studies for Connecticut, Illinois, and New York document the large amounts of future commitments that these states have taken on to cover operating deficits over the last decade. The authors conclude by evaluating the usefulness of current financial statements for assessing the amount of borrowing that states have done to support current services and suggest areas for which additional information is needed.

Pushing austerity: state failure, municipal bankruptcy and the crises of fiscal federalism in the USA

“…In total, state spending reductions amounted to $291 billion over the period 2008-2012, accounting for fully 45% of the budget-closing effort, while revenues from increased taxes and fees totalled $101 billion (or 15%)-enshrining a coastto-coast shrinking-government standard on a scale of $3 in spending cuts for every $1 raised in new revenues (McNichol, 2012). These measures have enabled states to maintain at least the appearance of balanced budgets, which in nearly every case is a constitutional or statutory requirement, though the crafty deployment of "borrowed funds, off-budget agencies, and the proceeds of asset sales" has also been widespread-these rescheduling and displacement efforts "often making balanced budgets illusory" (SBCTF, 2012, 2;Bifulco et al, 2012). The issues at stake here, however, far exceed those of propver bookkeeping.…”

Defining the Government's Debt and Deficit

“…In a systematic empirical examination of U.S. states, Costello et al . () find indirect evidence that governments meet stringent cash‐based balanced‐budget rules by deferring payments and direct evidence that they do so by selling assets (see also Block, , and Bifulco et al ., ). Examining governments subject to IMF‐ and World Bank‐supported adjustment programs in the 1980s and 1990s (which set targets for cash deficits) Easterly () finds suggestive evidence of the deferral of deficits rather than sustained reductions.…”

Fiscal Magic

“…It is by no means clear that a PILOT payor can "voluntarily" raise its payment, although when that question was raised to a member of Citizens' board, the authors were told that the board had obtained and relied upon a legal opinion that the strategy was permissible. Bifulco, Bunch, Duncombe, Robbins, and Simonsen (2012) recently addressed the distinction between selling government assets for the purpose of avoiding deficits (or raising additional revenue) and selling government assets that may have more value under private ownership. The problem associated with selling assets to cover current deficits or as a revenue mechanism to cover current costs, is that it creates a fiscal illusion by masking the ongoing fiscal burden for which proceeds from the sale of the asset are being used.…”