“60 Minutes” ran a powerful segment this past weekend analyzing the dismal state of fiscal affairs in a variety of states across the nation. It was called “The Day of Reckoning.”
Reported by Steve Kroft, the “60 Minutes” piece asked how things could get this bad in states like California, Illinois, Arizona and, yes, New Jersey. How bad are things in some states? In Illinois, they sold off the Statehouse and are not paying lots of people they owe money to. According to Illinois State Comptroller Dan Hynes, the state has $5 billion in outstanding bills and they don’t have enough money to keep the state going. According to “60 Minutes” reporter Kroft, “The state’s a deadbeat.”—A point that was not debated by Illinois State Comptroller Dan Hynes.
California isn’t much better. They have a $19 billion budget deficit and according to “60 Minutes,” “a credit rating approaching junk status.” Further, in the report it was found that California now spends more money on public employee pensions than it does on the state university system, which had to increase its tuition by 32 percent.
As for Arizona? It is so bad there that they sold off their State Capitol, Supreme Court building, and both chambers of the State Legislature to private investors. It’s pretty embarrassing don’t you think?
One of the biggest reasons things got so bad in these states is that politicians of every stripe, along with chicken liver legislators, have refused to deal with the escalating pension and healthcare costs of public employees. Further, these state leaders have refused to acknowledge how bad things really are, and instead are sweeping our fiscal problems under the rug or “kicking the can down the road” so some other politician will have to deal with it.
One of the features in this “60 Minutes” segment was an interview with New Jersey Governor Chris Christie, who made it clear that he canceled the rail tunnel project under the Hudson River not because he was against it, but because the state just didn’t have the money. Clearly, Christie has made some enemies and public opinion polls are split down the middle on his job performance, but on this “60 Minutes” episode he was the voice of reason, sanity and reality. Said Christie; “The federal government doesn’t have the money to paper over it anymore, either, for the states. The day of reckoning has arrived...”
When challenged by Steve Kroft about the jobs the Hudson rail tunnel would have created, Christie responded; “I canceled it. I mean, listen, the bottom line is I don’t have the money. And you know what? I can’t pay people for those jobs if I don’t have the money to pay them. Where am I getting the money? I don’t have it. I literally don’t have it.”
Christie was also asked about this epidemic of states bordering on bankruptcy and its trickle down effect on municipalities who are desperately looking for more state money, which isn’t coming. And as for the option of waiting to deal with it, Christie told “60 Minutes; “It’s not like you can avoid it forever, ’cause it’s here now. And we all know it’s here… That’s it. And it’s gonna arrive everywhere. Timing will vary a little bit, depending upon which state you’re in, but it’s comin’.”
One of the scariest parts about the “60 Minutes” report that has investors who believed that municipal and government bonds were a safe bet is that, according to respected financial analyst Meredith Whitney; “The most alarming thing about the state issue is the level of complacency…It has tentacles as wide as anything I’ve seen.” In discussing the potential financial meltdown of state and local governments, Whitney said; “I think next to housing this is the single most important issue in the United States, and certainly the largest threat to the U.S. economy.” According to Whitney, it is a safe bet that local and state governments can begin to default on these bonds which could leave investors high and dry.
The bill has not only finally come due, but it has been due for a very long time. And if you are a public employee, you may not like Governor Christie for asking you to pay more for your health insurance or for renegotiating existing pension agreements (as well as capping your annual salary increases), but consider this. Christie’s argument is that 10 years from now, if we don’t do what he is proposing, what good is having a generous pension package if there is no money to pay you when you retire? Don’t kid yourself. Bankrupt is bankrupt and if the state or local government actually declares bankruptcy, there will be a lot of people, including current and former government employees, who just aren’t going to see the money.
So we are all in this thing together and if we don’t get on the same page and support those that propose painful but absolutely necessary cuts, changes (I say some new taxes) and the renegotiation of existing agreements, we are going to all wind up in a very scary creek without a paddle. Think I’m joking? Think again. I’m sure some folks thought the Great Depression of 1929 could never happen. Ask those folks that lived through it. They will tell you a very different story.