State finances are
teetering with $4 trillion in unfunded liabilities to cover pensions and
healthcare for state workers, along with revenue shortfalls, antiquated
financial practices and skyrocketing Medicaid costs, according to a report
released Tuesday.
The State Budget
Crisis Task Force -- organized by former Federal Reserve Chairman Paul Volcker
and former New York Lt. Gov. Richard Ravitch (D) -- is the first complete study
of the state finances conducted without the involvement of state government
groups. Volcker and Ravitch concluded that the dire financial portrait may lead
to major cuts for social services, causing a cascade of further problems for
state and local governments nationwide.
"The thing that
worries me is the threats to the social order," Ravitch told The Huffington
Post, noting that "cultural and social bankruptcy precede financial bankruptcy."
"You can't cut human services and cut the ability of government to take care of
the people."
State governments
have been borrowing to pay for operating expenses in order to comply with state
constitutional mandates for balanced budgets, the report said. Those loans and
the practice of shifting spending between budget categories make balanced
budgets "illusory," the report said.
In addition, Volcker
and Ravitch noted that "one-shot" financial measures are common in state
governments, including those that pile up debt for the future. State revenue
projections also can be wrong, because of weak planning, lack of transparency
and miscalculation, the report said.
The report studied
six states --
Volcker and Ravitch
said that unfunded state government pension obligations could total as much as
$3 trillion, triple the $1 trillion estimate produced by the states. This is in
addition to the $1 trillion in unfunded healthcare obligations for retired state
employees. The report also notes the rising Medicaid costs, a common refrain
from governors and state legislators nationally.
With a debate
nationally over state adoption of the now optional Medicaid expansion mandated
under the Affordable Care Act, Ravitch said he does not believe the plan will
reduce state Medicaid costs short-term. The expansion is funded by the federal
government for three years. States kick in 10 percent of the costs after that.
Ravitch said a complete overhaul of the system will be needed, addressing the
costs placed on Medicaid by not completely funding the Medicare system and the
increase in Medicare users due to the aging
population.
The new report's
alarm about rising Medicaid and pension costs is similar to the "Fiscal Survey
of the States" released by the National Governors Association and the National
Association of State Budget Officers. But the Volcker and Ravitch report does
not share the earlier fiscal survey's
optimistic outlook.
"Those organizations
are controlled by elected officials," Ravitch said. "They are not
independent."
Much of the impact
of state budget woes has been felt by local governments, which have lost state
funding and are subject to property tax burdens that have led to cuts in local
services that include police, fire, public works, education and social services,
Ravitch said. He noted these cuts will have a long-term impact on public safety
and the economy.
States are
prohibited from declaring bankruptcy, but local governments can. Ravitch said
municipal bankruptcies could become more common, leading to even more cuts.
The report outlines
ways to improve state finances, including several that are similar to a 2010
report Ravitch wrote while New York lieutenant governor on his state. Ravitch's
Among the new
report's recommendations is for states to end cash-based budgeting, replacing it
with budgets that allow for transparency in how revenues match obligations in
the same fiscal year. Ravitch said this would curb "one-shot" budget plugs. In
addition, states should issue four-year fiscal plans and make state financial
information accessible.
Volcker and Ravitch
recommended that states spend more of their rainy day funds. State pension
funds, they said, should disclose shortfalls. State taxes should be reformed and
states should collect sales tax on their citizens' Internet purchases, the
report said.
Ravitch and Volcker
also recommended that federal and state officials work together on Medicaid and
healthcare costs. States, the report said, should carefully monitor the
financial health of local governments and address infrastructure
maintenance.
Ravitch said state
and federal leaders need to address the issues immediately.
"It is getting worse
every day," Ravitch said. "We have to stop bullsh---ing."
SM/SM
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