By William Brangham and Jessica Wang
States and cities across the country are in financial straits right now. The recent recession caused steep declines in state revenues (things like sales taxes, property taxes, income taxes) while simultaneously driving up the demand for government social services (unemployment assistance, medical care, and other social safety net expenses). This one-two punch has left many localities reeling.
On top of that, the recession only exacerbated the longer-term budgetary problems that states were experiencing. It’s what The Pew Center on the States recently called the “Trillion Dollar Gap” – the huge chasm between what local governments have promised to retirees in health, pension and retirement benefits, compared to what those governments actually have on hand to pay for those benefits.
Recently, an economic think tank called The Milken Institute convened a bipartisan group of leaders and scholars to propose some solutions. They gathered government officials, representatives from unions, bond-rating agencies and the financial industry and asked them all to get creative in their thinking about what long-term fixes are needed.
According to the institute, “cutting back on services and increasing taxes won’t be enough.” They argue states and local government will require more substantial shifts in the way they do business – everything from the way they pay their employees to how they fund their biggest infrastructure projects. “This problem can’t be solved unless everyone takes a hit,” says Betty Zeidman of the Milken Institute. She discussed their report on this video, and the complete report can be read here.
The group offers “back-to-basics approaches” from ideas of how to raise more tax revenue, to fixing areas of abuse in the pension system and establishing a standard and more accurate accounting method for pensions. Here are some specific strategies that they lay out:
- Focus on multi-year budgets and create incentives for establishing rainy-day funds, instead of just scrambling to create a budget year to year.
- Set up a control board – like New York did in the 1970s when facing near economic collapse. It’s essentially an apolitical, independent group, free of the burdens of having to face the political strains that elected officials face, that can come in and make difficult budget decisions in times of fiscal distress.
- Encourage serious budget planning with a “race to solvency.” Similar to the “Race to the Top” fund established for education, federal aid would go to the states with the most promising fiscal strategies.
And above all, they advocate the importance of political will. They implore politicians to look past short-term re-election concerns for the long-term welfare of their state or municipality.
Take a look at what they suggest, and let us know what you think. Which solutions seem realistic, and which do you feel are off the mark? What are your solutions?
Read the Milken Institute report.
Video: Are public employee unions to blame for states’ budget woes?