http://www.cbpp.org/1-15-08sfp.htmI would guess that the problem is worse than generally realized. I think that the same thing is going on in the state governments as in the financial business--governments in trouble are NOT coming clean.
Washington for example is listed as a state that is expecting a budget shortfall in the future, but it certainly already has one. It is so bad that it looks like a caucus of insiders is coalescing to try to get rid of our radical governor who blew our budget with political favors.
For those who haven't been following my earlier commentaries on this issue, here is the problem in a nutshell:
1. State expenses are rising but their revenues are falling.
2. So what's the problem? Cut government programs. Well, there is still too much resistance.
3. So instead of cutting expenses, they try to raise revenues by raising taxes.
4. This creates an ever-spiraling tax burden on businesses, families, and individuals.
5. Less money available for discretionary spending. Restaurants, live entertainment, etc taking a big hit (I think locally the restaurant biz in serious trouble).
6. Less business = less profit = less tax haul. Go back to step 3.
Back in the 1970s and 1980s, there was a big movement among political conservatives for "states' rights"--alas not individual rights. What I perceive, ironically, is that the state governments are far more radical, and less pragmatic, than the federal government, with the exception of a relatively few very small states whose governments are still small enough to be manageable--states like North Dakota. Everywhere else the state governments are pretty much out of control. But ironically, the states, unlike the federal government, can not simply monetize their debt--there are absolute limits to how much debt they can service.
If the smallest states seem to be in the best shape, the biggest are in the worst. California is a basket case, with a huge gap between it and 2nd-ranked New York.
I would not be surprised if California reaches a crisis situation. Someone is not going to get paid.
Something else I see happening: panic borrowing.
Back when Washington's tax revenues were starting to decline, the state legislature went into panic spending mode. Think like a criminal (as they say): you spend the money before anyone can stop you.
One of their tricks is to fund projects using bonds. MUNICIPAL BONDS ARE ONE OF YOUR WORST INVESTMENTS RIGHT NOW.
