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Commentary

Unsustainable state and local government budgets continue to slowly compound risk

26 May 2014 by Jim Fickett.

The US National Income and Product Accounts (NIPA) now show results for state and local government budgets through 2013. Income and expenditures remain more or less flat, with expenditures significantly exceeding income (although most states require balanced budgets in theory, this does not happen in practice):

Some economists, Krugman of the fake Nobel for instance, like to point out that moderate amounts of borrowing can be sustained for the long term. This might be true. The problem is that small amounts of borrowing are for politicians what small amounts of heroin are to addicts. Unsustainable state and local budgets will quite likely lead eventually to a federal rescue, which is most likely to be resolved with inflation.

It is also worth pointing out that state and local transfers to persons (of which the biggest portion is Medicaid) do continue to rise, while investment has been falling now for several years. This will become a problem for infrastructure. Note I am not advocating that those down on their luck should be tossed aside; just pointing out one additional way in which budgets are unsustainable.

(See the Reference page NIPA state and local budgets for sources and past commentary.)