Steven Malanga has a good article in the new issue of City Journal about the muni-bond debt situation. He explains how over the last decade, total local and state debt has soared from $1.5 trillion to $2.4 trillion. It kept growing during good times and went from being a tool for states to borrow for essential infrastructure projects to a source of constant abuse.
Even more disconcerting than the crushing debt is what it has paid for: giant development projects, for starters, including many in which the private sector has wisely shown little interest, except when government subsidizes them. These projects trace their origin to the urban-renewal movement of the 1950s, when states and the federal government cleared tracts of supposedly blighted urban slums and replaced them with large, centrally planned housing projects. Over time, such efforts became so widespread that even thriving communities were declaring themselves blighted to justify construction. The nature of the projects changed, too, as politicians increasingly issued bonds to make bets on private ventures whose economic benefits were uncertain, at best.
And so much for balanced-budget amendments — according to Malanga:
Politicians increasingly use the municipal debt to create the false appearance that they are balancing the budget.
Speaking of budget gimmicks in the states, my colleague Eileen Norcross has a great new paper on the issue here.
The bottom line: If this debt in the states should be added to the federal debt — and especially if this debt has to be repaid back with higher taxes — there is one very large bill coming our way. Remember, there is only one taxpayer, not a state taxpayer and a federal one.
Meanwhile, the Washington Post reports that large amount of the stimulus money to the states hasn’t been spent yet:
The $862 billion package was divided roughly in thirds among tax cuts, aid to states and the unemployed, and investments in infrastructure, health care and other areas. The first two have delivered most of their boost, but much of the investment spending is moving far more slowly. At the end of July, nearly 18 months after the stimulus passed, more than half of the $275 billion in investments had yet to be spent.
I have a question. If so much money has yet to be spent, why did Nancy Pelosi have to rush more money for the states through?