The Mercatus center ranks the fiscal condition of the fifty states.
The worst, at number 50, is New Jersey, followed (preceded?) by Illinois, Massachusetts, Kentucky, and Maryland. California is 43, and New York is 39. So by my count 4 of the bottom 5 states and 6 of the bottom 12 are known for powerful public-sector unions. I see that as a likely cause of fiscal weakness in those states, and I doubt that those six will climb out of trouble.
Is there a different problem in the other 6 of the bottom 12?
Not really. I am assuming Kling thinks Kentucky is the 1 out of the bottom 5, but it also has public unions for teachers and other government workers etc. If you look at the list of the bottom 17, the one state, at 33, that stands out against what I would have guessed is Arizona, but of the states below average, it is the best of that lot. My prediction about Arizona would be that it should be like Florida, but isn’t.
What is the seniority of the various debts?
The comparison is apples to oranges. In particular, New Jersey is in the last place because the states are free to pick the discount rate for their future pension, etc. obligations and NJ picked a… less ridiculous rate. This, of course, ballooned the present value of their liabilities.
Yes, I think there is a lot to this, too. It would’t surprise me to find that if you picked a common rate that was also “not ridiculous”, the conclusion would be that pretty much all the states are screwed.
I don’t think the issue is the nominal ranking. We aren’t picking the ten best quarterbacks or rock bands. If modest correlations can be found that’s close enough.
The thing about pensions though is that they can be modified with less pain than people think. But I’m sure we will try everything else first.
“Arizona…should be like Florida but isn’t.”
I immediately thought of Nevada and Utah
I might link Nevada, but Utah is a bit different culturally. I was thinking along the lines of sun and retirement.
Can status sell bonds to foreigners?
Yes I agree. The other traits most of these states share are being “blue” and having large off balance sheet liabilites. I am continuously amazed how many sophisticated parties do not understand the impact of off balance sheet liabilities, or even what an off balance sheet liability is
Sophisticated parties who are actually involved in bringing about these results actually DO understand them very well. Huge off balance sheets happen intentionally. And so far the people responsible keep finding nobody brings them any accountability for what really ought to be regarded as willful fraud.
We had a local school board do some crazy shenanigans to by-pass debt limits. And I’m sure those “best-practices” proliferate fast.
Well what I mean is that many voters and supposedly sophisticated buyers of securities issued by states and municipalities often don’t understand the effect of these issues. I agree that the beneficiaries of these shenanigans do understand them, at least so far as what the benefit to them and there constituents are.
Shouldn’t states be selling bonds at crazy low interest rates secured by good collateral?
Should the feds buy their bonds in a manner that avoids inTeresa rate spirals? I’m not saying for me, I’m saying for them.
Is the Treasury undercutting states’ability to sell debt?