Keeping Our Fiscal House in Order

Jul 30, 2013

By Ken Blanchard

 

I was born in Arkansas, went to college in Arizona and graduate school in Southern California, and ended up in South Dakota. So far, that has turned out to be a happy ending. I like my job, my house and my neighbors just fine. Just right now, as I sit on my deck and type, I like the weather.

Another thing I like is that our state retirement fund is actually funded and the state budget as a whole is reasonably sound. South Dakota ranks high among those states that have managed to keep their fiscal houses in order. When times are easy we put aside what we need for the future. When times get hard, we tighten our belts. Do I hear a “duh”?

The good sense in this came home to me this week when I read that the city of Detroit has filed for bankruptcy. This is the largest municipality to declare bankruptcy in American history. No doubt Detroit waited for San Bernardino and Stockton, California to go first, just so it could top them.

Motor City is eighteen billion dollars in the hole. Over the last decade, Detroit has borrowed about a hundred million a year to keep afloat. Then there is the pension problem. Detroit’s general pension fund is short over two billion dollars in unfunded liabilities. Another billion and a half is owed to a pension fund for retired firefighters and policemen. A fiscal disaster this big doesn’t happen overnight. You have to work at it for a long time. It’s not hard work, however. You just have to spend like a drunken sailor and then close your eyes and put your hands over your ears when anyone asks how long you can keep this up.

Bankruptcy for Detroit will mean what it always means. A lot of people will not get what they were promised. Folks who paid into pension systems will get back pennies on the dollar. Lenders who kept Detroit going for decades will be lucky if they get back anything. On the news tonight a young man explained the calculus of injustice. The public employees who depend on their pensions are innocent victims, while the lenders are mere speculators who deserve what they get.

Okay. But what does that mean for states and municipalities around the nation who are trying to secure loans? Lenders, excuse me, speculators who are weighing their decisions will take Detroit into account. Knowing the cost of lending to a government that has no plan for fiscal solvency, they will either raise their rates or refuse to lend at all.

Detroit’s bankruptcy may have devastating consequences for state governments and municipalities across the country, not to mention millions of public employees who are nearing retirement. That is a terrible thing and probably a good thing. At every level of government we have been borrowing against the future and making promises we can’t hope to keep. Here is a rule you can count on: if something can’t go on forever, it won’t. 

 

Editor's Note: Ken Blanchard is our political columnist from the right. For a left-wing perspective on politics, please look for columns by Cory Heidelberger every other Wednesday on this site.

Dr. Ken Blanchard is a professor of Political Science at Northern State University and writes for the Aberdeen American News and the blog South Dakota Politics.