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Tuesday, July 17, 2012

Poorest at Risk: U.S. States Cut Lifelines

“State finances are teetering with $4 trillion in unfunded liabilities to cover pensions and health care for state workers, along with revenue shortfalls, antiquated financial practices and skyrocketing Medicaid costs.” This according to the Huffington Post, based on a report in July 2012 by State Budget Crisis Task Force, which was organized by former Federal Reserve Chairman Paul Volcker (R) and former New York Lt. Gov. Richard Ravitch (D). Volcker and Ravitch said that unfunded state government pension obligations could total as much as $3 trillion, triple the $1 trillion estimate produced by the states. This is in addition to the $1 trillion in unfunded health care obligations for retired state employees. This does not include the rising Medicaid costs. The report notes that state governments have been borrowing to pay for operating expenses in order to comply with state constitutional mandates for balanced budgets. Those loans and the practice of shifting spending between budget categories make balanced budgets "illusory," the report said. Lastly, Volcker and Ravitch point out that "one-shot" financial measures are common in state governments, including those that pile up debt for the future.

The most striking thing concerning the finances of the states studied (California, Illinois, New Jersey, New York, Texas and Virginia) is the noted threat to the social order itself. "The thing that worries me is the threats to the social order," Ravitch told The Huffington Post, noting that "cultural and social bankruptcy precede financial bankruptcy." "You can't cut human services and cut the ability of government to take care of the people"—meaning without expecting the collapse of the social order. Such a slide tends to be gradual, sliding below the radar screen of the general public.

For example, during 2011 over 500 people in the U.S. died every week because they were without access to health care. That’s like having a full A380 (the double-decker jumbo-jet, larger than the 747) crash every week of the year, albeit without the headlines. The collapse of a social contract happens gradually, without much fanfare because enough of the electorate is unaffected.

Furthermore, the changes that led to an increased reliance on government entitlement programs by the most vulnerable in society were gradual as well. The increasing divorce rate beginning in the 1970s and the increasing geographical distance permitted by air travel during the last quarter of the twentieth century are just two factors making it less likely that families would care for their own. The daily demands of sustenance mean that charitable organizations could not possibly pick up the slack. As a result, government entitlement programs became the default. Compromising them without providing for an alternative could not but put the social order (a.k.a. social contract) at risk, even if this risk is not shared or even noticed by the majority of the electorate.

To obviate the collapse of its social order, a government would have to distinguish between sustenance programs and the other budget categories. To give but one simplistic example, a town can do without its municipal pool for a summer, but a homeless man needs food every day. Cutting ten percent from both categories ignores this vital distinction, and thus puts the social order at risk, even if people do not notice that the man is no longer sleeping on the bench but has died.


John Gelock, “Paul Volcker, Richard Ravitch Say State Budget Crisis Threatens ‘Social Order,’” The Huffington Post, July 17, 2012. http://www.huffingtonpost.com/2012/07/17/paul-volcker-richard-ravitch-budget_n_1677739.html