State Budget Deficits

On Monday The Wall Street Journal had an Op-ed by Steve Malanga titled "How States Hide Their Budget Deficits."

Of particular interest is this excerpt:

"Last week, however, the Securities and Exchange Commission (SEC) filed fraud charges against New Jersey for misrepresenting its financial obligations, particularly its pension obligations, and misleading investors in its bonds. New York—and many other states—had better sit up and take notice."

I have previously written of the topic of state budgets and methods used to "balance" them in the July 21, 2009 post.

There is a lot that can be written about the efforts to conceal the true nature of states' financial conditions.    By "sweeping (financial) problems under the rug" instead of truly solving the deficit problems, it almost seems as if states are inherently betting (in a big way) that current economic hardship is transitory, and that better future economic conditions will "save the day."  In effect, there is little need to solve structural budget/financial problems because a strengthening economy will alleviate or eliminate such issues.

As well, of course, the federal government has provided relief.  As the Op-ed states, "...Washington does little to enforce responsible budgeting. In its fiscal stimulus packages of 2009 and 2010, for instance, the federal government funneled hundreds of billions of dollars to the states without regard for their fiscal practices, treating irresponsibility in New Jersey and New York the same as prudence in, say, Texas and Indiana."

It is not hard to envision a scenario in which the three aforementioned "crutches" states are employing to "make it through" their financial crises are no longer available.  Exceedingly dubious "quick fixes," placing large (inherent) bets on "sunnier" economic days ahead,  and receiving large-scale federal government support are not conditions that can, or should be, relied upon on an ongoing basis.  Of course, these "crutches" should never have been viewed as feasible options in the first place.



SPX at 1051.87 as this post is written