For several years now, 24/7 Wall Street has analyzed how well each state within the United States is run by its elected officials and government bureaucrats. To determine how well each state is run, they looked at each state’s financial data as well the services that each provides to its residents, while also factoring in their standard of living.
To determine how well the states are run, 24/7 Wall St. reviewed hundreds of data sets from dozens of sources. We looked at each state’s debt, revenue, expenditure, and deficit to determine how well it was managed fiscally. We reviewed taxes, exports, and GDP growth, including a breakdown by sector, to identify how each state was managing its resources. We looked at poverty, income, unemployment, high school graduation, violent crime and foreclosure rates to assess the well-being of the state’s residents.
While each state is different, the best-run states share certain characteristics, as do the worst run. For example, the populations of the worse-off states tended to have lower standards of living. Violent crime rates in these states were usually higher and residents were much less likely to have a high school diploma.
The worst-run states also tended to have weak fiscal management reflected in higher budget shortfalls and lower credit ratings by Moody’s Investors Service and Standard & Poors.
The better-run states tended to display stable fiscal management. Pensions were more likely to be fully funded, debt was lower, and budget deficits smaller. Credit ratings agencies also were much more likely to rate the well-run states favorably. Only two poorly run states received a perfect credit rating from either agency. California and Illinois, which are ranked worst and third worst, received the lowest ratings from both agencies.
The states that were well-managed also tended to have lower unemployment rates.
The four runner-up worst-run states, in order from least badly run to most badly run, were Nevada, Rhode Island, Connecticut and Illinois. Meanwhile, the most badly run state in America is California.
24/7 Wall Street notes their 2013 finding isn’t the first time California has come out on the bottom:
For the third year in a row, California is the worst-run state in America. California faced a nearly $24 billion in budget shortfall in fiscal 2012, including a mid-year shortfall of $930 million and $8.2 billion carried over from the year before. California carries an A credit rating from Standard & Poor’s, and an A1 from Moody’s — both worse than any other state except for Illinois. Explaining its rating, Moody’s pointed to the state’s history of one-time solutions to resolve its budgetary gaps. It also noted the state’s “highly volatile revenue structure,” due to its over reliance on wealthy taxpayers. The Golden State was also among the worst states in the nation for educational attainment, health coverage, and unemployment.
California’s over reliance upon high income-earning taxpayers for the state’s revenues, counting upon them having good years to sustain their spending, virtually ensures that the state will experience a fiscal crisis in the future. To understand why that’s the case, just consider how much the income threshold to be in the Top 50%, Top 1% or the very Top 0.1% has changed from year to year over the most recent 10 years for which the IRS has published data:
With volatility like that in just the past 10 years, the bottom line is that if any state government is counting upon millionaires and billionaires for the revenue needed to sustain their spending, it is being run very badly indeed, as its fiscal house is out of whack. So badly, in fact, that the state’s residents can expect to experience a major government fiscal crisis whenever the state’s highest income earning residents have a bad year.
Via Stanford professor and former presidential economic adviser Keith Hennessey:
Hennessey also provides one of the best summaries of the CBO’s 2014 Budget and Economic Outlook report that we’ve seen anywhere:
In their recently released annual Economic and Budget Outlook CBO lays out the four costs of higher debt (page 7).
- “Federal spending on interest payments will increase substantially as interest rates rise to more typical levels;”
- “Because federal borrowing generally reduces national saving, the capital stock and wages will be smaller than if debt was lower;”
- “Lawmakers would have less flexibility … to respond to unanticipated challenges;”
- “A large debt poses a greater risk of precipitating a fiscal crisis, during which investors would lose so much confidence in the government’s ability to manage its budget that the government would be unable to borrow at affordable rates.”
CBO attributes these damaging effects to “high and rising debt,” and doesn’t distinguish between high (where we are now, in the mid 70s as a share of GDP) and future entitlement spending-driven growth. The same logic applies both to today’s high debt and to future even higher debt. These are real and significant costs we are bearing today.
Hennessey then goes to expand on each of the items in the list above in reverse order, concluding with the following analysis of the first item:
Finally, the item at the top of CBO’s list is the one most likely to drive Congressional action. Our government debt is now 37 percentage points above its pre-crisis average, but government interest payments are relatively low because interest rates are low because the short-term economy is still weak. When the economy eventually recovers and the government debt rolls over, that additional debt is going to increase government net interest payments by about 1.85 percent of GDP (37% X CBO’s 5% 10-year Treasury rate). Relative to the rest of the federal budget, 1.85% of GDP is enormous. That increased interest cost is as much as the federal government will spend this year on all military personnel (uniformed + civilian) plus all science, space, and technology research plus all spending on the environment, conservation, national parks, and natural resources plus all spending on highways, airports, bridges, and all other transportation infrastructure. Higher debt means higher interest costs which will squeeze out spending for other things that government does. It will also increase pressure to raise taxes even further.
This analysis quantifies the point we made earlier this week, as we tracked the timing of when just the net interest payments on the national debt will exceed the amounts of major categories of the federal government’s spending.
But now, I wonder if part of what Hennessey observes doesn’t explain the Obama administration’s willingness to adopt job-killing policies and regulations.
Earlier this month, the CBO reported that they anticipate that the implementation of the Affordable Care Act will reduce the number of employed Americans by the equivalent of 2.5 million full-time workers over the next 10 years.
Earlier this week, the CBO reported that they anticipate that a half million fewer Americans can expect to be employed by 2016 if President Obama’s proposal to increase the minimum wage to $10.10 per hour is implemented.
By reducing the effective number of working Americans, the United States will experience less economic growth than it would otherwise (remember, GDP is national income, which is the aggregate measure of all the income earned within the nation – if fewer people are earning incomes than otherwise might, the potential for solid economic growth is dragged down.)
By pursuing such job-killing policies, which we know is not an accident given recent statements by the Obama administration, it would appear that the administration has adopted the goal of deliberately weakening the U.S. economy.
While that would appear to be insane to most rational observers, if the Obama administration is really hoping to keep the interest rates for the money the federal government borrows as low as possible for as long as possible, then acting to keep the U.S. economy mired in a state of persistent stagnation and near-recession would make a perverse kind of sense. Especially if they have indeed all but thrown in the towel on ever generating jobs and economic growth during the next several years, which is also suggested by their recent statements.
Adam Smith once observed that there is a great deal of ruin in a nation. It’s a shame that we have so many public officials who are determined to find out just how much.
For the third consecutive year, the National Basketball Association included U.S. Secretary of Education Arne Duncan in its celebrity game on all-star weekend. Duncan played basketball at Harvard where he was a first team academic all-American. In Black History Month some viewers might have thought that his real job is to dish out assists to low-income black students so they can pursue their goal of a quality education. Actually, Duncan and his real squad perform better at blocking out those students.
As boss of Chicago public schools Duncan was part of a political machine heavily dominated by the teacher union. The Chicago connection was the reason Barack Obama brought Duncan to Washington DC as education secretary. The president, like Bill Clinton and Jimmy Carter before him, does not send his own children to the dysfunctional and dangerous DC public schools. But as the Washington Post said in a 2009 editorial, needy DC families also “want only a quality education for their children.”
Their few alternatives included charter schools and the DC Opportunity Scholarship Program, which provided vouchers of up to $7,500 for low-income students to attend the independent schools of their choice. Teacher unions and federal educrats oppose all school-choice programs and Arne Duncan captains their squad.
As the Post said “Mr. Duncan decided – disappointingly to our mind – to rescind scholarships awarded to 216 families for this upcoming school year.”
Duncan didn’t just oppose the scholarship program in principle. He took away scholarships already awarded, in effect taking points off the scoreboard. Those deprived families were virtually all black, like most NBA players. And as the Post said, “nine out of 10 students who were shut out of the scholarship program this year are assigned to attend failing public schools.” Arne Duncan banished them to the losing team but that is not the only reason he is out of place.
The federal Department of Education Duncan heads has only existed since 1980 and was a payoff to the National Education Association, the massive teacher cartel that endorsed Jimmy Carter in 1978. The Department now boasts a budget of $68.4 billion but that spending has not made the United States a global leader in student achievement. On the other hand, the department has done a better job at institutionalizing waste, fraud and abuse, including pre-dawn raids by armed enforcement squads. And boss Arne Duncan can become a celebrity even though opposes school choice for all Americans as a matter of basic civil rights and took away from low-income black students the scholarships they had already earned.
We’re going to look at the growth of the U.S. national debt a little bit differently today. Instead of noting when it will likely exceed the typical milestones that usually get tossed around, say when its set to exceed $18 trillion (next year) or some percentage value of GDP, we thought it might be interesting to consider when just the net interest that the federal government must pay on the national debt will exceed some major future milestones.
The Congressional Budget Office created the following chart to illustrate when some of those key milestones will be hit in their most recent Budget and Economic Outlook:
The chart is not the easiest thing to read, so let’s list out the milestones. The following list indicates the year in which the CBO projects that federal net interest payments on the national debt will exceed the annual amounts that the government spends on the following expenditures:
2018: Other Mandatory Spending – This category includes welfare programs like unemployment benefits, the Earned Income Tax Credit, the Supplemental Nutrition Assistance Program (better known as “food stamps” and the Supplemental Security Income program that provides payments to Americans with disabilities. It also includes the spending to sustain military and civilian retirement programs and benefits.
2018: Half of Social Security – The second largest category of federal government spending.
2019: Non-Defense “Discretionary” Spending – This category covers everything from the AbilityOne Commission to the Woodrow Wilson International Center for Scholars, or rather, every federal agency that isn’t defense-related.
2020: Defense “Discretionary” Spending – If it goes to fund the Army, Navy, Air Force, Marines, or Coast Guard, and is managed out of the Pentagon, it’s covered in this category.
2022: Half of Major Health Care Programs – Which would be half the spending that goes to Medicare, Medicaid, the Children’s Health Insurance Program, and the Affordable Care Act’s Exchange subsidies.
If the national debt were smaller, it wouldn’t have to make such large payments to the people, organizations and government entities that have loaned it money. Instead, the federal government will have nothing to show for what it spends on the net interest for its debt, other than a paid I.O.U. And more likely than not, even more debt, which today’s infants will be paying off for decades.
How’s that for a milestone moment?
Early 2014, with tax time approaching, is a good time to recall some hard realities. New government entitlements such as Obamacare are proving a colossal bust, and the federal government has been busy creating brand new agencies of dubious utility, such as the Consumer Finance Protection Bureau. None of that means that older federal agencies and programs are doing any better. Consider, for example, the United States Postal Service.
The USPS hiked the price of a first-class stamp to 49 cents in late January. But the USPS lost $354 million over the past three months, part of a long-term losing streak. In the last fiscal year, the USPS lost $5 billion and in 2012, the losses were $15.9 billion. Postal bosses say that recent losses could lead to cash flow problems for the rest of the year. They want to end Saturday mail delivery, and so do some politicians.
The Senate Homeland Security and Governmental Affairs Committee has approved a bill that would end Saturday mail delivery. But government employee union bosses have a problem with that. Fredric Rolando, president of the Nation Association of Letter Carriers, told reporters that the recent USPS figures were “highly encouraging and show why the postal network must be maintained, and strengthened, not degraded.” Only in government are losses of $354 million “highly encouraging.”
Government employee unions wield enormous power and politicians usually give them what they want, however insolvent their agencies and however miserable or abusive their performance. Taxpayers can find an example in recent bonuses for IRS employees. Ending Saturday delivery would not solve postal woes, but the odds are it won’t happen at all. In a weak economy, U.S. taxpayers will continue to subsidize the USPS born loser, along with redundant new federal agencies such as the Consumer Financial Protection Bureau, even as they face new surges of abuse from Obamacare, the NSA and the IRS.
We recently noted that a hearing in the State Transportation and Housing Committee raised concerns about the safety of the new eastern span of the San Francisco–Oakland Bay Bridge. Now it turns out some of the witnesses knew what they were talking about.
As the San Francisco Chronicle notes, “a supposedly watertight steel chamber supporting the roadbed of the new Bay Bridge eastern span sprang hundreds of leaks during the first big storm of the rainy season.” Caltrans bosses denied that the water was already causing damage to the bridge’s backbone structure. Metallurgical expert Lisa Thomas, who also testified in the hearing, said the steel showed signs of “active corrosion.” That is not a good thing.
Caltrans bosses said that caulking may be failing to keep water out, but the structure has sprung leaks in other places. Water may be entering through guardrail holes for lights, or through service panels. But as the Chronicle explained, Caltrans bosses “have yet to figure out all the reasons why the steel structure is leaking, and so they have not yet devised a solution.” And any solution is likely to be “high maintenance.”
Leaks are not the only problem for the bridge, which cost $6.4 billion, $5 billion more than the original estimate, and came in ten years late. In the recent hearings, several witnesses testified that Caltrans bosses compromised quality by ignoring problems with welds, bolts and rods. They also opted for a kind of steel prone to embrittlement, and that is why a number of rods cracked.
Caltrans bosses downplayed these costly problems, reassigned the whistleblowers, and even told engineers not to write things down to avoid public disclosure. Senator Mark DeSaulnier, cited “a deliberate and willful attempt to obfuscate what is happening to the public.” But he did not follow up on one whistleblower’s call for a “criminal investigation,” a perfectly reasonable request.
This week DeSaulnier conducted another informational hearing, based on this background report, about reforming Caltrans. If the senator is serious about reform, he might start with some criminal charges. Unless of course he thinks a leaky, corroding bridge is perfectly safe for Californians.
President Obama told Americans that if they liked their health plan they could keep it. As millions of Americans discovered, that turned out to be wrong. And the victims may not be happy with the latest Obamacare twist: If you dislike the health plan the government wants you to have, you pretty much have to keep it.
As the Washington Post noted, Americans have discovered that their plan does not include their regular doctor, “or allow them to add new babies or spouses.” Adding new family members was one of the many parts of Obamacare that don’t work. Now the government claims that it “will temporarily allow consumers who have gotten coverage through the new online insurance marketplace to switch health plans to a limited degree.” But there’s a catch or two.
In a 14-page memo sent to insurers, not to the public, federal health bosses said “people may pick a different health plan before the end of March if they are dissatisfied with the one they chose, but only if they stay with the same insurer and generally the same level of coverage.” So you can get another substandard Obamacare plan you don’t like. It’s like a Soviet election. Pick any Communist Party candidate you want.
Federal health bosses also say people will be given more freedom and a longer opportunity to get a new health plan “if they can prove that HealthCare.gov, the Web site for the new marketplace, displayed inaccurate information about the benefits that a health plan offers.” So the burden of proof is on those dissatisfied with the plan the government wants them to have. But those people will have a hard time making their case.
As the Washington Post also revealed, the Obama administration “has not made public the fact that the appeals system for the online marketplace is not working.” In fact, there is no indication that infrastructure for appeals “has even been created, let alone become operational.” The infrastructure for it must compete with other parts of the federal exchange that still do not work, such as the payment system for insurers, communication with Medicaid, and adjusting coverage for new family members.
So if you actually have coverage through Obamacare, a dubious proposition, and don’t like that coverage, you are pretty much stuck with what the government wants you to have. Not to worry, because as presidential mouthpiece Jay Carney said, Obamacare allows Americans to pursue their dreams.
Depressing deficit and debt news from Washington D.C.:
On the same day House Speaker John Boehner said he would bring a “clean” debt ceiling bill to the House floor — and join Democrats in voting for a 13-month extension of the debt limit — the head of the Congressional Budget Office declared that the “large and growing federal debt” could eventually increase the risk of a “fiscal crisis.”
“The large budget deficits recorded in recent years have substantially increased federal debt, and the amount of debt relative to the size of the economy is now very high by historical standards,” Elmendorf told the Senate Budget Committee.
“CBO estimates that federal debt held by the public will equal 74 percent of GDP at the end of this year and 79 percent in 2024 (the end of the current 10-year projection period). Such large and growing federal debt could have serious negative consequences, including restraining economic growth in the long term, giving policymakers less flexibility to respond to unexpected challenges, and eventually increasing the risk of a fiscal crisis (in which investors would demand high interest rates to buy the government’s debt)
We should note that Elmendorf is actually understating the nation’s debt by referring only to the portion held by the public. With the ongoing depletion of the Social Security Trust Fund, much of the so-called intragovernmental portion of the national debt will be increasingly transformed into federal debt held by the public over time, because Social Security won’t be able to collect enough in payroll taxes from what the CBO now believes will be a much smaller number of wage and salary earners to be able pay out Social Security benefits at promised levels, without borrowing significantly more money to make up the difference.
Which of course, is part and parcel of how a national debt death spiral would start.
Catherine Engelbrecht used “weaponizing of government” to describe what she perceives as a federal campaign against her. Is it the latest blast of fevered rhetoric, or does she have a case?
Catherine and her husband Bryan were largely apolitical people who ran a small manufacturing business in Rosenberg, Texas. Over two decades the couple incurred nothing more than routine contact with government. Then in 2008 Catherine volunteered at the polls and saw cases of fraud and abuse she thought should have been exposed but weren’t. That prompted her to become more involved in the political process.
Catherine founded the King Street Patriots, a community group hosting discussions on personal and economic freedoms. She also founded True the Vote, which aimed to prevent voter fraud. Suddenly the federal government became more interested in Catherine Engelbrecht. As she recently testified, federal agencies such as the IRS, FBI, ATF and OSHA subjected her business, nonprofit organizations and family to more than 15 cases of audits and inquiries. OSHA imposed heavy fines. Even the Texas branch of the EPA paid a visit. A ballpark figure for the chances of all this being coincidental is zero.
Federal agencies are supposed to serve the taxpayers. Engelbrecht’s ordeal is evidence that federal agencies have indeed been weaponized and targeted against critics of the current administration, advocates of limited government, and even those dedicated to the integrity of the political process. And the President of the United States finds “not a smidgeon” of corruption in any of it, despite several ongoing investigations, one of them headed by an IRS trial lawyer who is a donor to the president. So that inquiry will doubtless find no corruption, even though other IRS bosses have already pleaded the Fifth Amendment.
Catherine Engelbrecht makes a strong case that government has indeed been weaponized but that doesn’t quite capture the whole reality. As this column confirms, the federal government has also institutionalized waste, fraud and abuse, to the point that reform is practically impossible. Victims in particular and taxpayers in general may be forgiven for seeing it all as part of an ongoing American Counterrevolution.
As we noted last year, the U.S. military has more than enough tanks and Army chiefs of staff such as Ray Odierno protest that they don’t want any more. Politicians, on the other hand, wanted the Army to have 280 more tanks, at $8 million a pop. It turns out that there is more to this story.
As this Washington Post report notes, “tanks are something of a relic,” and ill-suited for modern warfare, which tends to be asymmetrical. So the manufacture of tanks, the military says, is no longer essential. The future belongs to “nimble and tactical” weapons. Given those realities, why have politicians pushed for the manufacture of more tanks and armored vehicles? For one thing, the manufacturers of tanks and armored vehicles lobby Congress to support their work.
Last year, BAE Systems “convened its suppliers — it has 586 across 44 states — in Washington to storm the Hill, chatting up representatives about the jobs they provide and pushing for Congress to help the Bradley program.” As the Post observed “and jobs, after all, are what their representatives in Congress are working to protect in their home districts.”
Angela Canterbury of the Project on Government Oversight told the Post that all this “is really making us less safe when we’re throwing money that’s hard to come by at programs that don’t meet what should be our current national security strategy.”
The push for more tanks and armored vehicles the military does not want is not only wasteful but dangerous. As we noted last year, taxpayers have a right to expect defense spending to enhance national security, not detract from it. For all their sophistication and exemplary record of service, American tanks did not prevent terrorists operating out of caves in Afghanistan from inflicting major damage on the United States and killing thousands of innocent civilians.