April 24, 2018
Crisis of States
If you live in Florida, you can see the mass exodus of people moving from high tax states such as Connecticut, New Jersey, New York, Illinois and other states whose tax rates have created a burden on the pocket books of those residents. Those state leaders should expect to see a dramatic loss of their taxpayer bases, due to their profligate spending, and dreadful mismanagement of their state finances. New federal tax changes to the deductibility of state income and property taxes will only increase the flight from these states. Approximately 7 ½ years ago, Meredith Whitney in her 600-page report “Tragedy of the Commons”, described murky patterns of spending, revenues and benefits programs, and likened states poor disclosure and accounting rules to those used by the banks before the 2008 – 2009 financial crisis. She was taken to the woodshed, and hasn’t been heard of much since. Many of the problems she described, such as states leverage to the housing market, growing pension liabilities and other postemployment benefits, as well as increasing long term liabilities, have not gone away, but rather have only increased in scale. A fair amount of complacency in the muni market, combined with financial stress and/or default by states as we have seen recently with Puerto Rico, could very well add fuel to the next economic crisis. The following tables from the Mercatus Center at George Mason University published in 2017, illustrate just how profound many states debt and finances have become. At the end of this report is a summary of their findings, as well as a link to their website for further in-depth analysis.
Respectfully yours,
Emerson Letter Editor
