Sunday, April 20, 2014
Augusta is not the only state capitol struggling to pay its bills. Public officials in other states have also grown their governments beyond the taxpayers’ ability to pay for state programs and services.
As the economy gradually improves, some states are boasting about current budget surpluses. Looking under the hood, however, one often finds those states with frightening long-term financial obligations. This New York Times article digs into some of the crosscurrents surfacing in state capitols across America.
The two most serious fiscal problems facing state governments today are huge unfunded pension liabilities and unsustainable Medicaid costs. For many years, elected officials promised unaffordable retirement benefits mostly to state employees and public school teachers. Medicaid safety net health care benefits were awarded to younger able-bodied voters in addition to disabled, elderly sick, and poor residents. The pension and health care debts piled up as career politicians seemed to expand their promises with every election.
Richard Ravitch, the former New York Lieutenant Governor, said in the New York Times article “The problems are still there. It’s retirement expenses, generally, and health care expenses — and they’re crowding out other things.”
Today, state and municipal taxpayers owe public sector workers an estimated $4 trillion more in retirement checks than there is money to pay for the benefits. Illinois residents could be the most in trouble. Springfield is $97 billion short of what is needed to pay for the pensions promised to 750,000 active and retired state employees and teachers. Illinois also has a $7.5 billion backlog of unpaid bills owed to vendors. This gross fiscal mismanagement has earned the Land of Lincoln the lowest credit rating in the country, driving up interest costs on its borrowings. Taxes have surged to help plug budget holes. Businesses and jobs are leaving in droves, causing even more citizens to embrace unhealthy government dependency.
The cost of state Medicaid programs is crowding out funding for public education, road and bridge repair, and public safety. Enrollment has risen dramatically in some states, like Maine, while financial assistance from Washington has shrunk. This year, Medicaid expenditures from state and federal monies will comprise the largest single component of state government spending, on average 24%. Maine spends closer to 40% of its state and federal tax dollars on Medicaid benefits, more than four times what taxpayers spend on the entire University of Maine System each year.
In 2011, Augusta addressed head-on Maine’s $4.3 billion unfunded pension liability. Rather than continue to kick this fiscal can down the street, making the problem worse, the state legislature adjusted the pension benefits so that retirement checks for state employees and teachers would likely be there when needed. These necessary reforms also eliminated $1.7 billion of the pension debt and saved taxpayers roughly $200 million per year going forward. The legislature then passed the largest tax cut in Maine history, $150 million.
This year, Governor Paul LePage and enough state legislators wisely prevented the further expansion of our already unaffordable Medicaid program, called MaineCare. Instead of adding to the program 70,000 able-bodied and mostly single males younger than age 45, MaineCare will focus on delivering medical services to those most in need including 3,100 disabled and elderly sick on waiting lists.
Securing Maine’s public pension benefits and preserving our health care safety net have helped to put Augusta’s fiscal house in order. Those important reforms enable state government to live within its means, thereby allowing our legislators to further lower taxes down the road. This, in turn, helps to attract business investment, more jobs, more freedom, and better lives for all Mainers.
Next week, I’ll be away from my writing while vacationing within our Great State of Maine. I wish everyone a special Independence Day celebration. While enjoying time with family and friends, let’s all remember the sacrifices made by our Founders to set the cornerstones for the freest, most prosperous, and most compassionate nation ever to inhabit this good earth.
Bruce Poliquin is the former Maine State Treasurer and a 2012 Republican primary candidate for the United States Senate. He has 35 years of experience owning and managing businesses. Bruce is a proud third-generation Franco-American Mainer and Harvard University graduate. Visit BrucePoliquin.net for his most recent commentary and analysis on media outlets throughout the State about the important issues facing Maine families and their jobs.