There is no getting around the fact that we live in a time of unusual crises, from wars in Afghanistan and Iraq to unemployment and underemployment reaching 17 percent to upheaval on Wall Street. But what about the future of our communities, which are being crippled by shrinking tax bases and runaway government spending?
We all know the sorry state of the federal government—the deficit now stands at $1.4 trillion, or three times what it was just five years ago—yet there is virtually no national dialogue about the dismal financial condition of state and local government.
Total state government debt at the end of 2008 amounted to $416.8 billion, not including the $1 trillion in unfunded liabilities of state employee pension, benefit and health care plans. Since 1998, state budgets have grown by 7.6 percent annually or at more than three times the rate of inflation.
State debt in Maryland has increased 8.3 percent annually since 2002. In the past two years, New York State debt has increased 7.4 percent per year, on average. New York is facing a hole of $12 billion this fiscal year and it has been projected that all states combined are facing a budget shortfall of between $180 billion and $350 billion in 2011.
Local governments are no better off. The controller of Harrisburg, Pa., is looking to file for bankruptcy, while the mayor of Los Angeles wants to close city departments two days a week in order to save money. In the meantime, libraries, schools and museums are closing and university systems are being crippled by layoffs. Our bridges and roads sometimes look like they were imported from a third-world country.
In Buffalo, where my company has its headquarters, population has declined for 18 years in a row, and more than 30 percent of the population is living in poverty.
Schools are the best hope to help the disadvantaged and to lay the groundwork for economic renewal, but ours are failing far too many of their students. In Buffalo and Baltimore, fewer than 63 percent of those who enter the ninth grade graduate from high school.
Meanwhile, government keeps growing. Since January 2000, average public-sector employment in the United States has grown by 10.5 percent, while the private-sector job total has decreased by 1 percent. The share of U.S. personal income derived from public employment, social benefits and pensions was 29.4 percent in 2009, compared to 19 percent in 1962. Looked at another way, the number of people depending on government grew by two-and-a-half times the rate of increase of the total U.S. population over this period. The government wants the private sector to create jobs even as it competes with it for talent.
Upstate New York faces an especially toxic combination: high taxes and inefficient public services. Property taxes per capita are among the highest in the nation. As young people continue to leave for lower-cost, higher-growth regions, they leave behind a smaller and smaller private workforce to pay the cost of a bloated, burdensome public sector and the pensions of its retirees. Consider the fact that in Upstate New York, since January 2000, average public employment increased 50,000 or 8.3 percent, while private employment decreased 82,800 or 3.3 percent. In 2009, annual public sector wages in Upstate New York were 14 percent higher than private sector wages. As a result, New York local government, outside New York City, has seen its debt level grow at almost three times the rate of inflation.
I said some years ago that Upstate New York was in danger of becoming more and more like the moribund old Socialist economies of Eastern Europe. In that time since, those countries have found the entrepreneurial spirit, while America is looking increasingly arteriosclerotic.
We simply cannot sustain an increasingly expensive government with a smaller and smaller private economy. We already spend at too high a level with too little to show for it; we have already incurred huge amounts of debt, constraining our capacity to undertake new initiatives. This combination of excessive debt and ongoing high spending robs us of the resources needed to provide the infrastructure of economic growth, including well-supported colleges and universities, as well as the roads, rails and bridges that pave the way for commerce. Simply put, there's no money left for the things we need most to build long-term prosperity for our communities.