A theory about state and local finances

One thing that has perplexed me lately is where all the “forever lockdown” state an local governments are getting money to operate, let alone to fund some of the insane spending that they are currently undertaking. Los(t) Angeles is dropping half a million dollars per unit for its housing programs to prevent homelessness, for example. Much of this was supposed to be funded through sales taxes, which are obviously in the dumps. San Francisco is not only putting its homeless population up in vacant hotels, they are using taxpayer funds to supply their addict squatters with alcohol and drugs because to do otherwise would be inhumane. New York and Chicago have all kinds of new allegedly coronavirus-related spending.

In places like Kentucky, the government has spent upwards of a billion dollars to fund benefits for the unemployed, given that the state has lost fully one-third of its workforce. That is already about an eighth of the state’s budget in a normal year. This truly is going to be a Great Depression in Kentucky, as the state did not have much industry there beforehand to support its population, let alone bring that many people back into the labor fold after a large-scale destruction of demand for things like restaurants, sporting events, tourism, etc. They are spending money that is not going to materialize again for several years easily.

The thing is, every single one of these places had massive, massive structural budget gaps before this even got started and pensions alone were on track to consume most of their budgets in the out years. Places like Chicago have been pushing what are effectively operating costs onto bondholders for years, even though that is technically illegal in Illinois. Where are they getting the money for all this?

A hostage situation is probably brewing.

My guess is these governments have been depleting funds earmarked for essential services under emergency orders and are transferring funds away from normal government expenditures with the full understanding that they are not going to be able to replace the funds. Then when the new fiscal year rolls around, they are going to throw their hands up in the air, say the money just isn’t there for silly things like public schools and firefighters, and demand an even more colossal federal bailout than what they’ve asked for to date. Unlike the federal government, state and local governments cannot deficit spend, so crisis-era spending generally floats upward. It’s just never floated upward in this magnitude.

I really wonder what is going to happen in two to three months when the music stops on state and local spending. If governors and mayors in these locations are in fact trying to weaponize their budgets to create this sort of a fiscal hostage situation, the country is going to melt down with rage. There are a lot of Trump supporters who want to see these misfit cities and states burn to the ground, and in our increasingly dysfunctional and mentally ill election cycles, they just might get their chance….

3 thoughts on “A theory about state and local finances

  1. All the end times Bible matter once seemed like a far-away time and place, like a science fiction or fantasy novel. Now it’s been dropped here at our door.

    Liked by 1 person

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