WNYC's Bob Hennelly is an award-winning investigative journalist. While at WNYC he has reported on a wide gamut of major public policy questions ranging from immigration and homeland security to power outages and utility mergers.
Stucknation: Mom, Apple Pie and Bonded Indebtedness
Monday, December 06, 2010 - 12:00 AM
While Washington Democrats and Republicans fret over the federal deficit, scant attention is being paid to the debt explosion on local municipal balance sheets in all 50 states.
The federal government is by no means the only big spender and big league borrower. Local governments have been on their own spending and borrowing binge.
This run-up of public debt started long before the Great Recession, but it’s now a real weight on any recovery and could tilt municipalities over the edge into bankruptcy.
Of the $2.5 trillion in state and local debt, 60 percent is held by municipal governments. In 29 states, the municipal debt burden is actually greater than the state government’s. In some real conservative strongholds, the local governments have dug themselves exponentially deeper into debt than their state capital.
Georgia's local town halls are holding close to $37 billion in bonded debt, while the state capital has just about a third of that. In Nebraska, local officials have more than $11 billion in bonded indebtedness, while the state capital has signed off on just a third of that.
The trend holds in the states that are most fiscally fragile. Take California, where local governments are the real debt heavyweights holding $219 billion in bonded debt compared to Sacramento's $122.8 billion load. And in New York, the debt kings are also the locals, who have a $155.5 billion tab compared to Albany's $114 billion.
This giant debt load is not without major budgetary consequence. For local governments, it costs $66 billion annually to just cover the interest on their debt. States have to set aside $47 billion each year just for their debt carrying costs.
How many police officers and school teachers could they hire with that combined $113 billion in finance charges? Consider Harrisburg, Pennsylvania's dilemma -- should it make pension payments for their public employees or make debt payments for a failed incinerator?
Much of the state and local debt can be traced to the proliferation of so-called "special district" governments like your local "economic development” or “incinerator authority.”
These entities can be used to build critical transportation and water projects or to finance higher education. But they also can provide the grease for the "private-public" partnerships that builds sports stadiums and shopping malls for the politically connected.
In 1952, there were just 12,340 of them. By the start of the 21st century there were 35,359 of them. Eleven states each now have over one thousand such publicly-funded independent authorities. Not surprisingly, Illinois tops the list with 3,145, followed by California with 2,830 and Texas with 2,245. Pennsylvania has 1,885 and New York has spawned 1,135.
All told, this state and local public debt “for private purposes" like malls and stadiums weighs in at $588 billion dollars. States are holding $379 billion of it, while the local burden is $209 billion dollars.
This mountain of debt in independent authorities has accrued under the radar. According to the Census, this category "was not listed on the financial statements of the issuing governments."
Moreover, the Census says governments pushed back on having the Census track it at all because "the governments themselves often did not construe such debt to be their own."
That explains a lot.