A new study, conducted over the course of two years, is predicting that the next fiscal crisis to hit America will be at the local level with municipalities struggling to pay off their debt. The steady increase in government spending, the recent implosion of the housing market, and an overall depressed economy have created a crisis that will not be passed on to the next generation; according to the report, it’s coming much sooner.
Released by Meredith Whitney, who rose to public prominence as the analyst who predicted the fiscal crisis that resulted in America’s recent historical bailout of financial institutions across the nation, the recent study focused on state debt. But as Whitney explains, the states will seek to remedy their own crisis by cutting back revenue to towns and cities, “Municipalities receive one-third of their revenue from the states. If the states hold back that money for their own stricken budgets, towns and cities won’t have the funds to make their interest payments. “It has to happen,” says Whitney. “The states will secure their own shortfalls, and leave the cities to fend for themselves.” It’s all about inter-dependency, she says, with the federal government aiding the states, and the states funding the last and most vulnerable link, the municipalities.”
New Jersey municipalities have seen the trend in state aid cuts to both municipalities and schools, and the Whitney report could be an omen of even more severe cuts in the future. New Jersey trails California which leads the list of states with the greatest potential for an impending financial disaster. Explaining why the study took two years to complete, Whitney referred to a lack of transparency in government spending and a willingness for politicians to buy elections today and pass on the debt to generations that follow.
New Jersey ranks near the top of the list for a variety reasons, such as having underfunded pension systems, but the most pressing factor is a lack of flexibility in raising additional revenue. New Jersey has the highest property taxes in the nation according to the Tax Foundation, and this leaves little room for getting more blood from the proverbial stone. With respect to municipalities being the weak link in the pyramid of debt that includes the federal, state, and local governments, Whitney says, ““It has to happen. The states will secure their own shortfalls, and leave the cities to fend for themselves.”
The recent cuts in school aid and state aid experienced by NJ municipalities were accompanied by news from the Christie administration last week on the state pension fund. The Asbury Park Press reported that towns, counties, and school districts will be expected to pay an average of 22 percent more into the state’s pension system in 2011.
The Journal previously reported on the local municipal debt situation for Franklin Lakes, Oakland and Wyckoff which readers can access by clicking here. Since that article was written, debt statements for 2009 have become available on line. Readers can view each towns debt statement, a half page PDF document, by clicking on their town below.