The economic challenges of state, county, and municipal governments

In February 2013, I wrote a column about the city of Lumberton’s unfunded liabilities. These are the promises made to employees about future benefits to be paid. By law, employers must set aside money today to pay for pensions in the future.

They don’t really have to do the same for retiree health care benefits, and that future promise is like a time bomb waiting to blow up future state, county, and municipality budgets.

Prudent people should read The Robesonian’s news stories about the audited financial statements of our local governments. For example, in December, John Masters, CPA of S. Preston Douglas and Associates, provided a glowing report to the town of Pembroke.

Many other governments in the United States are not as fortunate. Recently, I was in Stockton, Calif., which was briefly the largest municipality in the country to declare bankruptcy — then Detroit declared bankruptcy, too. Puerto Rico, a United States territory, has gone bankrupt, and Illinois will soon follow. Other states such as Connecticut also are facing serious financial difficulties.

Fortunately, in recent years, North Carolina’s leaders have restored all of the “rainy day” funds that are necessary for states to continue to do well during economic downturns.

Rather than allowing for a bankruptcy, it is better to establish financial policies that will prevent it in the first place. If bankruptcy occurs, a government may be forced to enact punitive fiscal policies to recover.

Let’s consider what Puerto Rico’s (primarily) liberal leaders have decided to do to turn their government around:

— Reduce the size of government: Compared with the private and nonprofit sectors, government tends to operate the least efficiently, so if its workforce shrinks, overall employment will increase and the economy will grow.

— Decrease the minimum wage: Minimum wage laws take jobs away from the poorest people, causing them to lose the dignity of contributing to society, and requiring society to increase expenses for unemployment benefits, food stamps, etc.

— Reduce the number of government agencies: The territory’s Democratic Gov. Rosselló is cutting agencies from 131 to 35.

— Make policies more attractive to starting companies and investing in Puerto Rico: The governor is doing this by streamlining a number of government procedures, cutting government regulations extensively, and greatly expanding public-private partnerships.

It remains to be seen whether or not these efforts are too little, too late for Puerto Rico. They will still likely need a substantial bailout to get restarted.

It may also be too late for Illinois. But, it isn’t too late for North Carolina or maybe even California, where I am writing this column. I’ve driven nearly the length of the state and the effects of poor government policy are evident. If you adjust for the cost-of-living, California has the highest poverty rate in America.

The elite here have fashioned government policies that they want, but the poor are badly hurt. Whether it is tax policy, lottery policy, energy policy, water use policy or others, the elite have essentially institutionalized poverty. Yes, they make social payments to the poor. California is a fabulous place for those that are well-off, but the elite have stacked the deck against the poor, who have little chance of lifting themselves out of poverty.

Relatively speaking, in North Carolina, we are in good shape. But that shouldn’t allow us to become complacent and let the size of state, county, city, or town government grow. We need to keep the state an attractive place for new companies and investment. We need to keep governmental policies, procedures, and regulations to an absolute minimum.

We should not enact local minimum wage laws higher than what the federal government requires. This should be every government’s pre-bankruptcy plan, or as Puerto Rico has shown us, it will definitely be a government’s bankruptcy plan.


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