More Horrific State Budget Games

The Manhattan Institute's Steven Malanga wrote a chilling editorial in last Friday's Wall Street Journal entitled State House Shell Games.

In it, he detailed the budgetary games US states have played to fool voters while continuing to spend beyond their means. For example, apparently federal funds for upgrading 911 emergency systems is a fairly common source for misallocation of resources. These funds are used for other purposes with seeming impunity.

Then there are cases of states like Arizona mortgaging its government buildings in such a way as to effect a 'sale' which escapes constitutional strictures. Then there's New York State, where, according to Malanga, one-third of the bridge and highway trust fund is being used to pay state debt service.

Essentially, writes Malanga, states are using elaborate shell games to shift funds inappropriately among various special purposes and their general funds, the better to obscure the true indebtedness of said states.

California's Schwarzeneggar promised that $10.9B in deficit bonds issued early in his governorship would be the ticket to his state's budget woes. Instead, the legislature and governor simply went on spending, leaving the state with a current $25B budget shortfall over the next year and a half.

Voters are beginning to notice. Even my liberal Democratic squash partner voiced alarm after seeing Meredith Whitney's recent appearance on CBS' '60 Minutes.' For a guy who never saw a spending program he didn't like, he's truly fearful that some states, like ours, won't be able to fund all of their liabilities.

Seems like the endgame on state budget tricks and deficits, in defiance of notional balanced budget rules, is coming soon.