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Paul A. Volcker, the former Federal Reserve chairman widely credited with taming inflation in the 1980s, has found what he considers a new economic scourge to battle: shoddy state budgets that he contends push costs into the future for other generations of taxpayers to pay.
When the states live beyond their means in this way, Mr. Volcker said on Monday, their budgets may seem balanced every year, but they are in fact piling up hidden mountains of unpaid bills. The invisible mountains grow bigger every year and eventually become crushing — something that seems to be happening in several states this summer as lawmakers find themselves at a loss to close their deficits.
“The never-ending sense of crisis leads to stop-and-go funding of vital programs,” Mr. Volcker said in his first report on state finances since establishing the Volcker Alliance, a foundation devoted to rebuilding public trust in government at the federal, state and local levels.
Budget proposals drive the debate over state spending, Mr. Volcker said. But they show only one year’s proposed cash outlays, not the accumulated costs from the past or the bills being deferred for the future. Budgets show that the costs of government are increasing each year, he said, but they mask the true picture.
That makes it nearly impossible to have a coherent public debate about priorities and fairness, Mr. Volcker said, adding, “These practices make budget trade-offs indecipherable.”
As a result, bridges and roads are being left to crumble, public schools and state universities are being starved, “rainy day” funds are being drained, and public workers are counting on pension plans that may melt down at some point, the report said. City and county services, like courthouses and jails, are being battered, too, because they get much of their money from the states.
Asked whether this might prove to be as big a problem as the self-feeding vicious cycle of inflation and stagnation that he faced as Fed chairman from 1979 to 1987, Mr. Volcker laughed and said, “It’s a different problem.”
“It’s like termites eating at a structure,” he added. “The building hasn’t fallen down yet. But if you get enough termites, the building’s going to get pretty rickety.”
When the states live beyond their means in this way, Mr. Volcker said on Monday, their budgets may seem balanced every year, but they are in fact piling up hidden mountains of unpaid bills. The invisible mountains grow bigger every year and eventually become crushing — something that seems to be happening in several states this summer as lawmakers find themselves at a loss to close their deficits.
“The never-ending sense of crisis leads to stop-and-go funding of vital programs,” Mr. Volcker said in his first report on state finances since establishing the Volcker Alliance, a foundation devoted to rebuilding public trust in government at the federal, state and local levels.
Budget proposals drive the debate over state spending, Mr. Volcker said. But they show only one year’s proposed cash outlays, not the accumulated costs from the past or the bills being deferred for the future. Budgets show that the costs of government are increasing each year, he said, but they mask the true picture.
That makes it nearly impossible to have a coherent public debate about priorities and fairness, Mr. Volcker said, adding, “These practices make budget trade-offs indecipherable.”
As a result, bridges and roads are being left to crumble, public schools and state universities are being starved, “rainy day” funds are being drained, and public workers are counting on pension plans that may melt down at some point, the report said. City and county services, like courthouses and jails, are being battered, too, because they get much of their money from the states.
Asked whether this might prove to be as big a problem as the self-feeding vicious cycle of inflation and stagnation that he faced as Fed chairman from 1979 to 1987, Mr. Volcker laughed and said, “It’s a different problem.”
“It’s like termites eating at a structure,” he added. “The building hasn’t fallen down yet. But if you get enough termites, the building’s going to get pretty rickety.”
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