Out of Control Policy Blog

Running Up Government's Credit Card Bill

USA Today has a sobering article today on the near-record levels of debt-financed spending we're seeing at all levels of government:

Following in the federal government's footsteps, states and cities are borrowing heavily to finance spending, a strategy that could speed economic recovery while leaving a heavier debt for future generations.

States and local governments borrowed $53.5 billion in the first three months of the year, just shy of the first-quarter record set in 2003, Thomson Reuters Financial reports. Governments also refinanced $31 billion in debt to get lower interest rates and longer repayment schedules.

The newly borrowed money will be spent on buildings, bridges, operating expenses and other items in future months. "Governments with good ratings can borrow as much as they like at some very good rates," says Steve McLaughlin, executive director of Municipal Market Advisors, a research company.

Credit has tightened for corporate borrowers and individuals during the recession. But governments — federal, state and local — have been a magnet for investors seeking safe investments. [...] The federal stimulus package contains incentives that encourage state and local governments to borrow. Those tax breaks and subsidies are just starting to take effect and could accelerate borrowing later in 2009. [...]

The stimulus law encourages investors to buy more government debt. Local banks can increase the amount of tax-exempt bonds they buy from $10 million to $30 million, helping small cities and school districts.

Some local governments are reluctant to take on new debt for building projects. "People ask, 'If we're in a recession, why are we building a library?' " McLaughlin says. "The money is available, but there's political risk."

The same reality holds around the kitchen table as it does in government—you're not going to solve a spending problem by merely running up your credit card bill. Fiscal responsibility demands spending restraint. Smart stewardship of taxpayer dollars continual evaluation of program performance and the political will to stop throwing away dollars spent on underperforming or ineffective programs.

Luckily some state policymakers have recognized that, but too many others apparently believe that status quo, auto-pilot government is worthier of protection than the economic health of future generations.

» Reason's Privatization Research and Commentary

Leonard Gilroy is Director of Government Reform


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