Following California Down the Path to Fiscal Ruin

The NGA-NASBO reports issued yesterdayââ?¬â?which predict a fiscal “lost decade” for statesââ?¬â?weren’t the only source of bad news for state policymakers. The Pew Center on the States also released a new reportââ?¬â?Beyond California: States in Fiscal Perilââ?¬â?profiling the fiscal disasters in the worst-hit state, California, and nine others (Arizona, Rhode Island, Michigan, Oregon, Nevada, Florida, New Jersey, Illinois and Wisconsin) that aren’t far behind in the severity of their crises. The report is well worth a read for some insights into what’s driving these fiscal trainwrecks.Ã?

As this Arizona Republic piece by Mary Joe Pitzl notes, these states share some common problemsââ?¬â?overreliance on specific economic sectors, voter-approved spending mandates, and general lack of political will to create economically-sustainable fiscal policy, to name a few. But at a practical level the biggest problem, of course, is the mismatch between revenues and expenditures. Arizona’s is pretty simple and stark:

…Currently, Arizona’s budget calls for $10 billion in spending, but there is only $6.4 billion in projected revenue.

As I wrote yesterday, an imbalance of this scale is not something policymakers can simply tax, borrow and gimmick their way out of, in good economic times or bad.

There’s no appetite for the level of tax increases, fee hikes and borrowing that it would take to sustain pre-recession spending levels. And those strategies are akin to shooting oneself in the foot, as they’d prolong and compound the recovery and kick the can down the road. Further, NGA and NASBO (among others) projecting tough economic times for states for the next decade so we’re going to have to settle in for a long, difficult ride. Given all of these stark realities, there’s no way for policymakers to avoid cutting the size and scope of government.

Leonard Gilroy is Senior Managing Director of the Pension Integrity Project at Reason Foundation, a nonprofit think tank advancing free minds and free markets. The Pension Integrity Project assists policymakers and other stakeholders in designing, analyzing and implementing public sector pension reforms.

The project aims to promote solvent, sustainable retirement systems that provide retirement security for government workers while reducing taxpayer and pension system exposure to financial risk and reducing long-term costs for employers/taxpayers and employees. The project team provides education, reform policy options, and actuarial analysis for policymakers and stakeholders to help them design reform proposals that are practical and viable.

In 2016 and 2017, Reason's Pension Integrity Project helped design, negotiate and draft pension reforms for the state of Arizona's Public Safety Personnel Retirement System and Corrections Officer Retirement Plan, which both passed with overwhelming bipartisan support in the state legislature and were signed into law by Gov. Doug Ducey.

Gilroy is also the Director of Government Reform at Reason Foundation, researching privatization, public-private partnerships, infrastructure and urban policy issues.

Gilroy has a diversified background in policy research and implementation, with particular emphases on competition, government efficiency, transparency, accountability, and government performance. Gilroy has worked closely with legislators and elected officials in Texas, Arizona, Louisiana, New Jersey, Utah, Virginia, California and several other states and local governments in efforts to design and implement market-based policy approaches, improve government performance, enhance accountability in government programs, and reduce government spending.

In 2010 and 2011, Gilroy served as a gubernatorial appointee to the Arizona Commission on Privatization and Efficiency, and in 2010 he served as an advisor to the New Jersey Privatization Task Force, created by Gov. Chris Christie.

Gilroy is the editor of the widely-read Annual Privatization Report, which examines trends and chronicles the experiences of local, state, and federal governments in bringing competition to public services. Gilroy also edits Reason's Innovators in Action interview series, which profiles public sector innovators in their own words, including former U.S. Transportation Secretary Mary Peters, former Florida Gov. Jeb Bush, former Indiana Gov. Mitch Daniels, former New York City Mayor Rudy Guiliani and more.

Gilroy's articles have been featured in such leading publications as The Wall Street Journal, Los Angeles Times, New York Post, The Weekly Standard, Washington Times, Houston Chronicle, Atlanta Journal-Constitution, Arizona Republic, San Francisco Examiner, San Diego Union-Tribune, Philadelphia Inquirer, Sacramento Bee and The Salt Lake Tribune. He has also appeared on CNN, Fox News Channel, Fox Business, CNBC, National Public Radio and other media outlets.

Prior to joining Reason, Gilroy was a senior planner at a Louisiana-based urban planning consulting firm. He also worked as a research assistant at the Virginia Center for Coal and Energy Research at Virginia Tech. Gilroy earned a B.A. and M.A. in Urban and Regional Planning from Virginia Tech.