Mounting State Debts Stoke Fears of a Looming Crisis

Source: NY Times, December 4, 2010
By Michael Cooper and Mary Williams Walsh

(Post Carbon GM editorial note: Read this article carefully and consider how triple-digit oil prices might trigger a cascading financial disaster in the US. How might this affect Canada, New Brunswick and Greater Moncton?

Note éditoriale GM Post Carbone: Lisez cet article attentivement et considérez l'effet dévastateur possible d'une hausse marquée des prix du pétrole sur les finances des gouvernements étatiques et municipaux aux É-U. Quelles seront les conséquences pour le Canada, le Nouveau-Brunswick et le Grand Moncton?)

The State of Illinois is still paying off billions in bills that it got from schools and social service providers last year. Arizona recently stopped paying for certain organ transplants for people in its Medicaid program. States are releasing prisoners early, more to cut expenses than to reward good behavior. And in Newark, the city laid off 13 percent of its police officers last week.

While next year could be even worse, there are bigger, longer-term risks, financial analysts say. Their fear is that even when the economy recovers, the shortfalls will not disappear, because many state and local governments have so much debt — several trillion dollars’ worth, with much of it off the books and largely hidden from view — that it could overwhelm them in the next few years.

“It seems to me that crying wolf is probably a good thing to do at this point,” said Felix Rohatyn, the financier who helped save New York City from bankruptcy in the 1970s.

Some of the same people who warned of the looming subprime crisis two years ago are ringing alarm bells again. Their message: Not just small towns or dying Rust Belt cities, but also large states like Illinois and California are increasingly at risk.

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