We often lament the ever burgeoning national debt ($18T+), and especially so when we consider the unfunded liabilities (some estimates well north of $100T).  Yet while the national debt captures the public’s attention periodically, the disastrous condition of state finances is seldom discussed.  There are few good states, albeit red states are typically much better than blue states (certainly at the extremes; Connecticut, California and Illinois being particularly bad).

Public sector unions are a large part of the problem, as expensive health care and retirement promises can be made as concessions to existing public sector employees without any concomitant increase in taxes.  Since the bill is in the future…well, the bill is in the future, on some other politician’s watch.  When I’ll be watching football and on the golf course.  So…problem?  What problem?

But denial is not a strategy and eventually there is a day of reckoning, as Detroit has found out.  One of the primary ways the politicians are punting the ball down the field is assuming rates of return of 8% on current monies set aside for these future requirements–a rate far higher than the reality of the last decade.  To actually admit a more realistic return would require much more from the states current budget.  But that is like…on my watch.  Which means my constituents will be mad at me if I raise their taxes, and the unions will be mad if I try to lower the expected promises.   And of course, most Americans are blissfully unaware, so what if its 4th and 45 yards to go?  That’s what punting teams are for.

The governator, Arnold Schwarzenegger weighs in on this issue with Warren Buffet below, and is worth a listen.

For those interested, Illinois is perhaps the worse run state (or is Connecticut–this is a contest that is really hard to tell!), and just elected a Republican governor who is trying to tackle the mess with a heavily Democratic assembly.  Wish him well.

EDIT UPDATE:  A chart from the Mercatus Center on State’s fiscal condition may be useful for the discussion below: