Tags: Paul Volcker | State | Budgets | Danger

Paul Volcker Warns About Health of US State Finances

Tuesday, 09 June 2015 11:38 AM

Many U.S. states balance their budgets by using short-term techniques to make it appear spending does not exceed revenue, according to a report released on Monday that singled out New Jersey for using these budget-balancing maneuvers.

The report by public policy nonprofit Volcker Alliance, founded by former Federal Reserve Chairman Paul Volcker, said New Jersey has produced a balanced budget by shifting resources intended for other programs to its general fund and increased borrowing. Governor Chris Christie is a potential Republican presidential contender in 2016.

"There are problems hidden by a lack of truth and integrity" in state budgeting, Volcker said.

The hope is that by shining a light on these practices, it will make it harder for states to engage in these "shenanigans" and "fess up to the problem," Volcker said.

William Glasgall, Volcker Alliance's director of state and local programs, said "New Jersey is one of the habitual offenders that can't seem to or hasn't been able to come up with a lasting set of political and fiscal reforms that stick."

"It's a state that hasn't really been able to reform its ways and continues to use one-shot deals."

Practices included sweeping funds out of accounts earmarked for specific purposes, accelerating revenue from future budget years, draining rainy-day fund reserves and delaying property tax rebates, the report said.

Christopher Santarelli, a spokesman for New Jersey's Treasury Department, said the Christie administration has made significant progress in fixing budget practices, but more work remains, particularly public pension changes.

Christie has "reduced one-shot revenues that had been propping up the budget from almost $2.4 billion under the last administration to less than 25 percent of that amount in 2016," Santarelli said.

The report focused on three states — New Jersey, California and Virginia — but considered state budget practices nationwide. The Volcker Alliance plans to work with universities to continue the study across the rest of the country.

The report recommends states use recurring revenue to pay recurring costs and not use proceeds from borrowings to cover operating expenses.

Many states, the study found, include "short-term sleight of hand" moves such as obscuring budgeting decisions by borrowing long-term to fund current expenditures, delaying funding public worker pensions and shifting the timing of receipts and expenditures across fiscal years. These practices disguise the extent of problems that states face, Volcker said during a press conference Monday.

Volcker likened exchanging one long-term debt for another, which states do when they borrow to fund their pension obligations, "a scam," after the press conference.

"The continued fiscal stress is tempting states to continue, and even intensify, budgeting and accounting practices that obscure their true financial position, shift current costs on to future generations, and push off the need to make hard choices on spending priorities and revenue practices," Volcker said, according to the Financial Times.

"There are problems hidden by a lack of truth and integrity" in state budgeting, Volcker said.

The hope is that by shining a light on these practices, it will make it harder for states to engage in these "shenanigans" and "fess up to the problem," Volcker said.

The municipal bond market where states and local governments raise money does not fully reflect shoddy state budgeting, Volcker said.

"There is a hidden agreement between issuer and buyer - neither has had an interest in exposing it," he said. "If we expose all of this stuff the hope is that spreads will appropriately widen."

(Reuters contributed to this report).

© 2019 Thomson/Reuters. All rights reserved.

   
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Many U.S. states balance their budgets by using short-term techniques to make it appear spending does not exceed revenue, according to a report released on Monday that singled out New Jersey for using these budget-balancing maneuvers.
Paul Volcker, State, Budgets, Danger
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2015-38-09
Tuesday, 09 June 2015 11:38 AM
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