Massachusetts: In debt we trust

Printed from: http://newbostonpost.com/2016/04/16/massachusetts-in-debt-we-trust/

“When you run in debt; you give to another power over your liberty.”
— Benjamin Franklin, The Way to Wealth (1758)

Did you know that, courtesy of citizens with a sense of foreboding, there is a version of the U.S. Debt Clock dedicated solely to the aggregate debts of Massachusetts (approximately $95.346 billion)? Or that Massachusetts, since 1989, has a statutory debt ceiling (pegged at $21.735 billion), that will likely be breached sometime next year?

Neither do most people.

Nor do most people understand that the Commonwealth of Massachusetts is awash in debt. At best, it is impeding our short-term growth. At worst, it is imperiling our long-term economic liberty. In principle and in practice, no public policy issue can be seriously addressed unless the debt problem is at least acknowledged, let alone addressed.

Perhaps one of the reasons there is not greater concern over figures so fantastically large is that there is no consensus as to what officially constitutes “total indebtedness.” State government would like you to believe that bonded debt (borrowing in the capital markets; today approximately $23 billion is outstanding) should be the primary focus. By itself the state’s ability to repay this debt seems manageable (the state generates over $489 billion in economic activity, or Gross State Product).

But the actual level of aggregate liability seems purposely obscured. It should be publicized. The definition of indebtedness should be broader and include unfunded pensions (approximately $26 billion), other-post-employment-benefits (OPEB — think retiree healthcare costs; approximately $15 billion is unfunded), Unemployment Trust Fund (with its fluctuating solvency), and the perennial budget-gap (the annual financial shenanigans to ensure a “balanced budget;” now at $635 million); combined, they are unmanageable (the state budget for fiscal 2017 is $39.6 billion of which 45 percent is dedicated to runaway healthcare spending — a decade ago it was only 30 percent).

When you take into account actuarial projections, the state — like many others — has underestimated by tens of billions of dollars its true liability. The actual figures in Massachusetts approach $95 billion, maybe even higher. The “debt ceiling,” accordingly, is a political and financial mirage. It is understandable, therefore, why state government is reluctant to emphasize the extent of its overextended obligations. But doesn’t it have a moral obligation to do so?

The unfunded pension liability is particularly galling.

In 1911, amidst progressivism’s first flourish, Massachusetts became the first state to offer a pension system for state employees. A century later, witnessing progressivism’s version 2.0, the state only funds approximately 61 percent of its pension liability and will require, a 2013 Beacon Hill Institute study showed, a $1.3 billion annual cash injection for 30 years to cover a $24 billion shortfall in just the three largest pensions (as of April 2015 there were 14 state pension plans and 105 non-state pension plans in Massachusetts).

Massachusetts — with its strong credit ratings, high median household income and high level of educated residents — is perceived to be financially strong. And with breezy confidence, the Commonwealth’s Capital Debt Affordability Committee (part of the Executive Office for Administration and Finance) last October wrote that the state’s robust economy allows it to “sustain relatively more debt than some other states.” It also recommends that an increase of the debt ceiling “may be prudently authorized.”

But for over a decade, the state led the nation in per-capita debt (now at $14,517, only behind New York). It has one of the worst ratios in the nation of debt as a percentage of personal income. And state and local debt account for 32 percent of GSP.

Furthermore, according to a study issued last summer by the Mercatus Center at George Mason University, Massachusetts was ranked 48 out of 50 states for its “fiscal health,” surely as a consequence of maintaining such high indebtedness. Its research concluded that “Massachusetts’ liabilities exceeded total assets by 47 percent.”

Last November Standard & Poor’s, a Wall Street ratings agency, lowered its outlook on Massachusetts bonds to negative from stable. It may be the first sign of realism creeping into the state’s consciousness. More realism is needed.

Time was in this country — and this Commonwealth — that we borrowed for the future. Today we borrow from the future. At what point in time will our public officials have the courage and candor to acknowledge that today’s massive obligations simply cannot be paid given this financial hubris? As Ben Franklin wrote, “lying rides upon debt’s back.”

James P. Freeman

James P. Freeman

James P. Freeman is a New England-based writer and former columnist with The Cape Cod Times. Read his past columns here.

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