We know many state governments are financially hurting. But how much of that "hurt" is "self-inflicted"? Let's start by looking at one state. The governor of New Jersey is quoted in the March 15 issue of Forbes:
"One state retiree, 49 years old, paid, over the course of his entire career, a total of $124,000 toward his retirement pension and health benefits. What will we pay him? $3.3 million in pension payments over his life and nearly $500,000 for health care benefits -- a total of $3.8 on a $120,000 investment.
"A retired teacher paid $62,000 toward her pension and nothing, yes nothing, for full family medical, dental and vision coverage over her entire career. What will we pay her? $1.4 million in pension benefits and another $215,000 in health care benefit premiums over her lifetime."
No wonder New Jersey is facing a budget crisis. Those are just two examples in the governor's quote. Imagine those examples multiplied. Institutional Investor Magazine reports that since 1999, California's ". . .pension outlays have ballooned by 2,000%, while state revenues have increased onlWord from the Center on Budget and Policy Priorities is that forty-one states are expecting a mid-2010 budget gap. A news item released March 5 reveals Alabama, Hawaii, and North Carolina plan to delay sending out tax refunds -- they don't have the money now. Other states are considering doing the same thing. How come they are finding themselves in this sad shape?
"For years, state governments have been spending every dime they could squeeze out of taxpayers plus all they could borrow. . .But now even states' borrowing ability has run into a brick wall, because the basis of their ability to pay interest -- namely, tax receipts -- is evaporating." --Robert Prechter, Elliott Wave Theorist, November 2009.
Tuition increases, trimming of government services and "secondary" tax hikes (like liquor taxes) have already occurred. But what if the world financial crisis is not over? Are states prepared for another round of deflation?
In the 2007-2009 stock market crash, you've already seen how devastating a deflation (a.k.a. "liquidity crunch," "credit crunch," etc.) can be for states' tax revenues. This chart from EWI's February 2010 Elliott Wave Financial Forecast (EWFF) makes it clear:
Eduard Hamamjian Managing Director
GeaSphere LLC
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