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We’re
Not Broke,
Just
Half-Assetted
Working
hard to build your estate? If you discount your
share of local, state and federal government debt,
you’re not worth as much as you think.
What
would you do if someone took half your net worth?
Actually, more than half.
Just took it. Gone. Would you do? Put up a
scuffle? Call the police? Report a robbery?
Maybe
you’d better sit down. I’ve got bad news for
you. Someone has taken it. Your friendly government — state, local and federal
— has borrowed it away in your name. That’s
right. At one level or another, the government has
obligated more than half of the total household net
worth here in Virginia
in long term debt that you and I, and our
descendents, will have to pay back.
How
can that be?
We
begin with local government — the counties, cities
and towns that make up our Commonwealth.
Faced
with an ever-lengthening list of ‘bottom-up’
demands for services from their citizens and the
simultaneous pressure of ‘top-down’ unfunded
mandates from a state legislature that increasingly
appears to be tone-deaf in matters of fiscal
responsibility, local government choices are
somewhat limited. Essentially, there are three: (1)
grow the economy, thereby expanding the base, and,
by inference, the tax revenue generated by that
base; (2) slash services or raise taxes or some
combination thereof; and (3) borrow the money.
There
is not a lot of "economy growing" going on
in Virginia
at the moment — or anywhere else, for that matter.
And many local governments across the Commonwealth
are cutting services and simultaneously raising
taxes. Still, that’s not enough. The
pressures of
demand, mandates, rising costs, and state neglect
are too strong.
Instead,
local governing bodies are plunging deeper and
deeper into debt. What’s the total now? As of the
end of the 2002 fiscal year, $11,651,970,403. That
works out to $1729.26 per capita. What was the total
local government debt a decade ago? Roughly half
that, at $6,068,433,382.
A
note here: You can look up this, and lot’s of
other fun stuff. Download the Virginia Auditor of
Public Accounts report, “Comparative
Report of Local Government Revenues and Expenses.”
You’re going to be surprised by some of the data.
What
are the top three localities in local government
debt per capita? Not the relatively “rich”
counties and cities and towns of Northern Virginia.
Not those areas of highest incomes. The City of
Bedford
is first, at $5,742, followed by Bristol,
at $4,551, and Newport
News
at $4,230.
Okay.
Local government debt is $1,729 per capita.
Add
state debt of roughly $2,357 per capita. That’s
right, current state debt, meaning money borrowed by
the legislature — most with voter approval —
stands today at nearly $17 billion. And, finally,
the big one: As of September 22, the federal debt
was precisely $6,799,684,130,327.69.
That
number, by the way, is a mouth full. It is
articulated as “six trillion, seven hundred ninety
nine billion, six hundred eighty four million, one
hundred thirty thousand, three hundred twenty seven
dollars and sixty nine cents.”
Gee,
what’s that per capita? Let’s see… two hundred
eighty-five million citizens… debt at nearly seven
trillion… what’s that come to? Right at $23,858.
Okay,
now let’s add them up. Local government: $1,729;
state government: $2,357; and federal government:
$23,858. The total, per capita? $27,944,26. This is
how much debt our elected representatives have put
on each of us.
(And,
by the way, this does not include the projected
federal deficit for next year of, by some estimates,
$555 billion. Ditto the $87 billion in
Iraq
‘reconstruction’ funds the President is asking
to borrow. Finally, keep in mind that this is not
total ‘spending’, not by any means. This is just
the amount of spending that is borrowed.)
What’s
the number if you think about it in terms of “debt
per household” in Virginia?
Easy. Just put a 2.54 multiplier (the average number
of persons per household in Virginia)
on the $27,944.26 and you get $70,978.42.
Government
debt — local, state, and federal—per household
in the Commonwealth
of Virginia
is nearly $71,000.
The
Corporation for Enterprise Development in
Washington
tracks, among other things, household net worth by
state. The
latest number for Virginia
is $122,320.
But that, of course, does not take into account any
sort of ‘contingent liability’ the average
household faces in government debt. If it did, the
average net worth per household in this state would
be diminished by more than half—by 58 percent.
Think
about that for a minute. For the average household
in Virginia,
the net worth vaporizes by 58 percent if government
debt is considered.
Sure,
there is something abstract about all of this. The
notion of government debt in the public
consciousness somehow hangs out in the vague ether
of never-never land. But there are a few concepts that are not all
that abstract.
When
governments borrow money in a free marketplace, they
take the money out of a finite pool of capital
available at any given time to private borrowers,
thereby, as competitors, driving up the cost of
borrowing to everyone. (That doesn’t matter much,
short term, when the economy is in the toilet like
it is now and there is little private demand).
Second, they indebt their citizens — sort of a
double whammy, when you think about it. And, third,
they allocate future revenue streams to debt
service, blind to future needs.
Sooner
or later this debt will have to be paid, by one
generation of children or another. (Think about it
as robbing the future to pay the present.) The
interest on the collective debt is enormous — and
growing. The cash flow implications are real.
You
would think Republicans would be adverse to this.
They’re the “conservatives,” right? Think
again. Having achieved majority status here in Virginia,
they seem oblivious to these implications.
Republican House and Senate candidates still
campaign around the clock on a platform of ‘cut,
cut, cut’ — not spending, mind you, but the
revenue that supports that spending — the car tax,
the estate tax, etc.
(A
Roanoke Valley Republican campaigns for more
spending in our museums and cultural institutions,
while a Tidewater Republican circulates direct mail
bragging that he and his Republican cohorts have cut
taxes 50 times in ten years.)
Any
wonder that the business community’s Virginia
Foundation for Research and Economic Education
(Virginia FREE) slighted the Republican leadership
this time around?
You
think Harry Byrd, Mr. Pay-As-You-Go, would turn over
in his grave in contemplation of this mindset, this
borrow-and-spend mentality that has seized the wheel
of Virginia
public policy, and driven it into a
ditch?
Perhaps
Virginia Republicans are driven by a cue from
Washington where the Bush Administration is plunging
us into debt at a pace that sets new definitions,
ramming through tax cuts for the wealthy, borrowing
like crazy, and spending like there is no tomorrow.
Speaking
of which, tomorrow the news may be worse. The other
day Moody’s Investment Services placed the Old
Dominion on its ‘watch list,’ signaling that the
state’s coveted AAA bond rating may be downgraded.
In Virginia,
the cost of borrowing may be headed up.
But,
hey, the news is not all bad. You’re still worth
almost half what you thought you were. You’re not
flat broke, just half-assetted. There. Feel better
now?
--
October 6, 2003
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