It’s the Debt You Don’t See that Kills You


In theory, state and local governments in the United States are required to balance their budgets every year. In practice, many have been running massive deficits. Count on slippery politicians to find the loopholes. The most widely practiced trick is the under-funding of pension obligations. Another is dishing off debt to independent authorities. Another is under-funding maintenance and allowing infrastructure to depreciate.

What’s the true level of state and local indebtedness in the United States? Steven Malanga explores the issue in “The Indebted States of America” in the latest issue of City Journal. Only a few years ago, state-local debt was estimated to total $2.5 trillion. But a 2012 estimate by Harvard and University of Pennsylvania institutes of government projected that, if you counted unfunded promises to government workers and money borrowed without taxpayer approval, the figure could run north of $7 trillion.

If you also included the failure to properly account for full life-cycle costs of roads, sewer and other infrastructure, you would add trillions of dollars more.

Back in the Old Dominion… As far as I know, there is no single document in Virginia that tallies the debt of state government, local government and independent authorities, as well as unfunded pension liabilities and depreciated infrastructure.

The picture is more complex than it appears. Think of the transportation Public-Private Partnerships the state has entered into around the state. Think of the billions of dollars taken on by the Metropolitan Washington Airports Authority to finance the Rail-to-Dulles project. We know that mega-transportation projects can turn sour. Anyone remember the Dulles Greenway? Anyone remember the Pocahontas Parkway? While the state may be under no legal obligation to step in if mega-projects fail, the political pressure to intervene could be overwhelming if the continuity of service were threatened. The state may be well protected under individual P3 agreements, but has anyone looked at those agreements collectively to see if they pose a systemic risk?

One virtue of Virginia’s system of government is that there are relatively few overlapping authorities empowered to issue debt. It should be easier here than in other states to keep tabs on our debt, depreciation and unfunded obligations. But it’s an exercise we have not yet undertaken.


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One response to “It’s the Debt You Don’t See that Kills You”

  1. The Virginia Auditor of Public Accounts receives/produces a financial report for each locality in Va.

    these are excerpts from Henrico for 2012:

    “beginning in fiscal year 2015, a new GASB pronouncement – known as GASB 68
    – requires the reporting of an entity’s net pension liability. This requirement will likely have a significant impact on Henrico, due in large part to the state’s underfunding of teacher pensions. The effect of requiring school boards to report a net pension liability will, in Henrico’s case, result in its liabilities exceeding its assets and for the first time result in a negative asset total being reported. The net pension liability cannot be reduced without significant future cost increases, which may have significant budgetary impacts for Henrico well into the future”

    makes me wonder if Henrico said the meal tax was to address their unfunded liabilities if it would make any difference to those opposed.

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