Gov. Brian Schweitzer and Republicans have traded shots recently over how much money Montana still has in the bank. The Legislative Fiscal Division has revised its forecast and now says $265 million will be left over in the state’s coffers by June 2013, up from its previous estimate of $150 million.
Schweitzer’s budget director says the new estimate is still too low and argues that the GOP-led Legislature used an artificially dire budget outlook as an excuse to cut spending at the expense of jobs. Republicans counter that it’s better to have a conservative view of forecasts: “I think we were prudent and did the right thing,” Kalispell Sen. Bruce Tutvedt said.
It’s an interesting argument because few other governments, large or small, are having it. They are running out of money everywhere (most notably, Greece) and investors have made real bets that they will default.
Michael Lewis’ new financial book, “Boomerang,” opens with an interview of Kyle Bass, who five years ago predicted the imminent bursting of the housing bubble and correctly made a large wager against the subprime mortgage bond market. Now he is making another wager – against governments.
“When we met,” Lewis writes, “he had just bought his first credit default swaps on the countries he and his team of analysts viewed as the most likely to be unable to pay off their debts: Greece, Ireland, Italy, Portugal and Spain.”
That was in 2008. Today, many economists say Greece could default on its debt within weeks. Italy could soon follow. The ramifications of either happening would be massive, but a few investors, like Bass, would get rich off their calamities.
On a smaller scale, governments have already gone broke in our country. Just last week Alabama’s Jefferson County filed the biggest municipal bankruptcy in U.S. history – an estimated $4.1 billion. This followed Pennsylvania’s capital Harrisburg running out of money; it owes $300 million.
Last year, analyst Meredith Whitney warned that the municipal bond market could crash. If cash-trapped governments are unable or unwilling to make cuts and raise revenue, investors could flee.
“I think next to housing, this is the single most important issue in the United States and certainly the largest threat to the U.S. economy,” Whitney told the television program “60 Minutes.”
Those fears, to a degree, seem to be overstated. Jefferson County’s bankruptcy was unique in that the previous government was rife with corruption. And these bankruptcies are still considered rare. As the Wall Street Journal pointed out, “Jefferson County is the 49th bankruptcy among U.S. cities, counties, villages and towns since 1980.”
Still, there are several other local governments under severe financial distress – Detroit and Miami among them – with many of their budgets decimated by pension obligations.
At some point, either government officials muster the political will to make draconian cuts, or do what Vallejo, Calif., did in 2008: declare bankruptcy, which, among other things, forced the city to cut the police and fire departments in half.
Montana has its own challenges. Last month, analysts said the state’s pension system for public employees faces a shortfall mainly due to market losses. Another recent report found that the state’s teacher pension system would run out of money by 2055.
Despite that, our state is in much better shape than most. In other words, our government can pay its bills for the foreseeable future without raising taxes and vastly reducing services – a rarity and perhaps a selling point.
Toward the end of Lewis’ book, Whitney predicts that the country could “emerge with new regional strengths and weaknesses. Companies are more likely to flourish in the stronger states; the individuals will go to where the jobs are. Ultimately, the people will follow the companies.”
Instead of arguing over how much the state has left in the bank, Montana’s politicians should embrace it. Because of our finances, we have positioned ourselves as one of the country’s stronger states, one with stability. And advertising that to attract new businesses should be a bipartisan effort.