A year ago, 60 Minutes aired a controversial 11 minute feature on the “Day of Reckoning” coming for state — and especially local — governments. It featured two grim Cassandras: New Jersey Governor Chris Christie and Wall Street analyst Meredith Whitney. Host Steve Kroft reported that during the recession, states had collectively “nearly a half a trillion more” than they collected in revenue and faced a “trillion dollar hole in their pension funds.”
New Jersy Governor Chris Christie
Christie was one of several Republican Governors elected in 2010 on a platform to do things that, as he described them on Sixty Minutes, “people previously said were politically impossible. “ Now, he argued there was no longer any alternative. Analyst Whitney was even more apocalyptic. “There is not a doubt in my mind that you will see a spate of municipal bond defaults,” she told Kroft. Pressed on what a “spate” meant, she claimed “you could see hundreds of billions of dollars of defaults” on local government debt. She then put a time frame on her concerns: “twelve months.”
Financial analyst Meredith Whitney
Whitney was wrong. According to the Wall Street Journal, the amount of defaulted debts was $2.1 billion. While that certainly sounds like a big number, it is actually less than the $2.8 billion in defaults the year before — in a $3.7 trillion market. A far cry from “hundreds of billions of defaults.”
So was 60 Minutes wrong about a Day of Reckoning?
Not really. As I wrote last December, “the crisis is real.” States and cities forestalled bankruptcies because they made hard choices.
New York’s two parties came together under a new Democratic Governor and made cuts and raised taxes. A new Democratic Governor in California couldn’t enlist GOP support, so he enacted cuts and bought time to take his tax package directly to voters. Republican Governors across the country pushed through cuts — and occasionally new or extended taxes. A couple overreached — with a referendum overturning anti-union legislation in Ohio and a recall looming for the Governor of Wisconsin. But despite the varied politics, state (and local) politicians by and large faced up to the Day of Reckoning and took decisive action to balance the books.
Few of the solutions undertaken by states and cities are sustainable if the economy continues to sputter. Yet where U.S. and European national leaders have largely failed to come to grips with the crisis, there is some solace in the efforts of state and local leaders across America.
We are pretty much in the same boat in Ventura. It was ironic that because we moved more quickly and decisively to make cuts early in the economic crisis, we initially were labelled as being in worse shape than many other cities in Southern California. That has faded as the crisis has affected every local government in varying degrees. The City Council’s unanimous actions to “live within our means” kept us out of trouble.
But it’s not over. Local government revenue lags economic recovery — and the recovery is an anemic one. A particularly disturbing trend has been property tax revenue. The forecasts we get from the County Assessor for our share (16%) of property taxes have reflected the drop in property values during the recession. But in relying on these conservative projections, what we didn’t anticipate was how many property owners wouldn’t pay at all. Last year’s collections for Ventura fell nearly a million dollars behind budget estimates.
This means another tough budget year ahead. While sales tax has been exceeding projections, almost every other revenue source has been lagging. We face a continuing imbalance between ongoing revenues and ongoing expenses. Unless a roaring recovery is around the bend, it’s irresponsible to rely on one-time fixes.
Further cutting services to the public or further cutting pay and benefits in Ventura will not only be unpopular — many will argue that after $15 million in cuts, we’ve reached a point of diminishing returns. Raising taxes is equally problematic — residents and businesses face their own hard choices. Candidates in the election focused on economic development to put us on the road to enduring prosperity — and they’re right. But we all know that sparking a local boom times in the face of the sluggish national and state economy is not in the cards. It will take a long and patient commitment to strengthen Ventura’s economic base.
Perhaps the most important lesson learned from the Year of Reckoning now passed is that simplistic, partisan stances are not the answer. We need decisive action, not divisive action. When people from different points of view and different interests come together (as the Ventura City Council has unanimously done on the past three budgets), there is a basis for consensus and common cause. When you face a real crisis, you have to get real. The only way to accomplish the “politically impossible” is for everyone to re-evaluate the possibility of working with people with whom they disagree. That’s the answer that remains elusive in Washington, but has been the basis for our success so far in Ventura.