Danny Newton

The State and Local Government Crisis Looms Larger

The requirement for projects to be "shovel ready" assured that the stimulus spending would land on areas of the budget already supported by land purchases, environmental studies and zoning approvals. Enormous pressure will be placed on states to increase their gasoline taxes so that states can match the money available from the 18.4 cent federal tax on gasoline. Diesel taxes are even higher.

This seems counterintuitive since the feds have not raised the gas tax since 1997. Many states have already raised their taxes since then and should therefore be ahead of the curve. States that have wasted their money with goofball transit projects like the Big Dig were not blessed in any substantial way with the billions spent. Tolls and sales tax increases were raised to assist in paying the Big Dig off. Worst of all, looking at the BEA data on Per Capita Income or Personal Income, I can see nothing that indicates that the $14 Billion did a lot with respect to economic development. There should be some kind of spike in the numbers according to the expectations of the proponents.

Many local governments are guilty of thinking of credit as being income. Taxes have been kept at a doable rate of increse by borrowing. That will work only when the value of the infrastructure exceeds the cost plus finance cost. Some states are borrowing money to mow the grass or take pressure off of their retirement systems. This is a warning sign for most credit rating agencys.