Suddenly, and a decade too late, the press is buzzing with talk of state and local government bankruptcies. State and local governments face a lost decade due to debts and retirement obligations, run up by privileged members of previous generations so they could have a better deal, according to the Wall Street Journal. “Besides the near-term crisis, the other similarity states have with the old GM is an overhang of debt. Between 2000 and 2008, state debts—distinct from other municipal debts—almost doubled to about $1 trillion, according to the Census Bureau.” The burden of this debt has been masked by low interest rates, but these cannot be expected to continue. New York State, particularly New York City, is near the top in debts as a share of its residents's income.
“The bigger issue is retirement obligations. Like GM, many localities have struck generous deals with public-sector workers. In part, this reflected a desire to appease unions with promises for tomorrow that didn't have to be paid for until well after the next election. In a new study, the Pew Center on the States estimates there was a $1 trillion funding gap on $3.35 trillion of state health-care and retirement obligations as of fiscal year 2008.” The New York State pension system is among the least underfunded, although public services will have to be gutted to keep it that way. But the separate New York City pension system, and the MTA, are among the most underfunded.