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Fiscal Woes in the States

Tuesday March 30 2010

Picture 3 Last night in class I mentioned pensions woes in various states were causing problems. Here is the extent of the problem and it is serious.  In addition to overly generous pension promises, property and sales tax revenues have fallen as the states continue to spend more money. The November elections should be interesting. IL is a bit larger than Greece, CA is about the size of Spain or Russia. 

The accounting link here is that governments and business have hidden long term liabilities off their balance sheets. Now those liabilities are becoming more evident. Fitch downgraded IL to A- yesterday. 

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2 responses to “Fiscal Woes in the States”

  1. Aaaron Avalos Avatar
    Aaaron Avalos

    Why would a company hide it’s liabilities, wouldn’t that throw your books off at the end of fiscal year? Plus wouldn’t that hurt the employees down the road if they were to go into their pension.

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  2. Dennis Elam Avatar
    Dennis Elam

    Aaron has posed an excellent question, like the bank officer with a bad loan, they hope the bad news will improve, and so we never own up to the liabilities, kicking the can down the road so to speak, most managers think short term, as in one year from now, congressmen run every two year so that is their maximum time horizon, they make thirty year commitments based on winning an election in eight months, a bad deal for everyone

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