So, as a part of an organization that receives a portion of its revenue through contracts with the state government, the state budget is a very important subject. It seemed all but clear that the Courts were going to be the battleground of this budget, however the budget was transmitted to the Governor's office yesterday (the end of the fiscal year). Today the news is as such: Be prepared for a longer battle.
Jan Brewer, Arizona governor, has evidently made several vetoes the the budget and this will send the legislature into a special session. This combined with the news coming out of the California budget battle, calls for the question:
How safe is it working with state and local government when economic times are so difficult?
I mean this in several senses. First, as people who work in the public sector, the chances are much greater that we would find ourselves working in or with a state or local government than with the federal government. Secondly, I mean this as people who invest in local government bonds (and this is not limited to US citizens). In both cases we have come to expect governments to be a stable facet of the US. We depend of governments to repay their debts and provide services without trouble. The hope is that this would be just as true in times in economic hardship. People around the world depend on the stability of American governments, for their security (I speak in an economic sense). Traditionally we have depended on governments as employers or objects of investment, because of stability. Has it turned out that this faith was as misplaced as our faith in General Motors? I sincerely mean this, as General Motors has been a very important part of mine and my families lives for generations. Likewise I feel government plays an equally important role in the lives of others.
Discuss if you'd like.
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Local governments have traditionally been a pretty safe bet when it came to lending from my understanding. They have bond ratings and credit scores. They want the lowest scores possible so that they pay less interest per dollar they borrow. Governments often times have to borrow money and have a bond service to pay for large capitol projects. However, there have been towns and cities that have gone bankrupt. I have not kept up with them to find out the aftermath of their decisions. I am sure it’s not good, both financially and with the people. I hope a city or town never has to consider bankruptcy, but fortunately there are lots of options they have before it gets to that point. If I had the choice to invest in a stock at the market in NY or invest it in my city I would choose my city. Cities in AZ have been growing every year and will continue to do so. My money is in slow and steady wins the race.
ReplyDeleteYes it is true that bonds get ratings when they are chosen for investing. For example in the article about California's budget situation, it is noted that California's bonds have just been reduced in their rating. Poor financial decisions have the effect of reducing investor confidence and making debt financing a more expensive avenue. This hurts cities and states going into the future until they are able to establish that they have their financial houses in order. More conservative areas (in a fiscal sense) would be less inclined to use debt financing to fund projects, which is why they often remain small.
ReplyDeleteThe argument that I pose is that we as students of government sometimes make an inappropriate leap of faith in our trust in government having an innate stability. I believe this to be true when we are discussing employment, policy proposals, and virtually any other issue. I do not advocate a line of thought that the sky is falling, but rather that we need to seek a more complex understanding which includes the idea that government can fail. That is to say dogged optimism shouldn't be our basis for decision making, but rather knowledge and pragmatism.
Growth alone does not covers a government's liabilities, or else the Arizona would likely not have a budgetary hole that is measured in the billions.