Worried about the national debt? It’s even worse for our cities.
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Ignorance toward local government issues is a plague that has the power to take down our country. Across America, there’s too much focus on the D.C. Beltway, rather than the cities and towns where much needed structural reforms can be made.

The reality is, while it may not be as exciting, Americans are more likely to feel the effects of changes made inside city halls than most bills passed by Congress.

Washington has repeatedly received criticism over its staggering debt. While you often hear of the $19 trillion in debt the federal government currently owes, you rarely hear about the $1.2 trillion in debt owed locally. According to Moody’s, the $1.2 trillion in local debt is expected to balloon to $1.75 trillion nationwide through fiscal 2017.

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Most municipal debt stems from the ever-increasing unfunded liabilities of public pension plans — a situation that isn’t good for taxpayers or government employees. This debt comes primarily from two things: repeated underpayments by governments to the pension plans, and unrealistic expectations on the funds’ investment returns.

 

Some public plans, such as those in Dallas, were given free rein to invest in an array of assets. Unfortunately, funds invested in risky investments to chase an unrealistic rate of return, usually around 7.5 percent. But when those 7.5 percent targeted returns wildly missed their mark, the insolvency problem exploded.

These local liabilities present a major issue because, unlike the federal debt, local governments rely on a limited tax base. Additionally, localities cannot print more currency, nor can they influence interest rates. In fact, low interest rate policies by the Federal Reserve Bank are what has hurt the ability of all investments to earn a healthy return.

When it comes time to pay the debt, local entities either face cutbacks or shutdowns. For Americans who live outside of D.C., a federal government shutdown is hardly noticed. But when states and municipal governments reach that point, it means halting essential services that impact the daily lives of taxpayers. Following Detroit’s catastrophic financial collapse, for example, it took $8 million in private donations to restore police and EMS service to reliable levels.

Municipal systems more easily default on debt and face downgrades from credit rating agencies — which make borrowing more expensive for them — and are also more susceptible to market changes and fluctuations.

The reality is that government employees and taxpayers are poised to suffer greatly. Millions of retirees across the country have their pensions in limbo as cities and states begin to look for ways to fix their problems, with taxpayers facing the potential of accelerated tax increases and impaired city services. The cost for taxpayers will likely go up, amid a decline in the quality and quantity of local government services.

Whether the debt is federal or local, taxpayers are on the hook for mismanagement and overspending by local officials and agencies. As long as Americans continue to only focus on Washington and its ever-growing national debt, the local debt crisis will continue unabated, just as it has for decades.

  

Charles Blain (@cjblain10) is the executive director of Restore Justice USA, a criminal justice reform project of Empower Texans. He campaigned for Texas Gov. Greg Abbott in 2014 and has a background in public policy.


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