The American public feels it is drowning in red ink. It is dismayed and even outraged at the burgeoning national deficits, unbalanced state and local budgets, and accounting that often masks the extent of indebtedness. There is a mounting sense that taxpayers are being taken for an expensive ride by public sector unions. The extraordinary benefits the unions have secured for their members are going to be harder and harder to pay.
How did we get into such a mess? States have always had to cope with volatility in the size and composition of their populations. Now we have shrinking tax bases caused by recession and extra costs imposed on states to pay for Medicaid in the federal healthcare program. The straw (well, more like an iron beam) that breaks the camel's back is the unfunded portions of state pension plans, healthcare, and other retirement benefits promised to public sector employees at a time when federal government assistance to states is falling—down by roughly half in the next fiscal year beginning Oct. 1.