August 13th, 2008Washington state debt history - does Dino Rossi understand it?
According to the anti-Gregoire Dino Rossi political flyer I received in the mail today:
Gregoire inherited a strong, growing economy and by March of 2007, state coffers were bursting with a $2 billion surplus.
…Gregoire turned a record surplus into a $2.7 billion deficit.
Of course there were no citations from where these “facts” came from, so I did some digging to present the real truth in the numbers.
First a few definitions. A yearly budget deficit is the difference between the tax revenue a government entity brings in for any given year, and the amount of expenditures for the same year, when the expenditures are higher then the tax revenues. The total debt is the amount of leftover unpaid and accumulated deficits from prior years. There is a minor twist. Government agencies often under report and lie about annual deficits. But they are honest about the cumulative and total debt. So the easiest way to calculate the REAL yearly deficit is to subtract the total outstanding debt from one year to the next. The outstanding debt for Washington state can be seen by looking at the outstanding and unpaid bonds that were issued to finance the yearly deficits in Washington state.
On to the numbers. Here is a history of the total outstanding Washington state debt, directly from the source - Washington State treasury website. The image below is from the debt management summary link.
From the image above, it is crystal clear to me that the total outstanding debt of Washington state has increased every year since at least 2000. The annual budget deficits of Washington state can be calculated by subtracting the outstanding debt from one year to the next. Dino Rossi has apparently not seen this, or just does not understand the numbers, because his fliers mistakingly report record surpluses that Gregoire inherited in 2007. In fact, for fiscal year 2007, Washington state had a $1.089 billion DEFICIT (11,673-10,584).
The real mystery here is how I will cast my vote for Washington state governor. Do I vote for Gregoire and her budget deficits, or do I vote for Rossi and his confusion on all things economics? It’s going to be a tough choice, and I may need the assistance of my magic 8 ball.
For related reading on Federal Government budgets:
- The United States has not had a balanced budget since 1957!
- States crumbling under the weight of their debt
- California’s exploding debt problem
- Zimbabwe hyperinflation could be followed by United States
- The United States national debt limit has become a joke
- The choice is clear on Obama vs McCain - fiscal responsibility
Also check out this excellent book:
Bad Money: Reckless Finance, Failed Politics, and the Global Crisis of American Capitalism by Kevin Phillips
August 31st, 2008 at 4:45 am
Hey, this is some good info. I’d like to see where all the money from our gas taxes go.
November 5th, 2008 at 9:49 am
This was incredibly informative and straight forward. Thank you for laying things out so clearly and factually.
December 3rd, 2008 at 3:57 pm
I don’t think you understand how deficits are calculated. A deficit is different than debt - deficit is based on your yearly ability to pay current debt obligations (payment and interest). Long term debts (like issued bonds) are spread out over the life of the bond, not the fiscal year the bond is issued.
For instance - if a 10 year bond of $1,000,000 is sold at 10% per year return, the gov’t liability yearly is 10% of $1,000,000 or $100,000. The state can take on large capital projects which they don’t have the money to pay for cash without incurring a deficit - they just have to manage cash flow year to year and ensure that they can service the debt that they take on.
If they operate in a deficit position, they have to issue additional bonds to pay their currently debt obligations, which if not controlled, spirals exponentially because you are incurring debt to pay for debt obligations. You can get away with this short term, but not over the long term.
The government in Washington can not operate as described in the article because they can not end a bi-ennium in the red or budget to be in the red for a future bi-ennium - they have to provide budgets which meet all debt obligations plus pay for any new programs / spending.
December 5th, 2008 at 10:07 am
On the contrary, I understand deficits and total debts very well. But I really question whether even 30% of our elected officials understand it. For Washington, the numbers are very clear. Granted, the state of Washington is doing far better than California in terms of fiscal responsibility, but Washington is still INCREASING its total debt from year to year. It’s pretty simple really. When you issue more new bonds than you pay off in old bonds, the difference is the yearly deficit. And the total of those yearly deficits is the debt. A quick and easy way to view the total debt is to just look at the outstanding bonds. And a quick and easy way to determine the yearly deficits is to subtract the total outstanding bonds from year to year.
However… I do recognize that governments DO NOT adhere to reasonable accounting practices, and therefore DO NOT agree with my calculations for yearly deficits and total debt. And THAT is the problem.
December 5th, 2008 at 10:20 am
It is not reasonable to expect the state to not increase it overall debt as population and revenue increase - the demand for services increases as does the demand for infastructure. The critical measure of fiscal responsibility would be the percent of revenue used in servicing debt - if it remains constant or decreases, I would say we are being fiscally conservative and have a handle on things. If, however, each year more of the total revenue stream is used to service debt, we entering the death spiral… do you have % of revenue to cost of debt numbers to accurately depict the “state” of Washington’s finances?
December 5th, 2008 at 1:30 pm
Bill, we are getting a little sidetracked from the point of the original post. But nonetheless, I do agree that there is a legitimate purpose for governments to increase the debt in times of crisis. On the flip side, governments SHOULD be REDUCING overall debt loads in times of prosperity. Unfortunately, government debts RARELY decrease, even in the most prosperous times. Look at California during the dot-com boom as an example. Better yet, look at Bush’s first term in office when he sent out the “surplus” rebate checks.
I do not agree that government debts should increase or decrease based on population growth, tax revenue, or even GDP. I am an ultra fiscal conservative. I believe in deficit government spending during recessionary times, but only on the condition that the debt burden is REDUCED when times are good. Unfortunately, most government institutions today increase the debt in good times, and increase the debt radically during recessions, with no intention to ever pay it down.