My boys, the Little Conqueror (Charles Alexander) and the Little General (Andrew Jackson), have a wide assortment of hats, clothes, cooking utensils, weapons, and toys with which they are encouraged to pretend.
We make up stories together using household items visible from our story chair. And being a bit of a science fiction and fantasy nut myself, I fear that I may have passed along to the next generation of hoodlums an inordinate fascination with hobbits, Klingon birds-of-prey, junior members of the Justice League of America, Martian fliers, sandworms, talking pigs, and Sith lords. (The new Narnia film, which we recently viewed, gets the highest rating of three hoods flipped way up, I should mention.)
But there are times when having an active imagination, a less-than-firm grasp on reality, is not a plus. For example — and let me know if you think I’m going too far out on an Ent’s outstretched arm with this — I submit that imagination should have little place in fashioning North Carolina’s state budget.
Apparently, state lawmakers have been making decisions about the state’s finances and debt load based on the fantasy that adequate reserves exist to pay for the health expenses for retired and soon-to-be retired state employees.
According to a report in the Triangle Business Journal, North Carolina state government is preparing to comply with a directive from the Government Accounting Standards Board to report more accurately its financial liabilities. Other states are in the same boat, or perhaps even a less-balanced one. That doesn’t change the fact that North Carolina’s liability could end up swamping the ship of state.
The dollar amounts are daunting. Reporter Michael Wagner says that the state is estimating a cost of $10.4 billion over 30 years to pay the bill for retiree health care. Unfortunately, that may be an insufficient measurement of the height of the approaching fiscal wave. The state is scheduled to get another estimate of its retiree health liability next year, and everyone expects the number to rise much higher than $10.4 billion.
This is a state debt indistinguishable in some ways from that of bonded debts for state buildings. It is an obligation that state government, meaning all of us as taxpayers, will have to satisfy unless we want to accept severe financial, social, and political consequences.
It is a debt that should have been reported clearly years ago so that taxpayers could better evaluate recent proposals to issue multi-billion-dollar bonds for university construction, water and sewer projects, and natural-gas lines. These bond issuances passed, resulting in hundreds of millions of dollars in additional debt service each year. Would voters have approved them knowing the full extent of other obligations? I guess we will never know.
There’s another question people are asking about this issue: Will the listing of the retiree-health liability change the rating agencies’ assessment of North Carolina investment risk? Some budget officials fear it might.
“Obviously, we can’t fully fund that kind of liability on an annual basis,” says State Controller Robert Powell. “How will they look at it in terms of the overall financial rating?”
I agree that this is an important question, but it isn’t the most important one. As I have written many times before, the political class in Raleigh has long had a fascination with state bond ratings that has never made much sense to me.
Yes, differences in interest rates matter, but the size of the principal matters more. Given the existence of this liability for current employees, should we adjust the benefit package for new employees so that taxpayers aren’t expected to pay the entire cost of the retiree-health benefit? Or, alternatively, should the state divest itself of other responsibilities so as to satisfy its current ones without massive new tax hikes now or in the future?
Policymakers can be as imaginative as they like, but they can’t wish these issues away.
John Hood is president of the John Locke Foundation and the author of “Selling the Dream: Why Advertising is Good Business,” published by Praeger. Contact him at jhood@johnlocke.org.
