For Many States, Now Is the Day of Reckoning

Across the country, in statehouses nationwide, the day of reckoning has arrived. This year, according to the Associated Press, a staggering 22 states are confronting budget shortfalls. Given that nearly half the states are flagging, Standard & Poor's has rightly sounded the alarm, calling these shortfalls a kind of "early warning."

If states are doing so poorly in the midst of a putative economic "recovery," imagine how they will fare when the next recession hits. The time is now for states to get their financial houses in order, before it is way too late.

The Government Accountability Office (GAO) has found that, unless serious reforms are made, the states' fiscal crises will only get worse over the next fifty years. According to GAO estimates, states will need to either reduce expenditures or increase revenues by nearly one-fifth of current levels.

As the GAO notes, Medicaid is one big driver of these chronic shortfalls on the state level. Medicaid expansion under the Affordable Care Act (ACA) - though sold as a money-saver - will only worsen the problem, as states like Ohio are now learning the hard way.

Another major strain on budgets is the growth of unfunded state and local pension liabilities, which now amount to $4.7 trillion nationwide - or more than $15,000 owed by every man, woman and child.

Without meaningful pension reform, there is just no way for states to mend their broken budgets. Over the long haul, switching over to a defined contribution model would save taxpayers money while providing security for state workers in their retirement years.

State legislators should additionally embrace the idea of outcome-based budgeting. Spending must be aligned with long-term goals, and there should be ways to measure results. This mindset would help ensure that taxpayer money is spent wisely, and that necessary cuts are made in the right places.

It is time for reform-minded leaders in statehouses and city halls to roll up their sleeves and get to work. Facing a half-century of ballooning debt, the cost of inaction is simply too high.

Bob Williams is the President of State Budget Solutions, a non-partisan organization dedicated to fiscal responsibility and pension reform.