Greensboro residents face a staggering state and local government true debt burden equivalent to $11,200 for every man, woman and child — or roughly $44,800 for a family of four.
This amount, calculated in a report by Raleigh’s Civitas Institute, reflects each Greensboro citizen’s share of the total debt and unfunded liabilities accrued by the city of Greensboro, Guilford County and the state of North Carolina (the report is available here).
The government debt represents bonds issued to finance public buildings and projects, and the unfunded liabilities represent the present value of already accrued retirement health benefit obligations owed to eligible current and former state and local government employees.
Because of the unsustainable levels of debt and benefit obligations amassed by state and local lawmakers, Greensboro’s economy is staring at a future of higher taxes and restricted economic growth.
At the local level, Greensboro taxpayers are facing $2.5 billion in debt and unfunded obligations.
The total figure includes:
- $2.2 billion in debt (Greensboro city government, $865 million; Guilford County government, $1.3 billion);
- $343 million in unfunded retiree health benefit obligations (city of Greensboro, $59 million; Guilford County, $284 million).
Add to that another $9.4 billion in state debt, $29 billion in state unfunded retiree health benefit obligations and $925 million in funds North Carolina borrowed from the federal government to fulfill unemployment insurance obligations, and one quickly realizes it’s not just the national debt that should concern us.
All debt totals include principle plus interest payments of current debt, calculated as of June 30, 2008 (the latest comprehensive data available); and unfunded liabilities are calculated as of Dec. 31, 2007.
With that said, why is government debt important?
Picture the government’s debt as a massive credit card bill that must be paid off by taxpayers. Workers’ wages need not only support themselves and their family, but a portion will be required to pay off the government’s charge card. In short, the government’s debt represents a claim over the future earnings of Greensboro workers.
At an average burden of $44,800, state and local government debt adds a financial liability equivalent to the price of a brand new Cadillac SRX to each Greensboro family of four’s budget.
Furthermore, because government debt and liabilities represent inevitable tax increases, they serve as a de facto lien on the productive value of property and capital equipment. Entrepreneurs evaluate the worthiness of such investments based on their anticipated after-tax return. As such, expected higher future tax rates will depress the value of these resources and cause entrepreneurs to refrain from productive investment. The result is slower job and income growth than otherwise would have occurred.
Repayment of state and local government debt also represents a transfer of wealth from the private sector to the government. Private sector wealth that could have been used for productive investment (i.e., toward future job growth and income gains) is consumed by nonproductive government debt service.
Consequently, state and local debt represents countless factories that will not be built, businesses not started and jobs never created.
Elected officials’ failure to get their finances in order will result in future tax increases. Higher taxes mean fewer jobs and lower wages than would otherwise have occurred if the state and local economies weren’t strapped with so much debt.
Taxpayers and workers will bear the brunt of politicians’ short-sighted spending binges with a lower standard of living.
The time for spending reform from the state down to local levels is now. Delaying action will only make the inevitable day of reckoning even more painful.