Reader Dan on Deficit Spending for State and Local Governments

This one is by Reader Dan…


The GAO projects greater deficit spending for state and local governments in this report:

For over a decade GAO has run long-term simulations showing that absent a change in policy, the combined effects of demographic changes and growing health care costs drive ever-increasing federal deficits and debt levels. The Comptroller General has repeatedly warned that the current fiscal path of the federal government is “imprudent and unsustainable”. State and local governments provide an array of services to their residents, and the federal government relies on these governments to assist in the realization of national goals. State and local governments also rely on federal grants to varying extents. These subnational governments may also face fiscal stress. To provide Congress and the public with a broader national context, GAO has developed a fiscal model of the state and local sector.
The GAO state and local model projects the level of receipts and expenditures of the sector in future years based on current and historical spending and revenue patterns. In the “base case” model we assume that the current set of policies in place across federal, state, and local governments remains constant. The primary data source for the model is the National Income and Product Accounts. The timeframe for the simulations parallels that of our federal fiscal model—the simulations extend until 2050. The state and local model examines the aggregate fiscal outcomes for the sector and does not examine the condition of any individual state or local government.

The report has a picture:

Selling assets is becoming a trend to fund the requirements of sub-national governments, especially highways at the moment, and water resources for things like bottled water, which generates large profits. That is for another post, but is a reflection of a trend of declining revenue

There is another trend in WTO GATS agreements that also undercuts local and state functions of regulating for public good. Of course, our own system is built on Federalism.

WTO GATS agreements VI.4 stress treating much of what we have financed publicly as commodities, with particular kind of market rules.

‘National treatment’ is a benchmark for eliminating sub-national regulation of trade, meaning highways, water resources, electricity etc, US corporations are used to operating with different sets of state rules, and of course seek consistency. But GATS rules make challenges to any local rule much easier by anyone in the world who has a corporation, and domestic company advantages in commodities like water are removed.

‘market efficiency’ Within the frame, local regulation can be challenged in the name of restricting market operations. Comparative advantage is sort of smoothed out.

‘least burdensome regulation’, and
If one state’s rules are stricter than another, the stricter regulations can be challenged on this basis. Domestic rules for an industry become less relevant.

‘objective criterion’. Public Utility Commissions often have unstated assumptions about public good and such, so will be restricted to only defined and replicable criterion.

How does this play out in the real world? And who plays?