Want a killer Trivial Pursuit question? How about this?
While Barack Obama was President, did the debt of the Federal government or the State of Texas increase more on a percentage basis?
Republicans are quick to point out that while Obama was president the federal debt increased far more than under any other president. But what they rarely share is that during that same period, the debt of the State of Texas rose even faster, at least, on a percentage basis.
At the end of 2009, the Federal government was just under $12 trillion in debt. By the end of 2016, the number had grown to $19.5 trillion, a 64% increase. For the same period, the State’s debt went from $62 billion to $121 billion, a 92% increase.*
You may be tempted to explain this unfavorable comparison away by noting that Texas is growing faster than the rest of the country and, therefore, a larger increase is to be expected. There is some validity to this argument, but even if we look at the growth of the debt on a per capita basis, Texas still comes out ahead, 70% versus 54%. And these numbers do not count the billions in debt incurred by local governments. We’ll be looking at that in the coming weeks.
To be fair, the State was starting at a much lower base. Its per capita debt as of 2016 was about $4,300 compared to over $39,000 for the Federal government. And as a percentage of GDP, the State’s debt is also much lower, although I am not sure the comparison of that metric means much in this context.
The lion’s share of the increase in the State debt has come from an explosion of its unfunded pension liability.** I will be writing more on this issue soon, but the State’s pension debt, based on its own accounting, has gone from zero in 2000, to over $60 billion at the end of 2016. In other words, according to the State Comptroller’s numbers, the Legislature has “borrowed” over $60 billion from the State’s pension plans by not contributing enough to fund the benefits they have promised.
It is important to note that both the Federal government and the State dramatically understate their liabilities associated with future retirement payments. A recent Moody’s report has calculated that the State’s true pension liability is over $100 billion and, of course, the Federal government has never included a realistic estimate of the future cost of Social Security or Medicare in its accounting.
Please do not misunderstand. I am not a debt-phobe. Every businessperson knows that there is a time and place to use debt. Some of you will recall that during the 2015 mayoral campaign I was the only candidate who advocated using pension bonds as tool in solving the pension crisis.
But the reality is that government at every level and both of our political parties are drunk on debt. The Democrats gorge on debt to increase expenses; the Republicans to cut taxes, or to keep from increasing them. Neither want to have an adult conversation with their constituents about what services do we really want government to provide and what does it costs to provide those services. Instead, one party demagogues social issues and the other engages in class warfare and identity politics to distract the public from the fact that both are bankrupting future generations.
* This graph begins with the increase in debt from 2009 to 2010. Those who argue the Federal debt doubled during the Obama administration begin from the time he was sworn into office. However, since the federal budget fiscal year ends in September, the incoming administration has a limited impact on the financial results for its first year. It would probably be fairer to included FY2017, but those numbers are not yet available. It is interesting to note that the rate of increase did not slow down when the Republicans took control of the House of Representatives in 2010 or the Senate in 2014.
** Much of the increase in the pension debt was realized when the accounting rules changed in 2015 forcing governmental entities to more realistically report their pension liabilities.