The Pros and Cons of Increased State and Local Government Spending

A recent Bloomberg article states “State and local governments expect 3.9 percent revenue growth, and are expanding hiring and construction.” There is no doubt that this is good news for contractors and that construction jobs will be created as government construction spending ramps up on increased federal, state, and local revenues. There is also no doubt that the infrastructure in the US needs help. I also believe there is little doubt that there will be a lot of wasted money on needless projects, but that is how the game works.

What bothers me is that underlying the good news is the fact that as soon as governments get a little more money they are going back to their old spending ways without apparent regard to the fact that they are facing increased Medicare costs, retirement costs, and most likely less federal assistance as Washington grapples with a trillion dollar deficit.

But current expenditures still exceed revenue, a fact which means more borrowing at the state and local level.  It would be consistent with sound fiscal management to use the increase in revenue to build up rainy day funds and reduce the debt burden in an effort to keep a light or at least a flat tax burden.  The current course will only lead to higher state and local tax needs in the future.