As the rolling pensions crisis has amply shown, America’s struggling cities and states excel at nothing so much as procrastination—dithering, passing legislative half-measures—anything to avoid tackling their problems head-on. Illinois’ interminable pension reform saga is the most obvious example of this, but Springfield is hardly alone.
This week, the WSJ examines the use of “scoop and toss,” an increasingly popular delaying tactic whereby a state issues new long-term bonds to pay for bonds that are coming due, effectively taking on additional debt in return for pushing the day of reckoning into the future. The tactic has been defended as a way for governments to stretch their budgets during hard times, but in effect they appear to be effectively mortgaging their future as a way to avoid tough reforms today:
“It’s never a good sign to see this,” said John Loffredo, portfolio manager of the MainStay Tax Free Bond Fund. Mr. Loffredo said his firm recently started buying Puerto Rico bonds that carried third-party insurance guaranteeing repayment, citing the high yields. …
“The scoop-and-toss strategy might be a good strategy for a short-term solution, if you have a temporary economic recession,” he said. “But obviously, the longer it goes on, the more difficult it is to argue that it’s a good long-term solution.”
Essentially, these states are opening new credit cards to pay off debt from their old ones. From a politician’s perspective, it’s easy to see the appeal of this technique: fixing a government’s broken finances is a hard process that is bound to make you some enemies and perhaps cost you re-election; borrowing more money is easy and the time frame involved is so long that you will be long gone before the bill comes due. Unfortunately, the longer you wait, the more expensive the inevitable fixes become.