Government Budgets as the Hunger Games: The Brutal Competition for State and Local Government Resources Given Municipal Securities Debt, Pension and OPEB Obligations, and Taxpayer Needs
116 Pages Posted: 2 Apr 2014 Last revised: 18 Sep 2014
Date Written: March 31, 2014
This article examines how obligations associated with public employment (including pensions and OPEB) and obligations associated with complex financial instruments (including derivatives) fit into the puzzle of local government fiscal health. As the recent experiences of Detroit and other distressed municipalities suggest, pension and OPEB obligations and obligations associated with complex, non-traditional securities can strain local government resources, particularly when accompanied by corruption and/or macroeconomic distress. Focusing on the federal securities laws, I advocate for reforms designed to (i) standardized and require compliance with uniform accounting standards in the public sector, so that stakeholders can assess municipal fiscal heath and identify challenges to fiscal stability; (ii) create a data collection resource and oversight body to help identify and manage risks associated with complex financial instruments, (iii) create a data collection resources and oversight body to help identify and management risks associated with public employee compensation (particularly pensions and OPEB), and (iv) expand the reach of the fiduciary standard to a broader range of stakeholders involved in local government financial decision-making, including public officials, underwriters and certain derivatives counterparties.
Keywords: public finance, municipal bankruptcy, pension, OPEB, Dodd-Frank, derivatives, swaps
JEL Classification: P34, P43, H71, H72, H74, E60
Suggested Citation: Suggested Citation