Financial setback(s)

— Aweek or so back, I allowed as to how the nation looked to be in recovery because its Gross Domestic Product had expanded 3.2 percent in the fourth quarter of 2010 over the previous quarter.

GDP, as it was explained to me, is an indication of a country’s economic health,

I think I spoke too soon. Although economists still say we’re on the mend, on Friday the GDP for that fourth quarter was lowered to 2.8 percent by the Commerce Department’s Bureau of Economic Analysis.

At fault: lower than originally projected consumer spending, imports higher against exports and, most significant, lower spending (about $5.8 billion lower than initially reported) by state and local governments, many of them in serious, even dire fiscal distress.

Although Arkansas prides itself on avoiding deficit spending because of a provision in the state Constitution that prohibits it, many of us were taken by surprise last year when we learned that Arkansas actually has a staggering amount of debt.

Given my confusion about the difference between GDP and GNP-Gross National Product-I’m not going to tackle the difference between deficit and debt. Suffice it to say that confusing the two is quite common but matters not a whit, in my humble opinion, when it comes to financial obligations.

Any way you cut it, if you can’t meet your financial obligations, you’re in trouble.

Arkansas’ perennially balancedbudget aside, the state owes the federal government several hundred million dollars that it has provided for unemployment benefits in Arkansas since March 2009. The debt is what’s called an outstanding advance balance and it stood at $330.8 million as of Dec. 7.

Still, things could be worse. Recently, we reported that California has an outstanding advance balance of $8.9 billion for California. (Among our neighbors, Tennessee owes nothing, but Texas is looking at an outstanding advance balance of $1.6 billion.)

It seems that Arkansas has received advances from the U.S. Treasury since March 2009 to pay regular unemployment compensation claims because receipts (from taxes paid by private employers) did not keep up with expenditures.

Interest on the advances to states was waived through Dec. 31 under the American Recovery and Reinvestment Act of 2009, but if the waiver is not extended by Congress-it’s under consideration-interest will accrue from Jan. 1, with the first interest payment due by Sept. 30.

According to news reports, Arkansas law provides for a separate 0.2 percent advance interest tax paid by employers to start the quarter after the quarter in which advances become interest-bearing. If the advanceinterest is not waived by Congress, that 0.2 percent tax will be added to all rates as of April 1.

Interest waivers are all well and good, but how is Arkansas going to repay this debt?

Well, how do we usually pay for things we can’t afford?

That’s right. Gone are the days of boasting that Arkansas is a state without bonded indebtedness. We have it in the billions*, and if state Sen. Jeremy Hutchinson of Little Rock has his way, we’ll have some more.

Hutchinson has filed a bill to call a statewide election to authorize up to $600 million in general obligation bonds to repay the outstanding advance balance owed to the feds for jobless benefits.

Wait a minute, let me modify that. According to a recent news story, that debt would be paid “at least in part” by the bond issue. There’s always the possibility that state officials still would have to dip into general revenues-you know, the tax funds that finance most state programs and services-to retire the debt.

Ouch.

* How many billions? About $3.1 billion in revenue bonds, $527 million in general obligation bonds and about $415 million in Grant Anticipation Revenue Vehicle, or GARVEE, bonds through which the state has financed improvements to interstates in anticipate of eventual federal aid for that purpose.

-

———◊-

———

Associate Editor Meredith Oakley is editor of the Voices page.

Editorial, Pages 75 on 02/27/2011

Upcoming Events