Friday, January 2, 2009

Apocolypse NOW (and what it means for 2012)

Reason finds a reason to focus on the Governors asap (something we do a lot on this site). It's that recession thing.

The real trouble, however, lies in the hundreds of general funds, enterprise funds, pensions, and health care plans which are skirting the edge of bankruptcy right now. The nearly $3 trillion market for state and local debt remains in flux with the certitude that borrowing costs will creep up by about 50 basis points for all but the most well-insulated jurisdictions.

For many others, 2009 will bring a cruel ratcheting effect when reduced revenues from the slowing economy, coupled with increased investor and analyst wariness, combine to reduce debt ratings. This will further push up the cost of borrowing, which will then further strain revenues. Tax hikes might help, but only at the cost of further depressing business activity.

For that reason, the federal government will once again be called on to bail out insolvent operations—but this time it will be cities, counties, and maybe even a state or two.

Incidentally, this process may have a profound impact on winnowing the field of Republican statehouse superstars who might be in a position to challenge Obama in 2012. If Sarah Palin, Bobby Jindal, or Mark Sanford watches their state circle the drain in '09, you can pretty much write them off as a serious candidate in a time of economic strife. Conversely, should a governor truly rise to the occasion by shrinking the cost of their operations while maintaining services, they would jump to the front of the line.

This is a superb -- might I even say "lovely" -- audition we're having for 2012. Obama's doing the real thing, and the scars of defeat or laurels of victory will appropriately reflect his first term. But for the GOP governors, set your house in order while the neighborhood's burning, and maybe we'll give you our country.

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