Posted: 1/28/04

Why is some debt OK, but not all debt?

Debt. Iíve never liked it and never will. While I can lean to the left on some issues, when it comes to debt, I lean to the right. Some would call me a conservative, I guess, and Iím OK with that.

When it comes to spending money, I can be downright frugal. Perhaps it is largely due to an upbringing where money was never plentiful and what I had, I had to work to get.

Iíve always tried to manage my money carefully. I admit there may have been times when Iíve done so too conservatively. Not a big risk taker in some ways, I guess.

As a reporter who spends hours listening to government discussions and budget deliberations, it continues to puzzle me why there are rules for some but none for others.

Take our state government and local school districts, for example.

Locally, Forest Lake Area Schools in the past two years have suffered through a period where district revenues werenít keeping pace with expenditures. What were once positive general fund balances (the funds that pay staff, buy books and operate the schools) vanished, leaving the district in the red and facing a state requirement to balance its budget. In state department of education language, Forest Lake was in ìstatutory operating debtî status.

It was almost like having some disease, this stigma that went with the label. Local opponents of the district hailed the district as being ìbankrupt.î It was a stretch of the imagination, of course, but running a negative balance gives ammunition to the critics.

Some careful planning, unexpected revenues and some new strategy in collecting special education funding enabled Forest Lake schools to emerge from statutory operating debt two years ahead of schedule.

From someone who hates debt, thatís good.

Something similar has transpired in state government. It wasnít long ago that the state was giddily mailing out annual tax rebate checks when state coffers were overflowing with money.

The rebate checks quickly stopped when the state economy went sour and the huge surpluses became massive budget deficits. A combination of steps including revenue shifts, use of endowment funds and out-and-out budget cuts enabled the state to erase its red ink, as required by state rules.

From someone who hates debt, thatís good.

From someone who hates debt, I wonder how the federal government gets away with its debt problems that make local and state problems seem like chicken feed.

It wasnít too long ago, during the Clinton Administration and better economic times, that the budget deficit was actually eliminated and the government was making progress in cutting its national debt. My what a difference a few years can make.

For fiscal 2003, the U.S. government rang up a $374 billion budget deficit. Government estimates for fiscal 2004 indicate the federal deficit will exceed $500 billion.

The skyrocketing federal budget deficit is providing no help to the national debt. According to a National Debt Clock, as of Jan. 22, 2004, the outstanding public debt was: $7,011,380,095,219.49.

Thatís $7 trillion to not be mistaken.

With a U.S. population of 293 million or slightly above, each citizenís share of the debt is just under $24,000. Since Sept. 30, 2003, the national debt has continued to increase an average of $2 billion a day.

From someone who hates debt, thatís not good.

With a Republican in the White House and both bodies of Congress under Republican control, I honestly expected something different. While the annual deficit was brought under control and the national debt was shrinking with a Democrat in the White House, one would think the Republican-led government could do the same.

It hasnít worked that way for a variety of reasons. The cost of the attacks of September 11, 2001 continue to have an impact on the economy and the homeland protection steps that have followed. The war in Iraq, the continued costs of maintaining forces in the region and the reconstruction costs continue to pile on the debt.

It may well have been the same picture had Al Gore won the Electoral College balloting and not just the popular vote contest.

While no one likes to pay taxes, it is hard to argue that recent federal tax cuts have come at a time that they are compounding the debt problem. This growing debt is troublesome.

We are told the economy is improving and most statistics point in that direction with one glaring omission: job creation.

The White House has painted a rosy picture on job creation and employment. The nationís unemployment rate in December dropped from 5.9 percent to 5.7 percent, a move that led to the good news reports.

But how good of news is it if you take into account another discouraged 300,000 workers have dropped from the workforce, according to U.S. Labor Department figures. The Los Angeles Times last week reported the nationís total unemployed at 8.7 million. According to the newspaper, that figure does not include another 1.5 million workers who are no longer looking.

The country has lost 2 million jobs in the past three years.

Based on theory, the tax cuts are expected to stimulate the economy and result in job creation, a key step in seeing the economy rebound for real. Based on the current unemployment numbers and job creation, it hasnít happened just yet.

The real backbone of job creation is small business. Tax cuts can help small business, for sure, but there may not be enough stimulation to get the job creation the economy needs.

With the government no where close to tightening its spending and with tax collections falling, is there relief to the budget problem? While state and local governments are taking steps to keep their budgets in line, the federal government is awash in a sea of red ink with no land in sight, no end in sight and no regulations to force a change.

From someone who hates debt, thatís not good.

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