ELEVEN STATES are in such fiscal danger that Forbes recommends against investing there, either in houses, businesses, or municipal bonds. These states "can look forward to a rising tax burden, deteriorating state finances and an exodus of employers."
Two factors determine whether a state makes this elite list of fiscal hellholes. The first is . . .
. . . whether it has more takers than makers. A taker is someone who draws money from the government, as an employee, pensioner or welfare recipient. A maker is . . . gainfully employed in the private sector.
Let's give those takers the benefit of our sympathy and assume that every single one of them is a deserving soul. This person is either genuinely needy or a dedicated public servant or the recipient of a well-earned pension.
But what happens when the needy types outnumber the providers? Taxes get too high. Prosperous citizens decamp. That just makes matters worse for the taxpayers left behind.
Let's say you are a software entrepreneur with 100 on your payroll. If you stay in San Francisco, your crew will support 139 takers. In Texas, they would support only 82. Austin looks very attractive.
. . . .
The second element in the death spiral is a scorecard of state creditworthiness done by Conning & Co. . . . Its formula downgrades states for large debts, and uncompetitive business climate, weak home prices and bad trends in employment.
Conning rates North Dakota the safest state to lend money to, Connecticut the most hazardous. A state qualifies for the Forbes death spiral list if its taker/maker ratio exceeds 1.0 and it resides in the bottom half of Conning's ranking.
It's easy to see how California got on our list. It has pampered a large army of civil servants while using every imaginable trick to chase private-sector jobs away, the latest being a quixotic scheme to reduce the globe's atmospheric carbon. A City Journal essay by Victor Davis Hanson notes that the state spends $10 billion a year on entitlements for illegal aliens.
Illinois is especially known for its dishonesty, whether among officeholders . . . or in the habit of under-accounting for promises to government employees. . . .
To lend money to California, Illinois or the other nine states perched on the precipice requires a leap of faith. So does buying a house in those locales. . . .
(William Baldwin, "Do You Live in a Death Spiral State?" forbes.com, November 25, 2012 (emphasis added))
The eleven states death-spiral states, ranked from worst to best (relatively speaking) on their taker/maker ratios are (1) New Mexico, (2) Mississippi, (3) California, (4) Alabama, (5) Maine, (6) New York, (7) South Carolina, (8) Kentucky, (9) Illinois, (10) Hawaii, and (11) Ohio.
I could not find Conning's November report, part of a series called "State of the States," but the April 2012 report shows North Dakota as the most creditworthy, Rhode Island as the least. (Press accounts say Connecticut has now captured the bottom spot.)
Texas ranked 5th, up one spot from six months earlier.
Remember that the morally and intellectually superior creatures in academia and the press sincerely wish Texas to behave more like the states at the bottom of the list (Kentucky, California, New Jersey, Illinois, and Rhode Island) than those at the top (North Dakota, Wyoming, South Dakota, Nebraska, and Texas).
They do not openly wish for Texas to be less creditworthy. They just support policies -- higher taxes and more spending -- that would cause it to be less creditworthy.
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