Richard Ravitch and William Glasgall:

Despite this, no other major American state or local government has followed New York’s budgetary lead. While most state and local governments are flush with cash following an unprecedented $5 trillion in federal Covid-19 relief spending, they are nonetheless facing an inevitable fiscal cliff, created by the one-two punch of a possible recession this year and the expiration of hundreds of billions of dollars in pandemic aid by 2026.

These forces will expose states, counties and cities to the risk of financial catastrophe as they are forced to grapple with approximately $2 trillion in unfunded liabilities for public-employee retirement obligations and deferred infrastructure maintenance on top of $4 trillion in municipal bond debt. Much of these costs remain hidden in so-called balanced budgets through the use of maneuvers such as using one-time revenues to pay recurring costs and not fully funding pension obligations. These costs pose a severe risk to the entire U.S. economy as well as states and localities, which employ almost 20 million Americans. The bankruptcies of Detroit, Puerto Rico and several California cities following the Great Recession all involved excessive borrowing to achieve balance. It could happen again.