Monday, December 8, 2008

#6 on my take home final for U.S. Financial Policy

#6. What should a state government do when one of its local governmental units faces a fiscal crisis of the type experienced in Richmond, CA? Are there fundamental responsibilities for the state to come to the aid of or to restrain troubled localities?

First of all, states need proper financial management and oversight of districts to prevent a crisis from occurring. California made positive changes in light of the Richmond crisis that improved governance in this manner. They became more explicit in what debt municipalities can and cannot issue (no more COPs); the state has set the precedent that they will take over financially troubled districts; and the state now requires more frequent and thorough reporting (13). In the event of a crisis, all of these measures help the state be better informed and equipped to manage the situation. The state does have a fundamental responsibility to its citizens but not necessarily the localities. The state is obligated to intervene if fiscal mismanagement leads to the potential interruption of service provision, but shouldn’t provide monetary aid until it reaches that point. Prior to that point, state supervision and oversight should be sufficient (I agree with Governor Wilson’s sentiment that localities shouldn’t be lead to believe that they can spend themselves into bankruptcy and be ensured of a state bailout). District constituencies should hold their local officials responsible for bad debt management via elections and lawsuits, but hopefully increased state supervision should prevent Richmond crises from reoccurring.

Doesn't it just make you wanna sign up for some public policy classes right now!?

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