The Measure of Debt in Rhode Island


The debt study put out today by the state treasurer’s office merits a more detailed look than I’ve been able to do today.  For the quick summary, see Ted Nesi’s article on WPRI:

The $10.5 billion in total public debt – excluding pensions – breaks down as $1.9 billion for Rhode Island state government, $6.6 billion for quasi-public state agencies such as Rhode Island Housing and Commerce RI, and nearly $2.05 billion for municipalities and local special districts. With pensions, the combined total rises to $17 billion, Magaziner’s office said. …

… The study suggests a community’s debt and pension liabilities should be less than 6.3% of its total assessed property value; in Providence that ratio is 17.8%, and in Woonsocket it’s 20.3%. Central Falls, Pawtucket, Johnston, West Warwick and Cranston are also above the target.

One question Rhode Islanders should consider is whether assessed property value really ought to be the measure.  Assets are certainly important to the question of debt, but mainly from the perspective of the lender, not the borrower.  For your mortgage, banks want to know your property value and other assets because they’re looking at the likelihood that you’ll be able to liquidate and pay them back if things go wrong.  That’s not really possible for a state (even “a state for sale,” as Rhode Island has been called).

From the perspective of the borrower, income is more important, because it relates to the ability to pay off the loan.  In that regard, we can look at the matter in two ways.  Rhode Islanders’ personal income (including investments) is about $44.5 billion, which means that even using the treasurer’s unrealistically sunny estimate of pension debt, government debt is about 40% the size of our income.  And of course, personal debt would come into play when thinking about personal income.

The second way to look at the public debt would be public revenue, and Rhode Island’s state and local tax revenue totals around $6 billion.  So our government owes about three years’ worth of revenue.

Each man woman and child in the state owes $17,000, around $68,000 for a family of four.  Whatever arbitrary benchmarks politicians may pick, that’s too high.