Fiscal instability is not only an issue nationally - driven largely by health care spending - but at the state and local levels as well. A new GAO report illustrates the magnitude of the fiscal challenges facing states, and identifies the (unsurprising) culprit:
The [simulation] show[s] that [state and local] health-related costs will be about 3.8 percent of GDP in 2013 and 7.2 percent of GDP in 2060...[t]he model projects that the [state and local] non-health-related costs will be about 10.5 percent of GDP in 2013 and about 7.7 percent of GDP in 2060.
The ever-growing burden imposed by health care spending means that, by 2060, the national state and local fiscal gap will be around 4 percent of GDP - in nominal terms, that's about $5 trillion based on CBO projections. Because health care costs - enshrined in promises to government employees and retirees, as well as Medicaid spending on the poor - will drive this growth, which is unlikely to slow down (health care spending on current employees and retirees is governed by contracts, which makes it difficult to pare back; Obamacare's Medicaid expansion ensures that, in the states that undertake it, many more residents will be covered making it more difficult to slow down its growth) other state and local outlays will fall on the chopping block. This phenomenon of "crowding out" is nothing new; because localities operate with limited funds (revenue must be raised through taxes, bond issuance, or from federal grants), each slice of the pie has to get smaller.
Indeed, the GAO report also acknowledges that wages paid to state and local employees will likely fall as a share of GDP (this phenomenon may ironically increase retirement promises that localities make to employees).