The States are going bankrupt

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This was on this past Sunday's 60 Minutes news broadcast. If even a tenth of what they are reporting is accurate we are in for some major trouble. I was impressed by both the NJ governor and the Illinois comptroller. I don't think I would want either one of their jobs.

 

Does anyone else find that "comptroller" is one of the weirdest words? Comptroller........

I am sure nobody in New Zealand calls themselves a "Comptroller".

 

I find it very hard not to like Chris Christie. I gained a lot of respect for him when he said that the cuts that he's going to have to make are going to be painful, and if it means he's a one-term governor, so be it. It may just be bluster of course, but it's refreshing bluster.

I've also never understood the logic of a pension, to be honest. Not from the employee side, of course - who wouldn't want that. But from the employer / state side of it. How do you budget for indefinite payouts like that, for rolls that keep growing every year, when future income is so unpredictable? I guess I just assumed that finance people with more money smarts than me always had a plan to pay for it all. This mess makes it look like that was a bad assumption on my part all these years.

 

Pensions were a better idea when people didn't live as long. It's gradually become a worse idea as the decades have gone by. Most employer provided pensions here are now defined contribution rather than defined benefit, which makes them not too different from a normal savings plan.

 

Notice that you don't hear anything about all those tax breaks for business, but instead it's about attacking benefits for rank-and-file employees, specifically UNION benefits. Typical. Of course, states want to increase business growth, while at the same time still have high standards in government services (like education police enforcement, and fire protection). So they take from one group (unions and pensions) to pay another. Again, just follow the money - who has most of it and who doesn't. That will tell you most of what you need to know.

 

It seems like the pensions are only a small piece of the problem though. Other than Christie in NJ, I don't think they even mentioned it much. The problem seems to be rather obvious. Almost all states have state income taxes and/or sales tax. When 10% of the population is out of work, you're collecting less in income tax, and people spend less, so less sales tax. From I gathered from the video the problem is two-fold. Yes, they are spending too much, but they are also taking in less.

 

It's something like those huge payouts and compensation packages for upper managment and CEOs in large corporations (who get excellent retirement benefits themselves). Organizations want to hire the best they can get, and state governments are very much in the same situations. The problem with that, of course, is that whether in business managment and local and state government, they still don't often get their money's worth from either of these guys. The bottom line is accountability, something we don't get much from either business, nor government. Too many people are disengaged and there is too much BS in trying to figure out the real facts in the stituation to hold organizations and individuals accountable.

 

Yes. I understand the logic behind the attractiveness of pensions, and the benefits that come with offering them to attract the best people and keep them for their entire careers. What I've never understood is the logic behind the long-term solvency of such programs.

HB is right - they seem to me to be a relic of a different age, when people passed away within a decade or so of retirement. People today are retiring in their 60s and living well into their 80s and 90s. And through their pensions, these companies/govt. agencies are continuing to pay people who are no longer providing any kind of service for them. It makes me think of going to a restaurant, paying for your meal, and coming back the next day to pay your bill a second time as a way of letting the restaurant know how much you appreciated the hard work they did for you yesterday.

Pensions may indeed attract great, life-long employees, but it strikes me as a losing bargain for the side writing the check.

 

I saw something somewhere where they explained that the "public pension" system has been a big lie that the governments and the union leaders have both been in on for decades. The governments would negotiate with the unions to keep the current payroll under control by giving them this dream of a back-end payment. It was always under the assumption that someone else would have to deal with the back-end.

I don't see anyway that this will end well. What will eventually happen is the governments will tell the unions and their employees that they are doing exactly what corporate America did and they will convert all of the pensions into 401k plans and it will be up to the employees to manage their retirement just like the rest of us workers in the "dreaded private sector". Then the unions will sue and win. However, they will find out there is a difference between winning and collecting. Of course Congress may step in first and make what the state and local governments do legal so then the unions won't even be able to sue.

I don't think that raising the taxes on corporations makes a lot of sense. My reasoning for that is that the vast majority of corporations are not publicly traded entities. Publicly traded entities have an incentive to show profits to increase value to the shareholders and therefore increase the share price. Most corporations are privately owned and their incentive is to show little to no profit so as to pay as little in taxes in possible. The way they eliminate their income is to pay out bonuses to the owner and then the owner pays the tax at the individual level. Also privately owned companies don't move as that is where the owner lives. Publicly held companies go where ever it makes the most sense for them to go. I don't see any state doing anything to make themselves less attractive to large employers.

 

That's a nice accusation to throw around. Any proof? BTW, many companies offered pensions, as well, not just "governments." They are sort of a thing of the past, with 401Ks and such.

Well, yes. You know what happened to a lot of 401Ks over the last two years, right? Thank goodness for SS. But I suspect that will be the last piece of asset wealth that the banks and Wall Street want to grab from the middle class, their SS accounts. They have already trashed many 401Ks and housing prices, so what do most Americans have left regarding real assets? Gold?

 

I have one from a private company and it appears intact, even during the crash, nor did my dad's through the county. His payments remained exactly the same. Of course, I'm years away from collecting on the one I received from Circuit.

 

Exactly.

http://www.pbgc.gov/media/news-archive/news-releases/2009/pr09-32.html

 

If I were you I wouldn't count on the Circuit City pension to fund your old age.

Then again I wouldn't count on social security being around either.

 

Ah, I'm glad you understand my point:

 

IMO, pensions are a bad idea all around as they exist now, especially the repayment conditions. For an example, let me use my father-in-law. He's worked for the State for X years and has just earned his pension. He can't draw it while working for them, though, so he's shopping for another job. I won't get into his specialty, but it's pretty much a government position. There aren't a lot of private entities that deal with this. He's also the kind of guy who never wants to retire. He just wants to work and pull the pension. In most professions, you can do that by moving to another company, or a separate branch of government, but since he worked for the State, and this is basically government only work, he'll probably have to move to another state to do get the mony he's earned. So, basically, they've promised him a retirement he doesn't want and are driving him (and his decades of experience) out of their work-force because of it.

And from what I've heard, most large groups, and especially governments, don't really 'plan' so much for their pensions payouts. They just kind of figure they'll find the money when the time comes, or for older groups that the payout next year will look similar to the payout this year. The latter is generally rather safe, unless you hit something like the Baby Boomer generation retiring.

I (and most people I know*) would much rather get the money and plan my own investments/retirement.

As for states going bankrupt, I think Aldeth had it right. The Reps have campaigned for decades on lower taxes, while the Dems have campaigned for decades on more benefits and social programs. Put the two together and you get runaway spending with shrinking income. This has happened on the national stage, and at the same time on a lot of State stages as well. I'm just glad Virginia has a balanced budget amendment.

*Most people I know are quite intelligent and good at planning, I realize that if this were standard a lot of people would blow the money on a new car or something.

 

Pensions work; they are also affordable. The only time I have ever heard otherwise was from people dealing with insurances, and I don't trust either their advice nor their motives.

The Republican Party is following Grover Norquist's Prime Directive: 'Starve The Beast'. Adding another trillion to the national debt brings the US government a trillion dollars closer to being forced to either service the debt or pay for 'social programs' like USDA meat inspectors and FDA drug safety inspectors ... but not both. I think that's one of the reasons why Bush's debt and spending binge had full hard line Republican support.

Provoking state bankruptcy does the same, with the added benefit of cracking down on unions. When they insist on fair pay they will be attacked, quite cynically, for not acting in the common good, after all, being bankrupt, the state 'cannot afford those high salaries' any more. Forcing state employees into having to invest their retirement money into 401k will first of all benefit Wall Street, another bail out if you so want. Many of those in the private sector will just love that, as they are often jealous about government pensions.

The Republican Party also considers Social Security to be a separate beast which must be separately starved so as to become weak enough to abolish.

If they have their way, there will be the lunatics running the asylum, with the full support of those earnest but ignorant tea partiers (who are going to get screwed big time and are furiously cheering it on). They are driving the ship into a cliff and when it predictably capsizes, they say it was always crap anyway, and cry for 'reform' or outright abolition. Point is, they had been at the helm. Talk about chutzpah. America is going to abolish itself when they proceed apace.

 

Sheesh, Ragusa. If I didn't know better, I'd think you were running a Democratic campaign committee or something. Seriously? You think the Republicans want to bankrupt the nation and the States? You do realize that the states that actually have balanced budgets are mostly conservative states, right?

Your rant is about as acurate as the idea that the Democrats all want to murder your grandmother in her sleep by denying her medicine. Or that they all want to set every criminal free in the ignorant hope that they'll behave better next time. These BS accusations have been around for a long time, and probably for every opposed political party in history.

Last I checked, it was the Reps and the Dems fighting over the helm that has set us on a crash course for the cliff. The reps want to turn us away, and so do the dems, but they can't agree on which way. And, idiots that politicians usually are, they're both willing to drive us straight into the cliff just to say, 'See, it's all their fault!'

 

NOG,
I firmly believe that your misguided assessment of my post is deeply rooted in benign ignorance With that cured, you'd be a fountain of reason and wisdom. Alas, I do what I can to remedy that, within the reasonable limits of my free time not better spent doing something else

#1 Grover Norquist has spelled out his Prime Directive: 'Starve The Beast'. He said in 2001: “My goal is to…get [government] down to the size where we can drown it in the bathtub.” More, he has put it into policy. You may not know that, but he has.

Spoiler

Tax Cuts And 'Starving The Beast' (STB)

You should read the entire piece.

#2 I interpret what I read about bankruptcy in stalwartly conservative outlets like National Review:

i.e. they see bankruptcy as an opportunity to achieve policy goals long held. Union busting is such a long held Republican policy objective. Privatising retirement (or about anything else) is another.

Spoiler

* Give States a Way to Go Bankrupt

Honi sont qui mal y pense.

My impression is not that Republicans are trying to bankrupt the nation and the States, but that they are implementing policies that will effect it, and that they do so out of the doctrinaire conviction that they, just like Goldman Sach's CEO, are 'doing God's work'. I haven't seen a bunch of ideologues like that since the demise of the USSR. I believe that, instead of re-assessing their failed ideas about STB they'd rather insist on their dogma and then use bankruptcy to clean up the mess, while implementing Republican policy goals - oblivious to or in denial about their contribution to it.

I don't think that Republicans are beyond provoking a state bankruptcy if the situation is stark enough and it promises to be beneficial politically (i.e. a chance to position a candidate as a tough reformer). National Review and The Weekly Standard are important magazines on the right. That they are talking about it prominently means they are at least floating trial balloons.