At the RAND Blog Dan Grunfeld outlines California’s public pension problem:
California leads the nation in pension underfunding. The numbers are staggering. Currently, the state government has approximately $464.4 billion in unfunded liabilities — the difference between resources that will be available in the state’s pension fund and what will be owed to retiring employees. To provide some context, on an inflation-adjusted basis, that figure represents nearly two-thirds the cost to the U.S. of the entire Vietnam War. Nationally, state and local governments are carrying $4 trillion to $6 trillion in unfunded pension liabilities. That exceeds the combined military expenditures for every war, save World War II, fought by the U.S. since 1775. The California Public Employee Retirement System (CalPERS) and the California State Teacher’s Retirement System (CalSTRS) have reported a combined $136 billion in unfunded pension liabilities. Los Angeles County alone has $7 billion in unfunded liabilities, and San Francisco’s burden is $2.3 billion. This particular bomb will not be easy to defuse. “The severe underfunding of public pension plans will not be fixed easily or fast,†says my RAND Corporation colleague James Hosek. “There is no silver bullet.â€
Illinois has a similar problem. Plus its population is declining in absolute terms meaning that there are fewer people to bear the tax burden that will be required to meet those obligations.
That’s a stunning article! The negative numbers alone, comparing them to the cost of wars, is a blunt reality check of how much trouble looms ahead, both for those depending on that pension money, and the rest of us who most likely will be called upon to “help them out.”
“…and the rest of us who most likely will be called upon to “help them out.”
Heh. Bankers, and certain of the 1%, aren’t the only ones feeding at the trough. Everyone wants to wet their beak.
Its become the national pastime. Politicians are just like crack dealers passing out the goodies. I’ve heard more impassioned pleas for people’s favorite tax credit or deduction in the past few days than in years. Point the finger indignantly at “fat cats,” corporations, “the rich” etc………..but don’t mess with my piece of the pie. “That’s different,” don’t you see.
In almost every state, public workers have a vested right to their pensions, and the state is required to make up any shortfall in the pension funds. In Illinois, that right is in the state constitution. Social security is also a vested right regardless of any court decisions.
What this means is that pension fund shortfalls will be made up out of general revenues. In the federal case, social security taxes have been subsidizing the general fund for decades, and the social security fund now consists largely of federal i.o.u.’s. How long that can go on is anybody’s guess, but pensioners will not be simply cut off. The only issue is how they will be paid.
A good comparison is the black underclass. They have no economic function or value, and they subsist entirely on White charity (via taxes). They only comprise about 20,000,000 people or so. Does anyone think they can be deprived of their welfare checks? Then, how do you imagine that 150,000,000 people, mostly White, and all voters, can be deprived of their pensions.
A lot of federal and state expenditures will stop before pensions do. The Interstates will be full of potholes, and the Navy’s carriers will be scrapped before that happens.
My guess is the way the Feds pay their way out of a bill they can’t pay is to inflate their way out. More debt. You get your SSI or pension, but it buys less and less. So we need growth, which is why I say tax consumption, not production.
If city and state pensions are sacrosanct, I have no idea because local borrowing has it’s limits. You could sell off the city parks, auditoriums and museums.
Maybe Chicago could sell naming rights, ConAgra City?
“A good comparison is the black underclass. They have no economic function or value, and they subsist entirely on White charity (via taxes)”
Yeah, I have a lot of problems with that judgement, first off, it’s entirely subjective, and after Blacks, then the aged, O.K. A lot of talent bubbles up out of that Black underclass, and elders are the glue that holds civil society together.
And welfare checks, no such animal. There are a plethora of programs, SNAP, WIC, housing vouchers, unemployment insurance, disability, energy assistance, but as far as I know, no generic Welfare check you can just double park your cadillac to pick up and party on.
We could certainly have a leaner economy by eliminating “useless eaters” Taxing “breeders”. Hell, get rid of 50% of the population. Set an age limit on healthcare, turn the entire country into a game preserve for the 1%, the Romans did that at times, but then who would we be?
What I find so troublesome is how California’s CALPERS/CALSTRS pension plans were manipulated by unions, having them set in fiscal concrete with a 7 or 8% return. Since these returns are attached to the highest salary made, there is a retired teacher couple we know making several hundred thousand dollar pensions every year. How can CA continue to keep up with such out-of-step committments, in lieu of current rates of return?
As for SS’s vested right, why doesn’t the government ever consider “updating” their programs to say changing population longevity stats? I personally don’t think any govenment program, dealing with monetary expenditures, should be set in stone forever. Perhaps if people knew that, at the get go, they would not become so dependent on these vested rights, in light of all the built-in uncertainties of life. Being self employed drives that point home for me.
I ran across this article on California’s less than robust economy, when one factors in such things as population, poverty rates, adjusted cost of living etc.
Some points below fit into the author’s description of CA being “a banana republic of high tech.”
“A full 50% of the California economic growth miracle comes from a few dozen Silicon Valley firms – think Apple, Google, Facebook. It’s a banana republic of high tech.
Because of the high taxes and onerous government policies that keep housing down and costly illegal immigration up, the middle class is fleeing the state. More tech workers are leaving California than are moving there.
California has the highest state income tax, the highest sales tax, the highest gas tax, property taxes 95% higher than elsewhere. Small businesses that make no profit – that is, zero profit – are still taxed.
Lastly, while California has the biggest unadjusted GDP among the states, it is also earns another distinction: the highest poverty rate in the nation.”
Also,about this pension debt, no one is calling it due today. This is a long term obligation, like a home mortgage. So, question is, can we meet the payments. Not, do we have the money.
In Illinois the state’s population is declining in absolute numbers, making it increasingly difficult for those who remain to pay the commitments made when the state was larger.