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Posts Tagged ‘increased taxes’

Public Pension “Smoothies” Will Cost $2 Trillion

Posted by Larry Doyle on January 5th, 2010 11:11 AM |

Life will get increasingly expensive in America 2010.

Just because the calendar changed does not mean the smoke and mirrors disguising massive losses in banks, insurance companies, and federal and municipal operations have undergone some massive purging. If anything, the policies and programs developed in 2009 have likely only exacerbated the losses across a wide cross section of our economic landscape.

Our federal deficit obviously dwarfs all public and private deficits combined. That said, the obfuscation in other financial corners of our economic landscape are egregious. This obfuscation is often accomplished via an accounting practice known as smoothing. While this practice is not necessarily an indication of improper – if not illegal – financial chicanery, very often the two go hand in hand. Which financial institutions most seriously violated generally accepted accounting practices via smoothing? Hello Freddie. Hello Fannie. And we will pay.

Where else will American taxpayers pay? Public pensions. How much will the smoothie cost at the public pension Dairy Queen? How does $2 trillion sound, or a full four to five times the currently projected cost? (more…)

Is a Jobless Recovery a Recovery?

Posted by Larry Doyle on November 16th, 2009 2:20 PM |

Cartoon by Steve Breen, The San Diego Union-Tribune

Jobless recovery seems to be a phrase economists and analysts are using with increasing frequency. In my opinion, this usage is akin to a drug dealer or liar repeating his rationalizations to the point where he believes his own bulls%&t.

Are we to believe this economic subterfuge? I believe the American public buys into this rationalization at our peril. Why? Let’s navigate along the most important leg of our economic landscape.

Our unemployment rate currently stands at 10.2% while the underemployment rate is 17.5%. On the heels of the unemployment report released on November 6th (see my summary here), many analysts and economists revised their projections for unemployment to 11% and some as high as 14%.

Just today, Fed Chair Ben Bernanke in a speech at the Economic Club of New York highlighted the fact that the current excess supply of labor in our economy is even worse than indicated. Ponder that for a second. The lead banker in our nation is telling us that our unemployment situation is even worse than statistics would indicate. What does that mean? (more…)

“There Are No More Paper Clips to Cut”

Posted by Larry Doyle on July 13th, 2009 2:04 PM |

Can we afford public pension obligations?

If ever there were a political hot button, it is the issue of restructuring public pensions. I can hear the rumble rolling through cities and towns by my merely broaching this issue, but the fact of the matter is this topic must be addressed!

As with any debt, public pension obligations can either be paid in full or defaulted, devalued, or restructured. The public pension system in our cities, states, and towns is nothing more than the holy grail for a large swath of the electorate. Does the political power base in these districts have the courage to go down the restructuring road? In so doing, they potentially risk their own political lives given the strength of the electorate who are pension beneficiaries.

Why do I think restructuring pension obligations is a likely scenario? Very simply, there is only so far a mayor or governor can go with increased taxes and cuts in services. While I do not think restructuring pension obligations is an imminent development, I do think it will be part of the eventual reality of our new economy.

I see mounting evidence of this likelihood at a site I reference regularly, PensionWatch, which highlights:

That approaching wave of pension debt is bigger than it looks. The purpose of this site is to provide an overview of the multiple pension crises that are about to drown America’s taxpayers.

In my opinion, this story gets limited coverage because it touches the equivalent of the ‘third rail’ for politicians and their associates. Well, it is high time the population at large addresses these obligations. As USA Today writes, Our View on Retirement Benefits: Public-Employee Pensions Put Cities, States in Tight Squeeze:

Recent stock market declines have left public and private pension plans alike underfunded, but the problem is deeper for public plans because they offer bigger pensions and make them available earlier, particularly to public safety employees. Three-fifths of state-government pension funds owe at least 20% more money than they have. According to the National Association of State Retirement Administrators, the shortfall is $430 billion, or about $3,800 for every U.S. household. Other estimates put the number above $1 trillion. (LD’s emphasis)

The blame for this lies with vote-hungry politicians who promise rich retirement benefits from the wallets of future taxpayers.

Union inflexibility doesn’t help, either: In financially desperate Oakland, for example, where police starting salaries are $71,832 to $90,540 a year and pensions begin at age 50, the union rejects concessions.

Public-sector pensions already cost twice as much, per retiree, as the average private-sector pension, according to the U.S. Labor Department. This leaves cities and states no easy way out. They should not renege on their commitments, but the other options — raising taxes or cutting services — could prove so severe that bankruptcy would look like a sensible alternative.

I do not envision politicians willingly taking this issue on simply because the pension beneficiaries are typically their meal ticket to re-election. However, every once in a while we come across a politician who is willing to say he is not capable of “pulling the rabbit out of the hat.”

Scott Lang, mayor of the heavily Democratic city of New Bedford, MA, recently said as much. The Boston Globe reports Running on Empty:

Lang may be better remembered for his clarion call demanding structural changes in municipal government than for his performance in any specific area of city oversight. He is known for his candor, and he doesn’t disappoint.

“It’s absolute insanity. They’re unsustainable,’’ he says about pensions. “There isn’t the money to pay for an unfunded liability like that. All the revenues will be eaten up by past-due promises. Pensions have a 20-year schedule modeled after the industrial plan. It doesn’t fit today.’’

He says current pension and health insurance systems for city employees have to go, period. If not, they will destroy the city and its ability to maintain the services people expect like public safety. He calls for “pension relief’’ and “healthcare reform,’’ which in plain English means cuts.

“There are no more paper clips to cut.’’

To follow developing stories in the world of pensions, you can subscribe to PensionWatch from its home page, or even better you can access it here at Sense on Cents.


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