…And, So It Begins: The Public-Sector Ponzi Scheme is Collapsing
December 18th 2010 · 3 Comments
You’ve been hearing for quite a while now that public-sector unions are a threat to the economic survival of the United States. With an estimated unfunded liability of up to $3 trillion (and perhaps much more), public-sector pensions are a noose around the neck of America’s taxpayers and it is threatening to strangle the nation.
More specifically, you’ve been hearing that the expensive wage and benefits packages that union-bought Democrats have given to their union benefactors could collapse our economy. The question is, can we stop it before it it too late, or at a minimum, contain the damage.
Well, little by little, signs are showing that, in some cases, the public-sector house of cards is already starting to fall.
Chicago’s Mayor Daley Discusses Bankruptcy For City Pensions
Mayor Daley is begging Governor Quinn for pension reform.
Quinn now has on his desk a bill that would allow state to withhold sales tax and income tax revenue from cities that won’t do more to fund their pension plans.
Property taxes will have to go up for cities to meet their pension obligations and that is on top of a massive income tax hike that governor Quinn campaigned for.
Daley, aldermen ask Quinn to veto pension measure
The Chicago Tribune reports Daley, aldermen ask Quinn to veto pension measure
Mayor Richard Daley this afternoon expressed his frustration with the city’s pension situation, suggesting that the retirement funds need to be fixed before leaders are forced to declare them bankrupt as a way to restructure.
Speaking on a Global Metro Summit panel at the University of Illinois-Chicago with Philadelphia Mayor Michael Nutter and Los Angeles Mayor Antonio Villaraigosa, Daley at first appeared to indicate that allowing the pensions to go bankrupt so they could be reorganized was something he believes could happen.
“I’m one who believes that pension funds can go bankrupt and then you reorganize, and that’s the hardest thing to say,” Daley said.
Moderator Richard Stengel, managing editor of Time Magazine, then asked Daley: “Let them go bankrupt?”
“Yes, and then you reorganize it,” Daley replied.
In Rhode Island, it has just reached critical mass, as public-sector unions bring a city to “financial ruin.”
You may remember Central Falls, Rhode Island. It made news earlier this year, when the school district fired all of the teachers at Central Falls High School for their miserable record teaching the students, then rehired them a little while later. Well, Central Falls is back in the news and the news is not pretty.
Receiver to city: Financial ruin near
The city’s financial problems are so profound that the only way to solve them is through a merger with Pawtucket or a regionalization of city services, the state-appointed receiver said in a report Thursday to the Carcieri administration.
“Central Falls, in my judgment, cannot remain a stand-alone community as it presently is, unless the state wants to subsidize this into the future,” said retired Superior Court judge Mark A. Pfeiffer, the man appointed by the state Department of Administration in July to run the city, with elected government officials in advisory roles, after those officials had earlier declared the city insolvent.
The crisis in Central Falls has been growing for more than a decade, Pfeiffer said. City administrations approved municipal employee contracts Central Falls could not afford and kept giving out pension and retirement benefits without figuring how to pay for them, and now the funds are running out of money. That situation was exacerbated over the years by municipal officials who ignored it when it was manageable and only reacted when it was too late.
The State of Rhode Island has long been a swirling cesspool of union domination. Now, though, the ponzi-scheme of union giveaways is about to swallow one town and the state’s taxpayers may have to eat the costs.
While these are city pensions, states’ liabilities run much higher. Taxpayers in California, whose pension obligations are staggering, are already on the hook for nearly $60,000 per Los Angeles household and more than $76,000 per San Francisco household—money that is needed just to pay pensions of municipal and state workers’ pensions.
While it is ironic that Californians just voted to re-seat the man that saddled California with public-sector bargaining to the office of governor, Jerry Brown will now be facing the mess that he helped create. However, as more municipalities and states struggle with the overwhelming debt that union bosses created, as it did when California’s Orange County went bankrupt in the mid-90s, this threatens the entire municipal bond market on a much more significant scale.
While there are no easy fixes to the public-pension crisis, the problem, as former SEC Chairman Aurthur Levitt notes, cannot be put off any longer. If it is, the outcome could be disastrous:
If investors discover that the market has instead become a way to paper over irresponsible promises, they will flee it. And no state, county, or local government will be spared the damage that follows.
The problem is, it has already begun. Now, the question is, do the politicians have the fortitude to deal with this problem before it collapses our entire economy, or will the public-pension Ponzi scheme take the entire nation down?
“I bring reason to your ears, and, in language as plain as ABC, hold up truth to your eyes.” Thomas Paine, December 23, 1776
Tags: public-sector employees