2010 April 11 Sunday
US States In Deeper Financial Trouble

California has 6 times more unfunded liabilities than debts just due to underfunded pension fund programs for state employees.

An independent analysis of California’s three big pension funds has found a hidden shortfall of more than half a trillion dollars, several times the amount reported by the funds and more than six times the value of the state’s outstanding bonds.

The Governator wants the California state legislature to face the problem. I'm pretty confident they won't. The crisis will get much larger.

The analysis was commissioned by Gov. Arnold Schwarzenegger, who has been pressing the State Legislature to focus on the rising cost of public pensions.

The guy at Stanford who did the study says California can't hope to meet these obligations. So Cal state employees aren't going to get as rich of retirement benefits as they have been promised.

"What is so alarming is there is no way that the state will be able to meet these obligations," Nation tells HuffPost. "The odds are so heavily stacked against the state on this one. The question is how we dig out of this."

Can the state legislature cut retirement benefits for those already retired? For those about to retire?

In New Jersey 2 successive governors have underfunded the retirement systems even as the retirement systems have lost money. The state is strapped for cash. The public doesn't want program cuts to pay for the state workers.

In New Jersey, Republican Gov. Chris Christie followed steps of his predecessor to address a budget gap for the coming fiscal year by proposing last month to skip a $3 billion payment to the retirement systems for teachers, state employees and other public employees, valued at $66 billion as of June 30.

New Jersey's prior governor, Democrat Jon Corzine, mostly missed a $2.5 billion payment to the pension system and allowed cities and other local governments to pay only 50% of their share of the pension contribution. The fund is one of the most underfunded in the country.

For many years public employee unions have funded and supported politicians who enact big benefits increases for state and local government employees. Basically the public got screwed for the benefit of well organized employees. As the US economy performs poorly in the 2010s the conflict between government employees and tax payers is going to get very intense. Will the governments need to declare bankruptcy in order to escape these costs? That's what Vallejo California did. Could be a model for other governments.

Many governments in the US have unfunded pension liabilities.

A think tank with ties to public employee pensions has released a study of state and local pension plans that may underestimate the unfunded liability by trillions of dollars.

The Funding of State and Local Pensions: 2009-2013 released Thursday by the Center for State and Local Government Excellence studied 109 state and 17 local government pension plans and came up with an unfunded liability of about $1.2 trillion by 2013. Overall, plans will be at funding ratios of 66 percent to 72 percent.

That figure does not include medical benefits for retirees. So the true total is much larger.

Slow growth means lots of US states become like Greece.

“If we ran into a situation where one state got into trouble, they’d be bailed out six ways from Tuesday,” said Kenneth S. Rogoff, an economics professor at Harvard and a former research director of the International Monetary Fund. “But if we have a situation where there’s slow growth, and a bunch of cities and states are on the edge, like in Europe, we will have trouble.”

Doug Bandow says we are living in the calm before the storm.

Unfortunately, TFD today is merely the proverbial calm before the storm. In a world of endless red ink and the coming debt tsunami, spending rather than taxing is the true measure of government's burden.

Explains the Tax Foundation: "Since 2008, however, deficits have been massive by any measure, and as a result Tax Freedom Day may give the impression that the burden of government is smaller than it really is. If the federal government were planning to collect enough in taxes during 2010 to finance all of its spending, it would have to collect about $1.3 trillion more, and Tax Freedom Day would arrive on May 17 instead of April 9 – adding an additional 38 days of work to the nation's work for government."

The 1990s were party time in the stock market. Lots of boats were lifted by the financial tides. But in the 2000s slower economic growth and the bursting of two financial bubbles brought many government financing problems to the surface. Those problems are going to get far larger than the American people think possible.

The 2010s will continue the same pattern of slow growth and worsening government finances. Expect higher taxes, wide ranging cuts in services, and fights over who pays and who gets less. The financial and demographic deterioration of America is going to make the politics very bitter and angry.

Update: Some states have higher rates for insuring their debt just like dodgy European countries

Share |      By Randall Parker at 2010 April 11 12:04 AM  Economics Sovereign Crises

A.Prole said at April 11, 2010 10:20 AM:

But the immigration boosters used to bark incessantly that mass uncontrolled immigration is the fuel of high economic growth and therefore of liability funding.
Viz, that load of shit by Joel Kotkin.

mike said at April 11, 2010 11:13 AM:

I'm starting to think that on some primal level we prefer our aristocracy to be selected by some arbitrary force like government or heredity rather than merit. That way, the vast majority who aren't and never will be part of that aristocracy can blame luck rather than our own failings.

Charles Martel said at April 11, 2010 1:41 PM:

I'm starting to think that on some primal level we prefer our aristocracy to be selected by some arbitrary force like government or heredity rather than merit.

With a hereditary leadership there is at least the off chance that the heirs will view the country as theirs, and therefore something that actually needs to be governed with a view towards the future. In a democracy that grows ever more diverse, the attitude of "get while the getting's good" grows commonplace. You look at homogeneous countries like Finland and the efforts of "idealists" to make them ever more diverse and you wonder about the idealogues who seek to disrupt a system working perfectly well all in the name of an untested idealism.

Americans have not been taught to view our country as the Greeks did. Greeks viewed history as cyclical in nature - monarchy was succeeded by oligarchy was succeeded by democracy was succeeded by monarchy (or tyranny) each in turn, the particular failings of each leading to the next. In America we're taught that our country was brought into existence by the Hand of Providence, and that so long as we do the morally correct thing that God will look after us.

Jerry Martinson said at April 12, 2010 10:57 PM:

So which states are in better shape? I'm fearful that states will have to resort to confiscatory practices to try to continue to fund their unsustainable practices. Which ones will be safe for investment? There will likely be devaluation of the dollar as the national debt becomes monetized so which areas will be safe for investment over 30 year horizons? Investing overseas seems naive as monetizing debt will likely be retaliated against by China and other countries.

REN said at April 16, 2010 11:16 PM:

The state that is in the best shape is North Dakota. They have a State Bank that does the job of the Federal Reserve. The North Dakota State Banks insures that State Assets back up the reserve requirements of their banking system. They didn't get caught up in all the financial shenanigans of Wall Street, as they are independent of that system. The people of North Dakota were recently selected as the most satisfied, which would seem odd at first inspection due to the geography, that of the frozen north. The State Bank returns profits to the treasury, thus lowering taxes.

With regards to hereditary leadership, Steve Sailer makes the case that our hereditary WASP elite has been replaced by a meritocratic elite, namely Jewish.

Our country is not predominately one ethnicity any more, thanks to the 1965 immigration reform act. Any breakdown will not have tribal cohesion to maintain stability. For example, if Italy has a societal change, then Italy remains Italy because it is populated by one tribal group of Italians. America is an idea country, so if the idea changes, then tribal identity cannot insure survival. Immigration continues to be championed by Jewish groups, such as the SPLC. Also every immigration push away from European preference was championed by Jewish Groups.

In terms of economic breakdown, the private banks that consistently tried to host our country since its inception are to blame. The first two banks were found to be owned by Europeans once they were shut down. A country is no longer Sovereign if foreign entities create the money. Our Meritocratic Elite still don't see themselves as hereditary Americans, and hence they are the root of our disfunction. These Meritocratic Elites are often Bankers, or are part of interlocked banking interests.

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