Interesting article by Fareed Zacharia on pensions and bankruptcy:
California's pension-related costs rose 20-fold in the decade since 1999. This frightening trend is true almost everywhere in America. And it’s simply not sustainable. A recent Pew research survey found that the gap between state assets and their obligations for public sector retirement benefits is $1.38 trillion. It rose by 9 percent in 2010 alone – and it will likely keep rising until these obligations are renegotiated.
The truth is America is sacrificing its future to pay for its past. To keep up with burgeoning pensions, states and cities are slashing services. It's also feeding into the unemployment problem. State and local governments have 445,000 fewer workers today than in 2007. Even if you exclude teachers from that number, we have 231,000 fewer workers.
For decades now, local governments have doled out patronage by increasing pension benefits – these costs impact the budget years later, when the officials who gave the benefits are safely retired themselves. We're now having to reckon with those choices.
I'm not saying bankruptcies are a good thing. But they are a mechanism that allows us to admit an emergency and renegotiate the deals that are, well, bankrupting the country.
http://globalpublicsquare.blogs.cnn.com/...
So Brian, do you agree with what he's saying?
Oh Boy... Here we go again...
Piggs... Clear to arm... Clear to fire.
CE
When even Brown says state and local public pension benefits are "unsustainable,"
You know you have a problem.
Monetize it or go bankrupt, those are the options we are left with at this point.
Piggs... Clear to arm... Clear to fire.
CE
I'm actually curious if he does or doesn't. Or agrees with the meme but not the solutions.
I doubt many on the board would consider Brian an anti-government ultra conservative.
Yeah, I agree. Zacharia laid out some compelling facts about the public pension situation.
I support government in that I believe in services for citizens, especially citizens in need. The municipalities are cutting services while increasing taxes, laying off employees, and funding retirees who have become a privileged class.
Piggs... Clear to arm... Clear to fire.
CE
Duck under.
Okay, I was going to be a good Pigg and ignore this thread, but just can't help myself.
More lies, hyperbole, and misinformation in this piece, as seems to be the case 90% of the time these days.
For one thing, he mentions Mammoth in his list of troubled cities, while insinuating that pensions are the cause of these cities' problems. Mammoth had to file for Chapter 9 because they lost a suit to a developer.
"The resort town of Mammoth Lakes sought protection on July 2 after a property developer won a $43 million court judgment against the city, a ruling that left the small town swooning."
http://americancity.org/daily/entry/fili...
Regarding other specific points he notes in his article:
........................
"Take for example San Bernardino. It was running a $45 million deficit (on a $130 million budget.) [1.] But its creditors – workers and retirees – were unwilling to help out. The best the unions were able to do was to offer what they thought was a major concession: allowing newly-hired public safety workers to retire with 90 percent of their salary at the age of 55 – instead of 50, which had been the earlier deal!
That won't work in a chapter 9 bankruptcy. An independent judge brings all parties to a table where an agreement has to be reached – no matter how painful. And, we need some of those painful decisions – not just at the federal level, but at local and state levels as well. [2.] At its heart, the bankruptcies you keep hearing about these days aren’t about taxes being too low or spending on city services being too high – they're about pensions.
[3.] California's pension-related costs rose 20-fold in the decade since 1999. This frightening trend is true almost everywhere in America. And it’s simply not sustainable. A recent Pew research survey found that the gap between state assets and their obligations for public sector retirement benefits is $1.38 trillion. It rose by 9 percent in 2010 alone – and it will likely keep rising until these obligations are renegotiated."
1. This idiot tries to make it sound like public employees are the only municipal creditors. This is not true. There are bondholders and vendors, as well as other creditors. If we want the creditors to make concessions, then *everybody* needs to come to the table, the crisis was not caused by public sector workers, so they should not have to shoulder the entire burden of the economic crisis that they DID NOT create and had no part in.
Many cities greatly expanded their budgets for capital projects during the bubble. Many of these projects were unnecessary and over-the-top "monuments" on which politicians could place their names for all to see.
2. He claims the recent bankruptcies and problems in municipal finances are due to pensions rather than drops in revenue (and excessive spending in other areas). Again, nothing could be further from the truth.
John Husing's report for San Bernardino:
http://www.ci.san-bernardino.ca.us/civic...
..................
A great opinion piece by Harold Meyerson about the REAL reason for the municipal failures:
"The reporting and commentary on the bankruptcies of California cities over the last month haven't been journalism's finest hour. From reading the voluminous accounts of the fiscal woes of Stockton and San Bernardino, you'd think that municipal unions and feckless city officials are primarily what led these cities down the path to fiscal ruin.
But you'd be wrong. What bankrupted Stockton and San Bernardino were the most severe housing busts in the nation. What bankrupted those two cities were banks peddling subprime mortgages to poorly paid workers."
"...What sets Stockton and San Bernardino apart is a far narrower set of circumstances: They were at the epicenters of the American housing bubble and the American housing bust."
"How bad was the bust? Of the 372 federally designated metropolitan areas in the United States, Stockton ranks first in foreclosures, while Riverside-San Bernardino-Ontario ranks third. Among the thousands of U.S. cities, San Bernardino proper ranks third in foreclosures, while Stockton ranks fifth. Ranking the May unemployment rates in those same 372 metropolitan areas, with the area with the lowest unemployment listed as No. 1, Stockton ranked 364th and San Bernardino 354th. Unemployment in the city of Stockton in May stood at 17.5%. In San Bernardino, it stood at 15.9%."
"Like all California municipalities, Stockton and San Bernardino depend on tax revenues — chief among them property taxes (recycled through Sacramento as a result of Proposition 13) and local sales taxes — to fund city operations. Amounts accrued from property taxes were greatly diminished by Proposition 13's passage in 1978, but in cities with new construction and rising home values, such as these two, property taxes still provided a reliable stream of revenue until the foreclosure wave hit.
At that point, property values in both cities collapsed — and property tax revenues with them.
According to Leslie Appleton-Young, the chief economist of the California Assn. of Realtors, the median home value in San Bernardino County dropped a mind-boggling 65.6% — from an average of $350,290 at the peak in 2006 to an average of $120,410 at the trough in 2009. Values haven't risen much since. The city of San Bernardino's property tax revenues have declined by one-sixth since 2007-08. And with unemployment skyrocketing at the same time, retail sales — never very robust in low-income communities — plummeted as well, dragging down San Bernardino's sales tax revenues 14%.
It's these numbers, not political chicanery or wage-and-pension rigidity, real though [sic] they may have been, that set Stockton and San Bernardino apart and that best explain what happened to them. That means any assessment of blame for their predicaments has to expand from such usual suspects as greedy public employees to include banks that flooded these cities with subprime mortgages that were resold into the high-flying securities market. It should include the huge retail corporations that have devised supply chains that employ area residents at barely livable wages.
Conventional wisdom may blame the unions and the pols. The facts tell a different story."
http://www.latimes.com/news/opinion/comm...
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3. The reason Zakaria choose 1999 as his starting point is because many govt employers were paying NOTHING toward employee pensions...all because of the stock/internet bubble. Any increase from that level will look huge. Let's explore reality, shall we?
Look at pages 21 and 22 of the following CalPERS presentation. You'll quickly see why this lying sack of shit Zakaria choose 1999 as his starting point for how contribution rates have "risen" over the years. In reality, contribution rates are very much in line with historical norms. That being said, they WILL have to go higher if we use more reasonable return rate assumptions, but if we factor in the years when govt employers were paying little to NOTHING toward the pension contributions, it would still be within the normal range.
https://docs.google.com/viewer?a=v&q=cac...
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One more thing...people keep talking about how pension costs are going up, insinuating (even claiming outright) that employees have been negotiating for, and getting, enhanced pension benefits as a result of the housing bubble. That is totally untrue. The last time there was a significant change in pension benefits was when SB400 passed in 1999 -- which I have been opposed to from the very beginning.
http://calpensions.com/2010/07/27/sb400-...
Pension costs are going up because of the losses in the pension funds. Also, as a percentage of revenues, govt employers are paying a greater share toward pensions both because of the reduced revenues and because of the losses in the pension funds. They are not paying more because employees have been getting better pension benefits over the past decade. Pension benefits have NOT increased over the past 10+ years except for COLAs for current retirees. In many cases, since ~2008, pension benefits have been **reduced** during negotiations because of the economic crisis.
Once again, I've repeatedly challenged all the anti-union types to come up with actual solutions to our problems, but nobody has stepped up to the plate. As stated before, even if we change every public employee over to a 401k-style account, it will not solve our budget problems.
Public employees aren't any more repsonsible for the economic crisis (and the resulting "pension crisis") than anyone else here. They should not be expected to bear the entire burden for everyone else.
Here is my proposed solution...what is yours?
.....................
1. Roll back the pension boost enacted by Gray Davis (and friends) from 3% @XX to 2% @ 55 (going forward) for public safety workers. I'm an ardent supporter of defined-benefit pension plans, but this increase was totally irresponsible, and I said so back then. Because this increase has been there for so long, and because many older workers have adjusted their finances because of it, those with 10 years or less left before retirement will need a lump sum payment, perhaps of $50K-$150K, basically something tied to the number of years they've already put in under the 3% formula (a drop in the bucket when compared to the relative savings) in order to make up for the fact that they are too close to retirement to make up the difference.
2. Cut pay of municipal and state workers by ~10%, if they haven't already been cut (many have).
3. Get serious about illegal immigration, and either demand that the federal government supports all of the illegals and their children, OR charge the employers of illegal immigrants for **every single benefit** used by their workers AND their dependents (legal or not), and include infrastrucuture expenses AND the expenses related to administering this program.
[If we "fix" the illegal immigration problem, it will probably eliminate about 25-40% of the costs associated with education and prisons, and possibly "welfare" programs -- all of these being the largest expenses in the state.]
What would be interesting is to see how "cheap" that illegal labor is after all the costs have been added in -- these costs have been subsidized by the taxpayers. Who knows? Maybe employers would suddenly find out that Americans are "willing to do THAT work, after all" when employers are forced to pay the REAL costs of that labor.
4. Get rid of Prop 13 protection for all residences except a SINGLE, primary residence. There is NO excuse for making taxpayers subsidize landlords via cheap/under-market property taxes.
Eliminate inheritability of Prop 13 protection IF the heir intends to "step-up" the cost basis upon death of a parent.
5. Get rid of Prop 13 protection for all commercial properties except for a SINGLE property (held by an individual or a trust/LLC controlled by that person). Eliminate the ability to pass Prop 13 protection from seller to buyer via corporate/LLC loopholes.
Once those things are done, see where everything stands, and then raise certain taxes, if necessary. I have a feeling we'd end up with a surplus if we enacted the changes noted above, though.
http://piggington.com/ot_what039s_the_de...
And finally...a level-headed blog post written in 2010 from the (now former) mayor of Ventura:
http://fulton4ventura.blogspot.com/2010/...
Holy crap, go get some sleep.
It's not revenue drops.
San Bernardino's total revenue is down 11.2% from peak.
That's all. The property tax drop, sales tax drop, VLF transfer etc, UUT, etc are down a total of about $11 million.
They have not lost half of their property tax base.
"Many cities greatly expanded their budgets for capital projects during the bubble. Many of these projects were unnecessary and over-the-top "monuments" on which politicians could place their names for all to see."
Do you mean like these?
http://piggington.com/public_sector_porn
"That means any assessment of blame for their predicaments has to expand from such usual suspects as greedy public employees to include banks that flooded these cities with subprime mortgages that were resold into the high-flying securities market."
You will note that the passage she quoted EXPANDS the blame to include others it does not exonerate the "usual suspects as greedy public employees ".
In the private sector we have a remedy for entities whose expenses (including payroll) are out of line with revenue (no matter what the cause of it)- layoffs, pay cuts, massive restructuring, bankruptcy and whatever is necessary to bring things back into line. Its coming to the public sector soon......
CA renter, your solutions won't work. They are all conditional on each other and that's not how the real world works.
In the real world, you get what you can.
If nothing is done, municipalities will go into bankruptcy one after another. That could be the best solution of all.
The response to the financial crisis is the same. If Congress won't act, the Federal Reserve must step in.
In the real world, you get what you can.
If nothing is done, municipalities will go into bankruptcy one after another. That could be the best solution of all.
The response to the financial crisis is the same. If Congress won't act, the Federal Reserve must step in.
That's a teriffic load of BS, brian, and you know it. The changes I mentioned would be reasonable and legal (unlike trying to take away vested benefits from employees who *earned* them, and who did NOT cause the financial crisis).
It's funny how you claim that the people who caused the crisis should not be held to account, while cheering on the attacks on innocent people who simply chose careers with more stability.
1. Make those who are responsible for the crisis take the first loss.
2. Enact what I proposed above.
3. THEN, you can talk about stipping away vested benefits, if that's even necessary (and I doubt it would be necessary, in many cases).
Piggs... Clear to arm... Clear to fire.
CE
CE: Fire in the hole! Grab a beer and some chips and enjoy the (impending) fireworks.
San Bernardino's total revenue is down 11.2% from peak.
That's all. The property tax drop, sales tax drop, VLF transfer etc, UUT, etc are down a total of about $11 million.
They have not lost half of their property tax base.
Yes, it's revenue drops.
Charts:
http://www.ci.san-bernardino.ca.us/civic...
Think they'd need to file for BK if their revenues hadn't dropped so precipitously?
Do you mean like these?
http://piggington.com/public_sector_porn
"That means any assessment of blame for their predicaments has to expand from such usual suspects as greedy public employees to include banks that flooded these cities with subprime mortgages that were resold into the high-flying securities market."
You will note that the passage she quoted EXPANDS the blame to include others it does not exonerate the "usual suspects as greedy public employees ".
In the private sector we have a remedy for entities whose expenses (including payroll) are out of line with revenue (no matter what the cause of it)- layoffs, pay cuts, massive restructuring, bankruptcy and whatever is necessary to bring things back into line. Its coming to the public sector soon......
Yes, like those. In both of your threads, I specifically stated that I don't condone ornate "monuments," buildings, etc.
My beef with you is that you keep trying to imply that boots-on-the-ground workers are somehow responsible for this mess. They had nothing to do with the economic crisis, and nothing to do with the fancy, irresponsibly ornate buildings and monuments going up during the bubbles.
BTW, when he talks about "expanding the blame," he's not saying that union members are responsible, just that people need to expand their narrow perspective WRT fault and where the blame lies.
In the real world, you get what you can.
If nothing is done, municipalities will go into bankruptcy one after another. That could be the best solution of all.
The response to the financial crisis is the same. If Congress won't act, the Federal Reserve must step in.
Brian: I'm curious. What would Congress do (if it acted)? And, what would the Fed do (if it acted)?
There is a much larger story here and it will have a catastrophic effect on unions, Big Labor and those city (Chicago, NYC, LA) and state (Illinois, California) "machines" that control votes, dispense patronage and provide significant GOTV muscle for the Democratic Party. You can certainly argue that demographic shifts are going to affect the Republican Party, especially the base, but what's happening now across the country will have a similar destabilizing effect on the Dems, too.
Hence, the all-out, total war nature of the Scott Walker recall in Wisconsin. Following that loss, public sector unions in Wisconsin began shedding membership in droves: http://www.chieftain.com/business/electi.... Loss of membership means loss of dues and loss of dues means less clout in pushing Dem politicians at the local, state and federal level.
When you consider CTA and CCPOA clout in California, such losses would literally change the calculus in the state, especially when you consider how much money the CTA spends: http://www.arnoldwatch.org/articles/arti..., how it encourages teachers to use their classrooms as bully pulpits: http://capoliticalnews.com/2012/05/27/ct... and the outsize influence it wields as a result. You wonder why Governor Brown is shit-scared of these people and is unwilling to make any serious changes?
If this influence peddling begins to erode as a result of municipal bankruptcies, changes in CBA and the increasing pisstivity of voters, well, maybe there is hope for this state after all.
Allan, you're making the assumptions that there aren't *other* vested interests who are behind the attacks against unions. Do you think they're doing this to be nice? Think it's about lowering taxes for Joe Sixpack?
I'm all for getting union money out of politics, but ONLY if we get ALL money out of politics. If labor doesn't have a seat at the table, then neither should capital and other "private" organizations who are trying to take control over public assets and cash flows. THAT is what's behind the attacks on unions, and not a single "private sector" worker is going to benefit from it.
Ask yourself: Who is responsible for the destruction of our manufacturing base? Who paid to have our tax and trade laws changed so that businesses could off-shore jobs and bring in cheap foreign labor? Was it public sector workers, or corporations/capital?
Again, dismantling the last bastion of labor (and that means ALL workers -- public and private) will only make things worse for private sector workers. How will taking away these few remaining decent-paying jobs that are available to the general public benefit ANY working person? I contend that it will harm every single worker in the U.S.
Does it really matter what happened to all the money? No, rarely those responsible for the fiscal fiasco get punished. In reality it will be the workers that will have to take more hits to their pay for the poor business policies of others. btw, pleading with others on this board that your are right won't matter one f-ing dollar.
We've already seen most governments slash or eliminate pension benefits for new hires. What we're going to also see as the economy recovers is public employees start to demand salaries that compensate for those lower benefits. Pretty simple economics.
Piggs... Clear to arm... Clear to fire.
CE
CE: Fire in the hole! Grab a beer and some chips and enjoy the (impending) fireworks.
I began my 2-cent response this morning but had to take a rain check on it until later this eve. Stay tuned ...
Thank you for posting those awesomely informative links, CAR!
;=D
That is utter BS.
I cant remember a single time that I implyed boots-on-the-ground workers were responsible for the mess as I have always maintained its a flawed system. The system is structurally set up for disaster. It allows fraud and abuse without accountability.
I think they do good work and nearly all I of them I have met are good people. What they are doing is exploiting the system that they function in just as any other person does in any other line of work. They are no worse nor are they any better. That is why they should be treated the same and not be a privileged class.
BTW, he's also not saying the unions arent responsible.
So Brian, what do you propose to do with the "privileged class"? What is the solution to the retirees already getting the pensions?
As a practical matter, I'm pretty sure nothing can be done, unless those already getting the pensions are doing so as a result of illegal acts. That is, unless the retirement systems go bankrupt, in which case all pension beneficiaries would probably be treated similarly.
San Bernardino's total revenue is down 11.2% from peak.
That's all. The property tax drop, sales tax drop, VLF transfer etc, UUT, etc are down a total of about $11 million.
They have not lost half of their property tax base.
Yes, it's revenue drops.
Charts:
http://www.ci.san-bernardino.ca.us/civic...
Think they'd need to file for BK if their revenues hadn't dropped so precipitously?
Can't you read your own links? Total revenues have decreased 11.2%. Chart 45.
Total budget peak $133M, total budget today $118.
http://www.ci.san-bernardino.ca.us/civic...
Yes, they would BK, they've been overspending for years BEFORE the drops.
Read page 3. Then read page 13, then page 14. The charts should clear it up for you.
http://www.ci.san-bernardino.ca.us/civic...
http://www.ci.san-bernardino.ca.us/civic...
Yes, they would BK, they've been overspending for years BEFORE the drops...
nsr, I've downloaded the current budget and will print it. But I just have one question for you.
WHY do you think SB felt they needed to hire as many people as they did (and "overspend" on these additional salaries) during the "boom" years??
As to CAR’s earlier links today, a few things really stood out to me in Dr. Husing's prophetic Power-Point presentation (2010) on the City of San Bernardino:
http://www.ci.san-bernardino.ca.us/civic...
Pg 3: Inland Empire (IE) was down 93,327 jobs between 2008 and 2009
Pg 4: By 12/09, the IE had a 15% unemployment rate
Pg 6: By 2009, the IE had 3x the unemployment rate of 2000 to 2008
Pg 8: By 2009, building permits in the IE had declined 82.4% since 2005
Pg 10: The economic base of the IE has always been largely blue-collar
Pg 15: Question: Would three million people have actually relocated to CA between 1997 and 2007 if there was was no new construction there available to purchase with easy qualifying terms?
Pg 18-19: Out of 1,080,328 existing homes in the IE, 628,327 were “underwater” in 2010. Out of those “underwater,” 250,831 (40%) were in default in 2010, 183,447 (29%) had a Notice of Sale file on them and 119,066 (19%) were REO’s. This leaves 12% of these underwater homedebtors in the “Squat-SS” group, the “Squat-Mod” group or the group still paying their mortgages in a timely manner.
Pg 23: 51.5% of the SB’s households are tenants
Pg 24: 25% of the IE’s SFRs are tenant-occupied or vacant
Pg 25: 38.3% of SB’s households receive some form of public assistance
Pg 44: The RE crash in the IE affected those who worked in FIRE and related industries the most
Pg 48: 48.5% of adult SB Co residents possessed a HS Diploma or less; 47.8% of adult RIV Co residents possessed a HS Diploma or less
Pg 53: In 2004, 93 ships in the Port of Los Angeles could not be unloaded due to not enough available labor (this was NOT due to a lockout or strike)
Pg 57: The IE lost 34,900 manufacturing jobs since 2007
Question to ponder: If Dr. Husing’s info on pgs 10, 23, 24, 25 and 48 was accurate or near-accurate in 2000, why did the IE’s leaders vote to approve all the subdivisions they did??
http://www.latimes.com/news/opinion/comm...
As to this piece, I agree that Stockton and SB both have many factors in common which contributed to their bankruptcies. Both overbuilt with *new* residential construction (which was primarily sold to underqualified buyers). This comedy of errors led to a complete crash of their residential RE values leading to a precipitous drop in property tax revenues and jobs in the local RE/construction industry.
However, unlike the author, I believe the pols ARE to blame. It was actually THEY and/or their appointed officials (their direct reports) who issued or caused to be issued voluminous subdivision permits, primarily during the millennium boom, which, along with readily available NINA purchase money 1st and 2nd TDs and refinance 1sts, 2nds and HELOCs, was the direct cause of the boom and bust cycle which followed. The boom cycle caused the cities of SB and Stockton to be flooded with new residents who would not have otherwise have flocked there but for all the *new* construction available for no money down in CA with easy qualifying which was priced at far less than the coastal cities.
See my comments where I already discussed this phenomenon:
http://piggington.com/stockton_bk_here_w...
re: the Stockton BK filing
http://piggington.com/otcontest_to_guess...
re: the Vallejo BK filing
See also: http://piggington.com/ot_san_bernardino_...
Nice work bg.
Very Good BG,
Now explain Compton, LA will soon follow.