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.”
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.
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.”
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.
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.
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.
