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…And, So It Begins: The Public-Sector Ponzi Scheme is
Collapsing

Public-sector unions' house of cards is about to come tumbling
down.

Posted by LaborUnionReport (Profile)

Saturday, December 18th at 3:30PM EST
20 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.

[snip]

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.

[Note: If the above video does not play on your browser, go here
to view.]

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

X-posted.

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20 Comments Leave
a comment

Decatur Illinois
anacreon Saturday, December 18th at 3:47PM EST (link)

In 2011, 70% of property taxes will go towards pensions.

http://herald-review.com/news/local/article_7950f4d4-d789-50b4-987b-ef8b58f7080d.html

http://www.downstateiladvocate.com/

Muni bonds have yet to increase dramatically
talgus Saturday, December 18th at 4:28PM EST (link)

Perhaps they just will not sell at all. I will not buy bonds from Democrat
run cities. Get your $$ from Soros and Hollyweird.

They will
wonkish1 Saturday, December 18th at 4:34PM EST (link)

And the monoline insurers insuring those munibonds will start jacking their
cost of insuring them. And its quite likely that many of those that insure muni
bonds could collapse if defaults were to start to rise.

If they do, I suspect it will only be briefly
The_Gadfly Sunday, December 19th at 7:06AM EST (link)

and then the market collapses the same way the MBS market did and for
essentially the same reasons. The MBS market survived for as long as it did
because nobody knew the Emporer had no clothes. With the collapse of the MBS
market, people now know to look for that. The liabilities for pensions are so
large that the funding of them can only be solved as a theoretical exercise.
When you try to implement the tax rates to fund the solutions, the communities
collapse.

We’ve been called racists enough now that it shouldn’t bother us any
more.

-AChance, http://www.redstate.com/moe_lane/2009/11/03/what-men-may-do-we-have-done/#comment-24463

I Think One Of Paul Ryan's
wonkish1 Saturday, December 18th at 4:32PM EST (link)

Biggest legislative priorities in the upcoming congress is a bill that
creates bankruptcy provisions for states, municipalities, and most likely
pension funds like these.

We are going to send the message to Dems that we are not bailing out Blue
states, blue cities, and stupid government decisions. They either sign onto
bankruptcy provisions for these bodies or they will be in legal limbo when the
day comes.

It is another example, of something they will be forced to sign
onto.

Bankruptcy for states doesn't make sense
scorpio0679 Saturday, December 18th at 8:41PM EST (link)

Leaving aside the question of whether it is constitutionally permissible for
the federal government to govern a state “bankruptcy” for a minute . . .

Bankruptcy provisions for a state would be just another way for politicians
to dodge the bullet of responsibility. A state is a sovereign entity and as such
can only sue or be sued on the terms that it sets (or on terms under federal
law, such as section 1983 of the U.S. Code). If pensions are ruining the state’s
fiscal health, rewrite the terms. A state can be contractually held to a pension
plan to the same degree that the federal government can be forced contractually
to pay social security benefits . . . that is, it can’t be.

Cities are a different story. But for states, there should not be any easy
way out (i.e., bankruptcy). Disallowing public sector unions would go a long way
to fixing this problem.

I Think He
wonkish1 Saturday, December 18th at 9:16PM EST (link)

Is talking about a way to force a state to make tough choices without them
being able to kick the can down the road when doing so when a state as clearly
gotten to the point that no longer can be done.

Clearly some form of mechanism needs to kick in when that moment in time
happens otherwise you start risking a situation where a state can screw up so
badly that it can never get itself out of its whole without default on its debt
which I don’t think we are going to allow.

By Bankruptcy, I believe Ryan means a way to not allow any haircuts on state
debt and force legislators to chance their laws. That is what he is talking
about.

For a municipality, I think "bankruptcy"
kestrel Saturday, December 18th at 10:36PM EST (link)

means they are forced to file for state receivership, which empowers a
court-appointed receiver to “do what the City itself could not do, put its
finances in order, among other ways by renegotiating union contracts.” This is
how they “rewrite the terms” on the municipal level. I would think there would
be some equivalent for a state.

In Central Falls, RI, “Public sector unions… won a huge victory… with the
signing into law of legislation denying municipalities the ability to file for
state receivership as a means of renegotiating unsustainable union contracts.”
This makes me guess that Ryan is writing legislation *requiring* receivership
when debts, including pensions, are unsustainable — just the opposite of what
Central Falls’ Dem legislature did.

These quotes are from Professor Jacobsen. He explains this whole business
well for laymen, including the fact that the fear of a domino effect, whereby
“everybody” renegotiates union pensions, is mitigated by the fact that the
credit rating of the “bankrupt” entity is ruined, apparently just as in a
personal bankruptcy. I don’t know if this helps. I’m not a financial type.

http://legalinsurrection.blogspot.com/2010/06/unions-rescued-in-rhode-island.html

I read a proposal recently regarding bankrupt states
Finrod Sunday, December 19th at 1:14PM EST (link)

The idea is that states that go bankrupt are busted down to territory status,
the entire state government is thrown out, and then Congress can readmit that
territory as one or more states. I think it’s a great idea,myself.

Finrod’s First Law of Bandwidth:
A picture may be worth a thousand
words, but it takes the bandwidth of ten thousand.

In politics as in
driving, the biggest annoyance and greatest hazard comes from the slow and
oblivious on the far left.

God bless Paul Ryan --nt
kestrel Saturday, December 18th at 10:38PM EST (link)

And Federal employees down the road?
johnt
Saturday, December 18th at 5:25PM EST
(link)

Starve them, fat cats, guaranteed employment, pensions like no
other.
Civil Service really has changed, it comes with corruption.

“a man’s admiration for absolute government is proportinate to the contempt
he feels for those around him”. Tocqueville

In 1998, the WSJ warned NJ pensions would eat up
renny Saturday, December 18th at 6:18PM EST (link)

75% of the NJ budget. They haven’t yet, but they surely soon will, as the
state cannot even afford to make its contribution toward pensions and balance
the budget, as required by the NJ Constitution.

And I want to dispel a misconception that all public pensions are “free” to
retired public employees. In NJ, police, fire, and teachers employers (townships
or boards of ed) contribute 1/3 to the pension fund per employee, each employee
contributes 1/3 to his/her own pension, and the state is SUPPOSED to contribute
another 1/3. Since the dot-com collapse of the stock market and big losses to
the pension funds, the state has not maintained its obligation to contribute its
share.

Also, in NJ, maybe not in NY State, retired teachers, police, and fire pay
state and federal taxes on their pensions.

One of the not too talked about results of the midterms
tedglover Saturday, December 18th at 7:08PM EST (link)

Is that with a Republican H of R, there will be no federal bailouts of states
that are in danger of default, like Illinois and California.

Had the Dems retained control of both houses, I think it would be a foregone
coclusion that would have happened.

People sleep peacably in their beds at night because rough men stand at the
ready to do violence on their behalf.

Possibly…and Sadly…a False Sense of Certainty
ntrepid Saturday, December 18th at 10:41PM EST (link)

You may be too generous with the word “think” in the second paragraph. Crazy
Aunt Nancy never saw a check she wouldn’t write.

Unfortunately, the phasing “…there will be no…” in your first paragraph with
respect to state bailouts under the Republican controlled House strikes me as a
bit overconfident. Don’t get me wrong, I hope you are correct but…well; just
don’t be surprised when….

Ntrepid
Proud Redstate Member since April 2006…?

“Everybody has an agenda. Except for me.” - Michael Crichton, State of
Fear.

Caption for Tax Rate Extension Signing Ceremony
russonline Saturday, December 18th at 7:10PM EST (link)

You gotta give credit to those Republican bomb-throwers and hostage-takers.
They sure know how to craft and advance a tax package that 70% of American
voters love … while improving YOUR poll ratings.

What's great is..
victrola Saturday, December 18th at 7:55PM EST (link)

states can’t “print” their own money, so you can’t just keep kicking this can
down the road like you can with federal entitlements. There is at least a
semblance of accountability with state budgets.

It WILL come to a head, and quickly, the question is, how will all of this go
down?

Don’t think for a minute that Unions and Democrats are going to be proactive
about getting their fiscal house in order, they won’t accept a single cut, it’s
going to have to explode first.

Most of the worst problems, those nearing Zero Hour
Adjoran Sunday, December 19th at 2:18AM EST (link)

are in deep “Blue” states. The rest of the country is in no mood to bail out
their excessive public pensions, which are in so many cases laughably
generous.

Like federal action to “bail out” most industries, it at best could postpone
the day of reckoning, but that day cannot be avoided eventually for
all.

There's not going to be nearly
lockemadison Sunday, December 19th at 9:12AM EST (link)

enough votes in the House to pass any state bailout (without significant
strings attached). But even if there were, there’s not going to be close to 60
votes to bring it to the Senate floor. Still something needs to be worked out. I
don’t think Democrats will want this as an issue in 2012.

LM

Our Virginia Governor
Scope Sunday, December 19th at 7:54AM EST (link)

is proposing that all state workers contribute 5% toward their pension plans.
I believe that he had already required that all state workers had to contribute
something like 2% toward their medical insurance. There was a surplus in the
budget this year, and the Gov. promised the state workers a 3% Christmas bonus
out of the surplus. The pension funds were not funded, and that is why there was
as much of a surplus. He said the bonus was in lieu of getting raises this year,
and next year. Then he announced the 5% contribution requirements. It works out
that the state workers will actually be getting a 2% decrease in their pay.
There were also cuts in education funding, and some teachers had to be laid off.
He also laid off about 1,200 state workers, and is not done yet. I believe I
have the above correct, if not, someone can correct me. I suspect that he will
soon be hated by the leeches as much as Chris Christie is hated by his
leeches.

State Pensions and Health Plans
exitsfunnel Sunday, December 19th at 1:53PM EST (link)

I recently saw David Walker, former US Comptroller General, current President
and CEO of the Peter G. Peterson Foundation, give a talk (televised on CSPAN) to
the Chamber of Commerce which gave an overview of exactly how dire the situation
is.

Here’s the to the broadcast; it’s 39 minutes well spent:

http://www.c-spanvideo.org/program/294838-1

In my mind, agenda item number one for the new GOP House should be to act
proactively to assure that a federal bailout of the states is off of the table
altogether.

-exits

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