State Bankruptcy

[Jim]

I think this is a good tool to harp on when discussing the issues with the smaller gv'ment crowd. But as policy it goes nowhere and then you start arguing about the greater good for any project, 520, viaduct, light rail, etc. The greater good is a difficult concept for knuckleheads to grasp, however.

[tvashtarkatena]

When congress was on its BUILD A BORDER FENCE kick a few years back, a whole lot of Eastern Washingtonians had to leave their crops to rot due to lack of farm labor. You wanna vote red, farm boyz? OOOOOKAY, this is what that looks like.

 

Policies have real consequences for real people. Be wary of policies backed solely by 'popular wisdom'. True wisdom isn't very popular here. Not popular at all.

[tvashtarkatena]

Frankly, I'm just a wee bit of party whose main policy ideas are born in their belief in a Great Big Fuzzy Kitty Way Up In The Sky Who Loves Us.

 

 

[j_b]

I think this is a good tool to harp on when discussing the issues with the smaller gv'ment crowd. But as policy it goes nowhere and then you start arguing about the greater good for any project, 520, viaduct, light rail, etc. The greater good is a difficult concept for knuckleheads to grasp, however.

 

It should be used as a "see what happens when you shoot yourself in the foot" teaching moment. Unfortunately, as long as national Democrats prefer to argue that government should be "competitive", instead of discussing the role of government, taxation and regulation, we are pretty much condemned to having the anti-tax demagogues run roughshod over the needs of communities.

[Kimmo]

When congress was on its BUILD A BORDER FENCE kick a few years back, a whole lot of Eastern Washingtonians had to leave their crops to rot due to lack of farm labor. You wanna vote red, farm boyz? OOOOOKAY, this is what that looks like.

 

source?

 

having farmer family east of the mountains (small and large, including a head of a grower's org), and talking to them often about the vagaries of the biz, the above was feared but seemingly never became a big problem.

 

somthing that WAS a big problem was the size of the cherry crop in '09, coupled with low demand. farmers were leaving fruit on the trees cuz it wasn't worth pickin!

[prole]

[Kimmo]

that's not true. You get rid of the long term pension liability and the current state budgets will still be as much in the hole and the same cuts would have to take place since taxes aren't going up.

 

how does that work, exactly?

[j_b]

??? the pension liability is a long term issue that can be resolved by making adjustments whenever the economy won't be reeling, whereas the current budget shortfall is overwhelmingly due to loss of revenue because of the recession.

[G-spotter]

On that there map does "worst teacher salary" mean highest, or lowest?

[ivan]

lowest - i taught in n.c....for a year

 

you CAN earn a 2k$ bonus though if your school shows improvement for the year though - i got mine while sitting around the pool, far, far away...

[tvashtarkatena]

When congress was on its BUILD A BORDER FENCE kick a few years back, a whole lot of Eastern Washingtonians had to leave their crops to rot due to lack of farm labor. You wanna vote red, farm boyz? OOOOOKAY, this is what that looks like.

 

source?

 

having farmer family east of the mountains (small and large, including a head of a grower's org), and talking to them often about the vagaries of the biz, the above was feared but seemingly never became a big problem.

 

somthing that WAS a big problem was the size of the cherry crop in '09, coupled with low demand. farmers were leaving fruit on the trees cuz it wasn't worth pickin!

 

Didn't happen on Pappy's farm so it didn't happen, eh?

 

It was all over the local papers in 06 (not 09). My ex and I went out to the Yakima area and saw 'pickers wanted' signs posted everywhere.

 

You and Pappy must have been sleepin.

 

linky

 

[j_b]

 

 

In this podcast, we will discuss misconceptions concerning bond debt, pensions and other challenges facing states with Senior Advisor Iris Lav.

 

Iris, in a new paper you note that recent media coverage of the fiscal situation of states and localities has been confusing a number of issues and producing unnecessary alarm among policy makers and the public at large. What is the main misconception?

 

The main problem is that the media and others have lumped together states current fiscal problems, which stem largely from the recession, with longer-term issues relating to debt, pension obligations, and retiree health costs. This has created the mistaken impression that drastic and immediate measures are needed to avoid an imminent fiscal meltdown.

 

States and localities do face difficult choices. And they are using the tools they have — largely budget cuts and tax increases — to deal with their short-term, recession-induced challenges. This has very little to do with the longer-term issues, which states have several decades to address.

 

You mentioned one long-term issue is bond indebtedness. Can you tell us about that?

 

Sure. Recent claims that states and localities have run up massive bond indebtedness, and that a number of localities may default on their bonds, are greatly exaggerated. First, states and localities have issued bonds almost exclusively to fund infrastructure projects, not finance operating costs, as some have claimed. Second, the amount of outstanding debt has increased slightly over the last decade but remains within historical parameters. Third, municipal bond defaults have been extremely rare. And finally, there is no bubble in the municipal bond market, and no grounds for comparing it to the mortgage market before the bubble burst.

 

What about claims that states and localities have $3 trillion in unfunded pension liabilities that may drive them into bankruptcy?

 

These claims are exaggerated. The size of the unfunded liability is closer to $700 billion – which still sounds like a big number but is actually much more manageable. In most states, a modest increase in funding and/or changes to pension eligibility and benefits should be sufficient to remedy underfunding. A few states that have skipped contributions or increased benefits without increasing funding likely will have to make larger changes. But states and localities have the next 30 years in which to remedy any pension shortfalls; and in general, they actually should avoid increasing pension contributions as long as the economy remains weak and they are struggling to provide basic services.

 

In your report you mention that exaggeration about these issues draws attention away from the need to modernize state and local budget systems. Can you explain?

 

Sure. States suffer from “structural deficits.” That means that revenues don’t grow at the same pace as the cost of services, even during healthy economic times. Structural deficits stem in large part from out-of-date tax systems, which in many cases have remained largely unchanged for decades. For example, few states tax the sales of services on the same basis that they tax the sale of tangible goods. So while a person pays tax when they buy a lawn mower, they don’t pay tax when they hire a landscaper to come mow their lawn. State tax systems also haven’t adapted to the fact that purchases are increasingly taking place over the internet.

 

All of these are serious challenges that states must begin to address as the economy recovers.

 

Iris, what’s the bottom line?

 

Overheated claims about state and local budget problems not only are inaccurate, but also could lead policymakers to take unwise steps such as allowing states to declare bankruptcy or forcing them to change the way they report their pension liabilities as a condition for issuing tax exempt bonds. That would be a huge mistake.

http://www.offthechartsblog.org/category/state-budget-and-tax/

[JayB]

States where politicians depend on public employee unions for their elections will do what's best for them politically, irrespective of the impact on the state's borrowing costs in the future.

 

In practice, that'll mean concentrating the losses on bondholders as much as possible. That'll be much more consistent their political instincts and their political philosophies than restructuring public employee pensions and benefits.

 

As opposed to those politicians installed by finance capital. In practice, that'll mean concentrating the losses on public workers as much as possible. That'll be much more consistent their political instincts and their political philosophies than restructuring their debt vis a vis bondholders.

 

I do like how political and class struggle is taking a greater role in your narratives, Jay!

 

 

Seems to me that "finance capital" is a much more salient force on the national level than at the state and local level - but the folks who loaned state and local governments will certainly use whatever political tools are at their disposal to insure that the folks dealing out the pain inflict as little hardship on them as possible.

 

At the end of the day - obligations that can't be paid won't, and the local political dynamics will determine who gets the shaft. My reading of the state and local incentives is that in the vast majority of cases those dynamics will favor imposing the bulk of the losses on bondholders.

 

Imposing losses on bondholders - the bulk of which are individual retirement savings aggregated through pensions and mutual funds - imposes pretty steep costs on both people who work for and depend on whatever government is defaulting, but creditors shouldn't be insulated from the consequences of making bad loans anymore than unions that negotiate pension-time bombs should be insulated from the consequences of their decisions.

 

Should be a particularly interesting dynamic when a pension fund representing public sector employees has a significant stake in a bond issued by a government entity that's defaulting as a result of un-fundable promises made to public sector unions...

[Kimmo]

Didn't happen on Pappy's farm so it didn't happen, eh?

 

It was all over the local papers in 06 (not 09). My ex and I went out to the Yakima area and saw 'pickers wanted' signs posted everywhere.

 

You and Pappy must have been sleepin.

 

linky

 

 

is this the way you run the ACLU? If so, i might be reconsidering my membership.

 

your article mentioned rotting fruit in CALIFORNIA, nothing in Washington.

 

perhaps an apt reminder: Washington is not California, as much as you'd like it to be.

 

along with another reminder: "a whole lot of Eastern Washingtonians had to leave their crops to rot due to lack of farm labor." (your original seemingly unsubstantiated charge, in case you forgot.)

[prole]

Seems to me that "finance capital" is a much more salient force on the national level than at the state and local level - but the folks who loaned state and local governments will certainly use whatever political tools are at their disposal to insure that the folks dealing out the pain inflict as little hardship on them as possible.

 

At the end of the day - obligations that can't be paid won't, and the local political dynamics will determine who gets the shaft. My reading of the state and local incentives is that in the vast majority of cases those dynamics will favor imposing the bulk of the losses on bondholders.

 

When (not if) bailout or bankruptcy terms are dictated, they'll come from the national level and be based on recommendations from "expert" wonks with one foot in Wall St. Nary a stir in those quarters based on the sensational headlines we've seen so far.

 

...creditors shouldn't be insulated from the consequences of making bad loans anymore than unions that negotiate pension-time bombs should be insulated from the consequences of their decisions.

 

Really? One of these things is not like the other, one of these things...

 

 

[j_b]

I guess contracts made with employees who chose better benefits over higher pay aren't sacrosanct, today at least .. What the hell, let's change the law to make it all possible. Like the Founding Fathers would have done. LOL

[JayB]

Seems to me that "finance capital" is a much more salient force on the national level than at the state and local level - but the folks who loaned state and local governments will certainly use whatever political tools are at their disposal to insure that the folks dealing out the pain inflict as little hardship on them as possible.

 

At the end of the day - obligations that can't be paid won't, and the local political dynamics will determine who gets the shaft. My reading of the state and local incentives is that in the vast majority of cases those dynamics will favor imposing the bulk of the losses on bondholders.

 

When (not if) bailout or bankruptcy terms are dictated, they'll come from the national level and be based on recommendations from "expert" wonks with one foot in Wall St. Nary a stir in those quarters based on the sensational headlines we've seen so far.

 

...creditors shouldn't be insulated from the consequences of making bad loans anymore than unions that negotiate pension-time bombs should be insulated from the consequences of their decisions.

 

Really? One of these things is not like the other, one of these things...

 

 

1)Read the summary of Chapter 9, and the comments here:

https://self-evident.org/?p=878

 

2)Both muni-bond investors and employee unions structured their contracts with the implicit assumption that they'd be bailed out by taxpayers if the merde hit the fan and the government in question lacked the means to honor the the pledges that they made.

 

Both unions and bondholders would make better decisions if they assumed otherwise.

 

 

[Jim]

We've been here before, but why not. I'll repeat. Yes the recent financial crisis is something seperate from state pension issues, yes the government did a bad job of monitoring the markets, yes the greedy bankers and wall street folks are getting of lightly.

 

But - fiscal crisis or not - the majority of pension plans are unsustainable and the extra fiscal pressures now put on states is shining a brighter light on these unsustainable elements.

 

In most, not all (about 85%) of states pensions have been promised that require an amazing amount of investment capital to be parked to get sufficient returns for payout. How the heck does a system manage to payout a 80% wages earned in the last few years of employement for life? Say that is $75k and a conservative 5% return - then that mean you need to have $1.5M parked!!!!

 

Some retirement plans, notably CA, are even more generous in how they calculate your retirement. Given that the employee in this example would contribute, maybe, 25% of this - the tax payers should be on the hook for this?

 

Honor the existing agreements, limit increases, and convert current holders to 401ks. Any arument about dealing with it later is an excuse to carry on an unsutainable practice - wait for what and why accrue more debt?

 

[j_b]

yes, we have gone over this before and it is still not the moment to play disaster capitalism. Let's deal with the budget shortfall and address structural issues when the economy is better.

[JayB]

We've been here before, but why not. I'll repeat. Yes the recent financial crisis is something seperate from state pension issues, yes the government did a bad job of monitoring the markets, yes the greedy bankers and wall street folks are getting of lightly.

 

But - fiscal crisis or not - the majority of pension plans are unsustainable and the extra fiscal pressures now put on states is shining a brighter light on these unsustainable elements.

 

In most, not all (about 85%) of states pensions have been promised that require an amazing amount of investment capital to be parked to get sufficient returns for payout. How the heck does a system manage to payout a 80% wages earned in the last few years of employement for life? Say that is $75k and a conservative 5% return - then that mean you need to have $1.5M parked!!!!

 

Some retirement plans, notably CA, are even more generous in how they calculate your retirement. Given that the employee in this example would contribute, maybe, 25% of this - the tax payers should be on the hook for this?

 

Honor the existing agreements, limit increases, and convert current holders to 401ks. Any arument about dealing with it later is an excuse to carry on an unsutainable practice - wait for what and why accrue more debt?

 

Yup. For guestimation purposes you can assume that every $1,000 in inflation-indexed pension income for a 65 year old retiree will require $20,000-$30,000 in assets to fund the said income stream.

 

I'd love to see a comparison of actual balances accrued vs the total value of the pension-payout. When you compute pension payouts using the highest 2-3 years of pay as opposed to lifetime pay, the two aren't even close - and once you factor in all of the cashed in sick time, etc the gap between the two is even more profound. Guess who gets to make up the difference - irrespective of what happens to funding for other public priorities.

 

I might add that you are sounding more and more like a heartless neocon regressive hatemonger these days. Let me know how the above goes over at the next dinner party.

 

 

 

[j_b]

you still have as little credibility as you had when you claimed pension liability was a reason for concern NOW

[Kimmo]

??? the pension liability is a long term issue that can be resolved by making adjustments whenever the economy won't be reeling, whereas the current budget shortfall is overwhelmingly due to loss of revenue because of the recession.

 

ok so what are the numbers?

 

wa's annual budget is what, around 70 billion? what percentage of that goes towards funding retirement packages? and what are the future projections?

[Jim]

you still have as little credibility as you had when you claimed pension liability was a reason for concern NOW

 

It IS a concern now - you don't seem to get the basic fact that the pension systems are paying out more than thy accure - it's basic math. WA is genreally better than most states and ours is around 75% funded - where do you think the money is coming from - fairy land?

 

In CA 85% of tax revenue is being used to service two items - public pensions and current employee pay and benefits. What? You would want to wait untill it gets to 150% to change it? Every dollar put to an unsustainable program is one that cannot be put towards worthwhile social, environmental, health, and safety programs. The "ignore the problem" solution you offer is what has led to the current and growing issue.

[Jim]

According to the state actuary, two of Washington’s nine pension plans are already in the red with unfunded liabilities totaling nearly $7 billion,” he reminded readers. “This does not include an additional $8 billion in unfunded post-retirement benefit liability, primarily for retiree health care. Unlike pensions, however, these other retirement benefits are not a contractual right, meaning the Legislature has the ability to make changes as necessary.”

 

He, too, understands the adverse pension impact on the state’s budget.

 

“Already our state is facing nearly a $6 billion projected budget shortfall for 2011-13. Included in these projections is the need for additional pension contributions” Mr. Mercier wrote. “The state’s Office of Financial Management projects that an additional $700 million in pension payments above the base will be required in the 2011-13 biennium.”

 

And this is not something to worry about now? Friggin' A - it's sucking up capital from benefical programs. The social safety net is hacked to pieces and we don't need to fix this? Give me a break.

[JayB]

According to the state actuary, two of Washington’s nine pension plans are already in the red with unfunded liabilities totaling nearly $7 billion,” he reminded readers. “This does not include an additional $8 billion in unfunded post-retirement benefit liability, primarily for retiree health care. Unlike pensions, however, these other retirement benefits are not a contractual right, meaning the Legislature has the ability to make changes as necessary.”

 

He, too, understands the adverse pension impact on the state’s budget.

 

“Already our state is facing nearly a $6 billion projected budget shortfall for 2011-13. Included in these projections is the need for additional pension contributions” Mr. Mercier wrote. “The state’s Office of Financial Management projects that an additional $700 million in pension payments above the base will be required in the 2011-13 biennium.”

 

And this is not something to worry about now? Friggin' A - it's sucking up capital from benefical programs. The social safety net is hacked to pieces and we don't need to fix this? Give me a break.