We Are So Totally Out of Money
Here's a long, thorough, and therefore depressing and enraging article in Barron's about the public pension bomb under the nation's hood. The big-picture, we-are-so-screwed stuff:
[M]ost Americans have ignored at their own peril a far bigger pocket of privilege [than Wall Street greed]—the lush pensions that the 23 million active and retired state and local public employees, from cops and garbage collectors to city managers and teachers, have wangled from taxpayers.
Some 80% of these public employees are beneficiaries of defined-benefit plans under which monthly pension payments are guaranteed, no matter how stocks and other volatile assets backing the retirement plans perform. […]
According to a survey last month by the Pew Center on the States, a nonpartisan research group, eight states—Connecticut, Illinois, Kansas, Kentucky, Massachusetts, Oklahoma, Rhode Island and West Virginia—lack funding for more than a third of their pension liabilities. Thirteen others are less than 80% funded. [..]
The more likely outcome is dramatic cuts in essential services, such as police and fire protection, health spending, education and infrastructure improvements, in order to cover ballooning pension payments. State and municipalities, after all, must do something: Most have a legal obligation to pay out earned pension benefits. And some don't even have the courage to switch new teachers, bureaucrats and police to a defined-contribution system, to prevent the funding problem from worsening as time rolls on.
OK, you've talked me onto the ledge. So, what about cities and counties and states just cold going bankrupt, and maybe preventing our grandchildren from paying defined-benefit pensions the likes of which they'll never enjoy? Don't bank on it:
[L]ook no further than the San Francisco Bay city of Vallejo, which filed for Chapter 9 bankruptcy in 2008 as a result of insolvency.
The California municipality, which has 120,000 residents, is proposing a three-year moratorium on all interest and principal payments on the $53 million of municipal debt that is backed by its general fund. But it is keeping fully intact its $84 million in pension-fund obligations. […]
And only one state—Arkansas in 1934—has defaulted on its GO bonds in the past century with their holders suffering losses. Arkansas, however, was a special case. In addition to the Great Depression, it was ailing from large local debts it had assumed as a result of catastrophic floods in the 1920s. […]
Though Vallejo is still months away from getting a court decision on whether it can go ahead with its debt-adjustment plan, it has succeeded through contract renegotiations and major layoffs in cutting its employee costs by nearly a quarter.
But the fallout has been brutal. Employee health-care benefits have been decimated. Holders of the city's municipal bonds are unlikely to get all their money back. And violent crime rates have shot up dramatically as a result of reductions in its police force from 158 to 104 officers.
The only thing that will be left untouched? The very thing that tipped the California city into Chapter 9—its $84 billion in future pension obligations.
Whole thing here; we told you so here; link via Instapundit.