Author: Larry Littlefield

One feature of the past 20 years is the ongoing attempt by Generation Greed to convince, or force, today's youth not to be the kind of irresponsible jerks they themselves had been when younger (and in some ways still are while in charge or our institutions). I live in a city where a retiree health insurance fund has been raided to get through a recession, and some pols want it raided more now that the recession is over. I live in a state where localities outside New York City have been encouraged to shirk making required contributions to the public employee pension funds, borrowing against them instead. I live in a country that collected additional regressive payroll taxes from workers for nearly 30 years to "Save Social Security" for younger generations, then blew the added funds on older generations' tax cuts and health spending, leaving behind IOUs. That country is now borrowing from federal pension funds to pay the bills.

I was shocked to find out, in the wake of the housing bubble, that many Americans were running their personal finances just like our governments, perhaps based on the same values. And now, some pols are proposing this.

The UFT has raised some good points on this issue, but the overall reality is hypocrisy. If principals make qualitative determinations, they say, the result is favoritism. So it appears Bloomberg/Klein took the bait and went with an "objective" measure — the change in test scores. Not fair says the UFT — the tests are flawed. There is no means of evaluation the UFT would accept, other a huge increase in the number of administrators sitting in classes — and rotating to get a diversity of views. Of course, any increase in administrative costs cheats the children, they would say. Well, it appears that a huge increase in administrative costs is what Governor Cuomo wants.

"Gov. Andrew Cuomo on Friday proposed tougher criteria to evaluate teachers including greater use of student test scores, more rigorous observation in the classroom." So who would be doing that observation in situation where more and more money is going to the retired? And doesn't this mean that because NYC cannot afford such an observation, it has no right to evaluate teachers.

The Governor and the New York City public employee unions are claiming New York City has a surplus. Where have you heard this before? You might remember all those MTA “surpluses,” which purportedly meant the agency didn’t have to raise fares, could hand out wage and pension enhancements, and didn’t need financial support from the state and city, which allowed tax cuts and more spending on other things. If the MTA claimed it didn’t have a surplus, it was said, then it had two sets of books, because there were hidden $billions. Remember that? Well here we go again.

A surplus means you take in more than you spend, and cover your long-term obligations. If those obligations are growing and your debts are rising, your have a deficit, not a surplus. Period. The real second set of books would have shown the MTA was going broke. And now, despite an increase in the sales tax and a payroll tax to fund it, it is broke. And that’s what those seeking their own interests want to do to the City of New York, before they leave for Florida.

The American standard of living has been inflated by debt, and is going down. But I predict the reduction will be experienced in a higher cost of living, not permanently high unemployment. More competition for scarce resources from developing areas in the rest of the world, given a falling dollar, is one reason. The second is a growing inability to import cheap goods from abroad, requring them to be made in the U.S. at higher prices as described here.  If we succeed in inflation our way out of our debt/pension disaster rather than defaulting en-masse, the trend will merely accelerate.

There is, of course, a good side to this as well — more moderate skill jobs could be available in previously declining mid-sized metros, such as those upstate. Warren Buffett's investments in railroads appears smart, given the need to save energy and the possibility of growing domestic production. Unfortunately New York's rail freight system isn't what it was, or could be. In any event read the article, because while the timing may be off, I agree with the premise. And it will run right into labor force shrikage as the baby boom retires. If you really need it, better buy it soon.

So NYC public school spending is proposed to increase by $1 billion next year in the Mayor’s budget, while what we get in exchange goes down. Expect the propagandists at the UFT to ignore the former publicly (while it will be high fives all around privately), but for no one else to acknowledge the two facts together and attempt to explain them either.

Also unquestioned — how city existing employees and retirees “earned” the retroactive pension enhancements their unions got in political deals in Albany and City Hall over the past 16 years, and why future employees are worth so much less that their pensions should be much worse than the existing workers were promised to begin with. After all, who would ask those questions? Do younger generations only deserve less in public employment, or in general, and why and according to whom?

In my previous posts on the MTA financial disaster, I identified several costs that have nothing to do with providing transportation today, or in the future. Absent these costs, with fair pricing by contractors, productivity gains by workers, somewhat higher fares (though probably no higher per unlinked trip than in 1995), and congestion pricing, the MTA should be able to pay for both its rail operating needs and its ongoing rail capital needs – on a sustainable operating basis. These costs from the past include excess pension costs to cover deficient funding, above and beyond the additional costs created by post-1994 pension enhancements (which are morally the responsibility of existing workers and retirees), retiree health insurance in excess of 25 percent of the current cost of retiree health insurance to be deposited in a trust fund, and debt service, not including debts incurred for entirely new facilities that increase revenues or reduce costs (ie. not including debts for “state of good repair” and “normal replacement” “capital spending”).

The first step in addressing these costs from the past, the step our politicians are almost certain to be unwilling to take, is to tell the truth about them. For two centuries, generations of Americans saved and sacrificed to leave behind a better, richer country than the one they inherited. In effect there was a voluntary transfer of well being from poorer older generations to richer younger generations, because the older generations were primarily concerned with their children and their legacies. But the generations now in charge, the richest in U.S. history, have done the reverse. Those coming after will be poorer, pay more, and get less. In the public sector, the result could be a revulsion against public agencies and employees, as more and more money goes to the past and not public services and benefits, and public services and benefits thus seem to be a worse and worse deal. In contrast I would let people know, right in their face, exactly what they are paying in exchange for what they are getting, and how much in addition they are paying due to the legacy of Generation Greed. And not just at the MTA. h

Over and over again, you hear pandering state politicians call for a “forensic audit” of the MTA, perhaps hoping that given the general level of corruption among the supposed truth telling professions in recent decades, if they paid for the audit the audit would absolve them. But for any other purpose, I can save them the money the audit would cost. The MTA is going broke for the same reason that the state’s Transportation Trust Fund, which is supposed to pay for road and bridge repairs, is going broke. The maintenance and normal replacement of the infrastructure is an ongoing expense, not a one time “capital” expense. Stop it, and your infrastructure deteriorates and eventually collapses. But rather than pay what that maintenance and normal replacement costs each year, or work to get the cost down while still getting the work done, the state decided to spend not just today’s money on today’s work, but tomorrow’s money on today’s work as well. Leaving no money for tomorrow, which is now today.

The short answer to the question “how can the MTA capital plan be funded” is that it should be funded with the dedicated tax revenues already authorized for the MTA. The MTA projects its debt service costs will rise toward $3 billion per year in the next few years – more than enough to pay for its ongoing capital needs if the debts were paid for otherwise. Particularly given my prior statement that subway and commuter rail riders should pay to purchase new rail cars on an ongoing basis as part of their fares, and federal aid is likely to remain available to purchase buses because buses are present everywhere in the U.S. So the real question isn’t how the capital program should be funded. The real question is how should all the illegitimate debt from the past be paid for, and should it be paid for at all? Because without that debt service and other costs from the past, the MTA would have all the money it ought to need.

President Obama is going to announce his deficit ideas today during the mid-day, not during prime time. I wonder if he will talk about what no politician and virtually no political outlet was willing to talk about. The Ryan plan would have provided an even richer Medicare program for those 55 and over, Generation Greed, funded by 30 more years of rising debts. And paid for those debts with far more drastic reductions in benefits for future generations than would otherwise be the case. The Democratic and Republican politicians immediately yelled “tax the rich,” “choice and efficiency,” private vs. public, because they would rather talk about that. Than have the mostly 55 and over politicians talk about what they all agree on.

The President is from the second half of the baby boom, the first of a long line of generations (aside from the rich and retired public employees) to be worse off than the one before. He was elected primarily with the support of the young, whereas the Republican majority in the house was swept in by seniors angry about the limitations on growth of Medicare spending under health care reform. Is it too much to ask the holder of our highest office to take a moral stand, that what we can afford for those 55 and over today and what we can afford for my children 50 years from now are one and the same?