Author: Larry Littlefield

There are some who object to the federal unemployment insurance extension, which will keep money coming for the long term unemployed, because it will add to the deficit. But employers pay a federal unemployment insurance tax in addition to the state unemployment insurance tax. When there is no federal unemployment insurance extension, which is almost all the time, the states pay for the unemployed, not the federal government. Those federal unemployment insurance taxes just go — somewhere. A trust fund? Like the Social Security Trust Fund? Was that "lock box" opened too for spending on other things? Or did the federal UI fund run out, perhaps because the tax only covers the first $7,000 of wages? I haven't heard anyone ask about this.

I've noted that what motivates me to write here is the unsaid, the facts that are unrevealed and non-decisions that are not discussed because doing so is not in the interest of those in the game. When the unsaid is said, that is no longer necessary. So rather than write something, I'll just link something you should read. Actuary John Bury is up to 46 city pensions plans in 25 cities in his analysis, and the NYC situation looks really bad.

It appears to me the only way for the teacher's pension to get out of the hole would be to go pay as you go (or something close to it) for several years, shifting at least $1.4 billion per year and perhaps more (depending if the early retirees from the 25/55 deal are fully reflected here) from the classroom to the retired.  That would require not only drastically increasing class sizes, cutting extra curriculars, sports and student services, but also possibly knocking a year or two off the education most NYC children receive.  A repeat of the 1970s, in other words.

Some people have wondered about my indifference to the new schools chancellor. Perhaps because I’m not an educator myself, I don’t see any of the educational controversies being debated as being nearly as good or bad (depending on your point of view) as the financial disaster that is coming:

1) The end of federal stimulus money for education, this year.

2) The state budget crisis.

3) Past pension underfunding in the good years, based on an excessively optimistic (bubble level) rate of return assumption.

4) Fifteen years of retroactive pension enhancements, with a massively costly unfunded one for NYC teachers just two-plus years ago.

Other places are facing the same problems. But with lower tax burdens and lower debt levels than NYC. And our bills acre coming due right on schedule.

A recent article in The Economist magazine contained data that was so alarming I had to look into it further. According to the article, U.S. median household income adjusted for inflation fell 7.1% from 1999 to 2009. In several states, including Rustbelt Michigan, Indiana and Ohio and previously booming Sunbelt North Carolina and Georgia, the decrease was 12.9% to 21.3%. This, of course, was not a fair comparison, since 1999 was a near peak economic year and 2009 was a severe recession year. So I downloaded recent Census Bureau data – the readily available data was for the average of 2008 and 2009 – and compared it with data from another weak economic year, 2003 data from the Statistical Abstract of the United States. This is still not the right comparison, because the median household income in 2009 is apparently lower than the 2008 to 2009 average. But it does make for another interesting comparison. From 2003 to 2008/09, median household income in the U.S. was basically unchanged. But in New York State, it fell about 5 percent.

As I noted previously, John Bury is an actuary turned newspaper commentator and blogger in New Jersey, who has published detailed analyses of the upcoming pension disaster. He is non-partisan, for example noting in New Jersey that a large part of the problem is the fault of past taxpayers who did not pay enough in, not just public employees taking too much out.

In his latest post, he does some calculations on individual New York City public employee pension funds, and finds that the fund for NYC teachers is the worst funded of all, with a "drop dead" date of 2019. This doesn't mean that pensions won't be paid. It might mean that property taxes will be raised so high that all the properties would be seized, and former homeowners would become tenants of the pension fund (and not rent regulated tenants either). And it might mean that public education is de facto eliminated as money is shifted to pay the pensions. In any event, read Bury's post, look at his numbers, and remember this pension enhancement a little over two years ago.  One that was supposed to cost nothing.

If you followed my compilation of 2007 Census of Governments data, you know I try to come up with reasonable comparisons by adjusting for the varying level of population and income in different places (by measuring government revenues and expenditures as a percent of personal income), and the differing structure of local government in different places (by aggregating data at the county level). Even so, comparisons aren’t perfect because some places have more government services than others. There are some places that have professional fire departments, while others rely on volunteers. There are some places with free municipal solid waste collection, some with contracted out solid waste collection, and some where people have to hire and pay for their own collection services. Some places have public water, sewer and transit, and others do not.

What every place in the United States has, however, is police and public education. This post uses data from the Governments Division of the U.S. Census Bureau to examine the relative level of spending on these services as a percent of personal income, with some discussion of Medicaid from other data sources mixed in.

I've often complained that everyone just talks about the state pension plans, while New York City pension plans, which cover local government employees working for the City of New York and New York City Transit, are ignored. Well NJ actuary and pension commentator has done all of us a favor, and calculated the bankruptcy data for major city pension plans on the same basis as his calculations for state plans. He finds the New York City pension system goes bust in 2023. Much to my surprise, that isn’t much different than the New York State plans. Which means that since existing workers can’t have their pensions cut (constitutionally) or their pension and health care contributions increased (politically), public services will be completely wiped out throughout the state with the nation’s highest tax burden at about the same time, in order to pay pensions without pension funds. (We may get a downpayment next fiscal year). And it doesn’t matter how much they cut the pensions, pay and benefits of future public employees, because they won’t be able to afford to hire any.

Is something that I know nothing about, and makes no sense to me. So I can’t help but imagine scenarios based on what I do know.

If there is one group of people who should be pleased with New Jersey Governor Christie's cancellation of the ARC Tunnel, it is Long Island homeowners and businesses. New Jersey Transit's ridership to Manhattan has been soaring and now, according to the Wall Street Journal, more people are riding MetroNorth in the Northern Suburbs than are riding the Long Island Railroad, as LIRR ridership falls. The article implies that poor LIRR service is to blame, and Long Islanders are choosing other ways to commute to Manhattan, while reverse ridership has boosted MetroNorth. But based on anecdotal evidence I suggest something different: those who hold high-wage jobs in Manhattan, which has the largest concentration of high wage jobs in the country, and want to live in the suburbs, are not choosing to live on Long Island. In fact, they are not even considering living on Long Island, unless they are from there. And the importance of this can be explained with a question: do people on Long Island want to sell their homes to those who are about as well off as they were at the same point in their life, someone better off, or someone worse off who can’t afford someplace better?

As I said in detail in a prior post, long term care insurance is not a solution for the custodial care of the aging. Giving a large share of your money to a private entity over 20 or 30 years, expecting in every case it will meet your needs that many years later, is a good way to pay and get nothing.

Today, according to Bloomberg News, MetLife announced it will halt the sale of long term care insurance. Fortunately for its long term care customers, it is a big company and long term care is a small part of their business, so profits elsewhere might allow claims to eventually be paid. Not so for a company for which long term care insurance accounts for a larger share of the business.  By using optimistic assumptions, such a company can divert a large share of premium payments to executive pay and bonuses, then run out of money 20 or 30 years later as its customers age.  Imagine you are 80 years old, you've paid in $600,000 to a company, if you stop paying you get nothing, but it will likely be unable to honor its claims?  At least Metlife pulled the plug early.