Tag: Albany

According to Crain's Chicago Business, the State of Illinois is heading for a de facto bankruptcy. "While Illinois doesn't have the option of shutting its doors or shedding debts in a bankruptcy reorganization, it seems powerless to avert the practical equivalent. Despite a budget shortfall estimated to be as high as $5.7 billion, state officials haven't shown the political will to either raise taxes or cut spending sufficiently to close the gap." That is, they don't want to tell the voters that as a result of their past decisions Illinois residents face a future of high taxes and degraded services, to pay for unfunded pension obligations and debts run up by past residents and older generations. Of course, the overall tax burden in Illinois is much lower than in New York.

On the private sector side, one of the dwindling number of honest men in business asserts in the Wall Street Journal that corporate executives are collectively fleecing investors and wrecking the economy and institutional investors, part of the same class of people, are thus unwilling to meet their fiduciary obligations by stopping them. "The faith of investors has been betrayed" according to John C. Bogle, founder of Vanguard.

Then use John Bogle's rate of return, as shown in this Wall Street Journal article, as an assumption for the pension funds, and start paying up now rather than put it off with interest.

Of course, robbing future generations and destroying the future is exactly what those who control our institutions have been doing for nearly 30 years, and there is no evidence they want to stop. I only hope that in the end, when the consequences are inescapable, people will not be fooled by some demagouge into blaming some powerless group.

So Governor Paterson has announced that local governments in the portion of the state outside New York City will be able to put off paying into the state pension funds the amount required to keep them solvent. They will not have to pay more 9.5% for most workers and 17.5% for police and fire workers — a small fraction of what New York City is paying right now! The money would be borrowed from the pension funds themselves. And what would happen if future residents of those localities are unwilling or unable to pay the money back, a near certainty? I suppose the state — including residents of New York City — would have to do so instead. With the state once again offering nothing to New York City.

Another generational theft by a member of Generation Greed, sure to be approved by all the other members of Generation Greed in the legislature. They just keep running up those guaranteed, “contractual” benefits for themselves, and deferring the costs, with no limit. As I said in my previous post, evolutionary change won’t do. Only bankruptcy — or a reduction in the value of past debts and pensions via massive inflation — can help this state now.

I read in the NY Observer that Governor Paterson slammed “good government” groups for being “drunk with power.” “Here are good government groups who are always talking about what government is doing, and no one knows who their donors are…It's about time they realize they have been drunk with power, just like the legislators,” he said. Well, I donate to one of them, because I see coverage of state and local government issues ebbing away in the for-profit media, and that group has a website that produces original new content on state and local government issues as well as links to that for-profit media. Even if I often disagree, it’s much better than nothing, and I’m free to comment there. So do I see the Governor’s remarks as those of a desperate man lashing out, well, blindly? Not necessarily.

My bad, he’s a Dem. I ought to stick to what I know. I do think it’s telling, however, that all these pols keep showing up from out of state. I think they sense the shortage.

that the deadline to make certain changes to New York State educational policies (such as liberalizing restrictions on Charter Schools) in order to qualify for federal funds is a phony deadline. Just like the deadline to enact congestion pricing. And for some in the media to repeat that assertion with a straight face.

If you want to know the reason why the New York State legislature, controlled by the public services producer interests and hostile to the needs of public services consumers, will not make the changes being demanded by the Obama Administration, re-read this post. And remember, it was written before the take home pay of future teachers in NYC schools was cut by 5 percent (for starters). No one could have seen that one coming, right?

In a piece in the New York Times Magazine, Roger Lowenstein, author of several books on financial issues, argues underwater homeowners should walk away from their mortgages, and not feel guilty about it. After all the wealthy and their financial institutions make similar strategic, self-interested decisions all the time. "Morgan Stanley recently decided to stop making payments on five San Francisco office buildings. A Morgan Stanley fund purchased the buildings at the height of the boom, and their value has plunged. Nobody has said Morgan Stanley is immoral — perhaps because no one assumed it was moral to begin with." In some cases homeowners are trapped because they also purchased at inflated prices at the height of the boom. In other cases they had previously purchased at fair prices, but borrowed against their home equity to live large, spending the proceeds of loans they now can't pay back.

Lowenstein is also the author of While America Aged, about the coming public employee pension disaster, a good read. The question I have for him is this. Why should younger generations sacrifice (higher taxes, diminished public services, lower pay and benefits as future public employees) to pay the unfunded portions of those pensions, and other public debts, to ensure older generations get benefits they promised themselves but didn't pay for, and that younger generations will never see, based on decisions younger generations never made?

So I have my complaints about Generation Greed, and believe we are heading for an institutional collapse, as discussed once again in my previous post. But is it the case that in the whole range of public policies, there are none that provide myself and my family with unearned and unfair privileges? No, I wouldn’t say that. And isn’t it the case that I have been relatively fortunate in my life? I have. So what am I willing to give up? For state and local government, since my epiphany at the moment that Eliot Spitzer signed the 25/55 pension plan for New York City teachers dooming the schools, the easy answer is nothing. That was proof positive that the more people put in, the more existing interests will go to Albany and take out, leaving things (after a period of cost deferral) worse than before.

But I don’t think that makes me a hypocrite, just a disappointed and increasingly cynical idealist. Looking to what I had said before that date, and to the federal government where the Obama Administration for the moment gives me a little bit of weakening hope, I have called (among other places on this blog) for the following:

I just came across yet another article pointing to bad ideas and theories as a cause of the trouble we are in, in this case economic ideas and theories. But our problem is cultural, not technical. In past eras people built institutions, public and private, in the expectation of leaving a positive legacy going forward. In the recent era, on the other hand, those who have gained control of them have exploited institutions, public and private, in the search for a better deal for themselves right now. Others, the majority, have allowed this to happen, as shareholders and citizens, because of their own laziness, indifference, or willingness to believe all is well because the consequences were deferred to the future. A future of institutional collapse. And in their own lives, people have completely given themselves over to “I want for me now” regardless of the future consequences for themselves, selling themselves out through debt when given the opportunity. In the United States, it seems that everyone was given this opportunity, once the bankruptcy laws were modified to allow them to be placed in perpetual serfdom once their party was over, or so the financial industry apparently believed. The issue is cultural, the culture of Generation Greed. For the rest of us, the dilemma, as the sold out future arrives and the bill come due, is this…

Governor Paterson claims the new Tier V pension and other changes will save New York taxpayers $35 billion. That means it will cost future public employees $35 billion. I've looked at 2008 data from the Governments Division of the U.S. Census Bureau to figure out how much that would be per employee. Assuming SUNY and CUNY are not affected (I believe they have a 401K), the MTA is not affected, and New York City workers other than teachers are not affected, a total of 865,800 full time equivalent workers are in titles that are affected by the change. Their replacements' total compensation would be $40,425 lower as a result of Tier V if Paterson is correct. So what does this mean?