The Inevitability of the Inevitable: CA Cities Will Go Bankrupt

If you’re the kind of person who looks to government to address the most critical needs of our society, including education, public safety, sanitation and essential services for the needy, then you need to start worrying. Your elected officials’ craven giveaways to public employee unions are about to blow back with hurricane force.

That tax money you happily agreed to entrusted to your elected officials for the greater good is actually going to fund retirement benefits (thanks!!!) that you could never dream of getting from a private employer.  Services intended for children and for your protection will inevitably be cut, drastically, to fund these benefits.  Your taxes will need to be increased (sorry!!!) to pay for them, despite the decline in services.  Or, your city, county or state might have to go this route:

You see, the good Democrats who dominate this blue state of California at the local and state levels are required to raise campaign money from somewhere (we like our jobs!).  With the exception of developers and government contractors, business doesn’t like them enough to send big checks (greedy bastards with no compassion!).

Where are these candidates supposed to find the big checks?  They find them by calling the unions representing the public employees.  Once they get elected, these elected officials owe the unions, big-time (or else!).  So they pay them back, providing an immense return-on-investment, with money intended for kids and the needy (thanks!).  These officials knew it was unsustainable, but, “Hey, we need those big checks!” (And besides, we’re termed-out, so who cares!)

From CNN/Money, an outline of the looming, inevitable crisis:

The jig is up. For years, politicians have been playing what amounts to a multi-trillion-dollar shell game with state and local pensions. They’ve doled out lush retiree benefits to their heavily unionized workforces, knowing that they could shove the cost for those benefits onto future generations of taxpayers.

But a recent financial bombshell dropped by a San Francisco suburb shows why that shell game is now starting to unravel in a nasty way. And it’s a cautionary tale that you can’t afford to ignore.

Here’s the skinny: In late May, Vallejo, Calif., became the largest city in California history to declare bankruptcy. Its financial demise was brought about partly by the real estate crash, which decimated home prices in the area and put a major dent in the city’s tax revenues.

But the real nail in Vallejo’s coffin was the city’s labor costs. Under the current labor agreement, the average police officer walking the beat in Vallejo will be paid $122,000 this year before overtime, according to city documents. An average sergeant will make $151,000; a captain, $231,000. The average firefighter, meanwhile, will bring in $130,000 before overtime.

That’s just the salaries, though. The final budget-crusher was the city’s pension plan. Thanks to retroactive benefit enhancements approved by the city council in 2000, police officers and firefighters can now retire at age 50 and receive an annual pension equal to 90% of their final pay (assuming 30 years on the job), an amount that gets increased every year to help keep pace with inflation. The old plan had given the workers a pension equal to 60% of their final pay at age 50.

So a Vallejo police sergeant making $150,000 a year can now retire at age 50 and receive an annual pension of $135,000, increased each year for inflation. To put that amount in context, you would need to amass a retirement nest egg equal to about $3.5 million to produce a similar retirement income on your own.

According to the Pew Center on the States, there is a $360 billion unfunded pension liability among the 50 states alone, not counting cities like Vallejo (or LA or SF).

Voters need to get involved in this arcane aspect of government, the article’s writer, Janice Revell, says.  Employees should receive the pensions they were promised when they were hired, but taxpayers should pressure elected officials not to give the public employees unjustified and unsustainable upward bumps.  Voter vigilance is necessary because the elected officials simply can’t help themselves (we need those big checks!).

This is an election year. As such, many states and municipalities are under heavy pressure to sweeten the pension plans for their workers – Massachusetts, South Carolina and Pennsylvania are but three high-profile examples. And ironically, just a few hours south of Vallejo, the city of Rialto, Calif., recently approved a similar retroactive pension increase that will give police officers a pension equal to 90% of their salaries at age 50.

The bottom line: If similar changes are being considered in your city or state, the Vallejo disaster tells you that it’s well worth your while to get the facts.

Maybe you’ll discover that your local pension fund is flush with money and that elected officials in your area have out laid out a sound, fiscally responsible plan for funding any pension improvements. But I wouldn’t bank on it.

I’ve been feeling sick about this issue for some time.  As Revell points out, the notion that public employees deserved higher benefits because they are making a sacrifice in accepting lower pay is an out-of-date myth.

What really burns me up, and should burn you up, is the way in which public-employee funded campaigns for increased government spending make illicit use of the neediest in our society — children, the elderly, victims of crime and fire — to pimp voters to part with money that will never reach the intended beneficiaries.  I want to be a liberal, vote like a liberal.  But I’m not willing to be tricked anymore into having my compassion exploited so cynically and so destructively.

3 thoughts on “The Inevitability of the Inevitable: CA Cities Will Go Bankrupt

  1. Governmental Bankruptcy is the inevitable result in the belief that fiscal responsibility is someone else’s duty, coupled with the belief that the evil, greedy rich are preventing a more equitable division of societal assets.

    The reason this is so is because those beliefs deny the way natural economic systems actually work in an attempt to make life’s essential unfairness, more ‘fair’.

    The Law of Unintended Consequences ensures that attempts to control life to ‘make’ it be ‘fairer’ inevitably hurt more than they help.

    Calls for ‘more’ honest public officials misunderstand the problem.

    Special interest groups naturally lobby for ‘fair’ benefits for their members. But in a limited resources game, (which is almost always the case) someone’s going to get shortchanged when an unlimited budget is unavailable.

    The illusion that the ‘pie’ can be equally divided stems from a juvenile unwillingness to confront a central truth of human nature and economics.

    Without concentration of wealth in the hands of a few there is no pool of capital, no ‘leverage’ to spur innovation, entreprenuership and take risk.

    Altruistic, selfless, only work for the public good is an unrealistic standard that only a very few achieve, without individual ambition there is little daring.

    The upper 10% already pay 70% of personal income tax revenue. Shall they pay 90%?

    Why not take ALL of their income?

    But where then will the pool of capital necessary for growth come from and who will administer it? Governmental committee’s?

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