Public employees – and particularly cops, firefighters and teachers – have been working diligently and effectively with elected Democrats (for the most part) for thirty plus years to rape municipal and state taxpayers. And I’m not using the word “rape” lightly, it’s intentional.
They may very well discover that greed doesn’t pay when they discover that their retirement will consist of learning to smile and repeating “Welcome to Walmart” 500 times a day.
Here’s there problem in a nutshell.
Cities and towns can no longer raise property taxes and local sales taxes in a willy-nilly fashion as they’ve been used to for 30 years. Local taxpayers have pretty much been bled dry. Most do not have the ability to charge an income tax. Unlike the federal government, the vast majority are required to balance their budgets and they can’t print money.
For most places retirement plans and healthcare are the number one out-of-control budget item for local governments. They appear to be locked into “defined benefit” pension plans that enrich the public employee unions and rape the taxpayers. States like California and Illinois are controlled by liberal Democrats who are essentially on the payroll of public employee unions. In addition, they have laws or state constitutional requirements that public pensions cannot be modified. At all.
That may well be changing thanks to Stockton, California. We noted last week that the Bankruptcy Court judge in charge of that case is hinting that he’s likely to be forced to rewrite pension rules for the city, without regard to state law to the contrary. The case will likely end up in the Supreme Court, and there, the Bankruptcy Court is likely to be upheld as long as one of the more conservative justices doesn’t die or retire.
Should that happen, you can look for a tsunami of bankruptcies, or at the very least, a tsunami of renegotiated pension and healthcare benefit packages in almost every state.
The “underfunding problem” with these benefit accounts is considered “normal” in virtually every major city – they’re run by liberal Democrats – and in the Blue states. Not to say states run by some Republicans don’t have problems because they do as well, some Republicans are indistinguishable from Democrats.
The recovery in the U.S. state pension system suffered a setback in 2012 as the huge funding shortfall in a large swath of state pensions swelled more than 20 percent, interrupting two years of improvement following the devastation of the financial crisis.
The shortfall in 109 of the nation’s state pension plans, which guarantee retirement for millions of public workers such as police, firefighters, and teachers rose to $834.2 billion in 2012…
It also shows state pension fund managers are continuing to up their exposure to less conventional assets such as real estate, private equity, hedge funds and commodities as they try to boost their returns and diversify away from over exposure to volatile equities.
As cities and states fall farther behind, something’s got to give. As Stockton, San Bernardino and Detroit are proving the money isn’t going to come from local taxpayers. City services can only be cut so far. Stockton has gone from being a rising star to a city whose murder rate is in the top 10 nationwide because they’ve fired most of their police force.
The problem with socialism is that sooner or later you run out of other people’s money. (Bless you Margaret Thatcher!)
Look for Democrats and unions to have a “come to Jesus” moment, and in fact to a small extent it’s beginning to happen. Democrats in New York, California and Illinois are being forced to take on their union benefactors because they’re about out of OPM. No really big changes yet, but they’re coming. Look for Detroit to be a harbinger of life in the future for unions, the fiscal hole finally got too big and the incompetent affirmative action management of the city for the last 40 years is finally coming home to roost.
Our biggest concern now should be to keep the incompetents in the federal government from bailing out their brethren in the hinterlands.