Unfunded Liabilities, Or Why Ron Paul Is The Most Moderate Candidate

The popular notion is that Dr. Ron Paul is an "extremist" for wanting to slash a trillion dollars off the federal budget and to significantly reform social security and other entitlement programs. But, a serious study of the the Unfunded Liabilities (that difference between financial promises via social security, medicare, pension plans, etc. and projected funds) that the United States faces, demonstrates that Dr. Paul is the most moderate candidate. The real radicals are the Democrats and Republicans that defend the completely unsustainable fiscal status quo that has led us to over $61 trillion in unfunded liabilities.

U.S. funding for future promises lags by trillions

By Dennis Cauchon, USA TODAY

Updated 6/13/2011 7:31 PM |

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The federal government's financial condition deteriorated rapidly last year, far beyond the $1.5 trillion in new debt taken on to finance the budget deficit, a USA TODAY analysis shows.

The government added $5.3 trillion in new financial obligations in 2010, largely for retirement programs such as Medicare and Social Security. That brings to a record $61.6 trillion the total of financial promises not paid for.

This gap between spending commitments and revenue last year equals more than one-third of the nation's gross domestic product.

Medicare alone took on $1.8 trillion in new liabilities, more than the record deficit prompting heated debate between Congress and the White House over lifting the debt ceiling.

• STORY: Government's mountain of debt

Social Security added $1.4 trillion in obligations, partly reflecting longer life expectancies. Federal and military retirement programs added more to the financial hole, too.

Corporations would be required to count these new liabilities when they are taken on — and report a big loss to shareholders. Unlike businesses, however, Congress postpones recording spending commitments until it writes a check.

The $61.6 trillion in unfunded obligations amounts to $528,000 per household. That's more than five times what Americans have borrowed for everything else — mortgages, car loans and other debt. It reflects the challenge as the number of retirees soars over the next 20 years and seniors try to collect on those spending promises.

"The (federal) debt only tells us what the government owes to the public. It doesn't take into account what's owed to seniors, veterans and retired employees," says accountant Sheila Weinberg, founder of the Institute for Truth in Accounting, a Chicago-based group that advocates better financial reporting. "Without accurate accounting, we can't make good decisions."

Michael Lind, policy director at the liberal New America Foundation's economic growth program, says there is no near-term crisis for federal retirement programs and that economic growth will make these programs more affordable.

"The false claim that Social Security and Medicare are about to bankrupt the United States has been repeated for decades by conservatives and libertarians who pretend that their ideological opposition to these successful and cost-effective programs is based on worries about the deficit," he says.

USA TODAY has calculated federal finances based on standard accounting rules since 2004 using data from the Medicare and Social Security annual reports and the little-known audited financial report of the federal government.

The government has promised pension and health benefits worth more than $700,000 per retired civil servant. The pension fund's key asset: federal IOUs.

The Golden Calf of Social Security

So, how far in the red does social security have to go before politicians and the public stop treating it as an untouchable golden calf? To keep social security afloat we will have to siphon more and more resources from non-discretionary spending, such as education.

Social Security posting $600B deficit over 10 years

By STEPHEN OHLEMACHER, Associated Press

02.20.11

Social Security will post nearly $600 billion in deficits over the next decade as the economy struggles to recover and millions of baby boomers stand at the brink of retirement, according to new congressional projections.

This year alone, Social Security is projected to collect $45 billion less in payroll taxes than it pays out in retirement, disability and survivor benefits, the nonpartisan Congressional Budget Office said Wednesday. That figure swells to $130 billion when a new one-year cut in payroll taxes is included, though Congress has promised to repay any lost revenue from the tax cut.

Last year, Social Security posted its first deficit since the program was last overhauled in the 1980s. The CBO said at the time that Social Security would post surpluses for a few more years before permanently slipping into deficits in 2016.

But the new projections show nothing but red ink until the Social Security trust funds are exhausted in 2037.

The outlook has grown bleaker as the nation struggles to recover from its worst economic crisis since Social Security was enacted during the Great Depression. In the short term, Social Security is suffering from a weak economy that has payroll taxes lagging and applications for benefits rising. In the long term, Social Security will be strained by the growing number of baby boomers retiring and applying for benefits.

More than 54 million people receive retirement, disability or survivor benefits from Social Security. Monthly payments average $1,076.

The deficits add a sense of urgency to efforts to improve Social Security's finances. For much of the past 30 years, Social Security has run big surpluses, which the government has borrowed to spend on other programs. Now that the program is running deficits, the federal government will have to find money elsewhere to pay back Social Security, so it continue to issue benefits.

"I've received the lash from those who say, 'Well, you shouldn't have to cut Social Security because there are trillions of dollars of assets,'" said Sen. Kent Conrad, D-N.D., chairman of the Senate Budget Committee. "It is true there are trillions of dollars of assets. It is true that they're backed by the full faith and credit of the United States. It is also true that the only way those bonds get redeemed is out of the current income of the United States."

Other lawmakers said Social Security's financial problems are not that urgent.

"In the last 75 years, in good times and in bad times, Social Security has paid out every nickel owed to every eligible beneficiary at a relatively modest administrative cost," said Sen. Bernie Sanders, who organized the first meeting of the Senate Social Security caucus Thursday.

"We are getting very tired about hearing our Republican and right wing friends telling us about how Social Security is collapsing when the reality is, Social Security today has a surplus of $2.6 trillion," Sanders said. "Social Security can pay out every benefit owed to every eligible American, for the next 27 years."

Social Security has built up a $2.5 trillion surplus since the retirement program was last overhauled in the 1980s. Benefits will be safe until that money runs out. That is projected to happen in 2037 — unless Congress acts in the meantime. At that point, Social Security would collect enough in payroll taxes to pay out about 78 percent of benefits, according to the Social Security Administration.

The $2.5 trillion surplus, however, has been borrowed over the years by the federal government and spent on other programs. In return, the Treasury Department has issued bonds to Social Security, guaranteeing repayment with interest.

It's a bad time for the nation to be hit with more financial obligations. The federal budget deficit will surge to a record $1.5 trillion flood of red ink this year, congressional budget experts estimated Wednesday, blaming the slow economic recovery and a tax cut law enacted in December.

Lawmakers from both parties have vowed to address the nation's financial problems, including such contentious issues as Social Security and Medicare. The political climate, however, has made it difficult. Some Democrats have criticized plans to cut Social Security benefits as secret plots to destroy the program. Many Republicans have refused to consider tax increases.

"We need to get past the politics of the past and deal with this issue, making the hard decisions that have to be made," Sen. Mike Crapo, R-Idaho, said Thursday at a Senate hearing on the budget deficit. "As we move forward in that context, I personally believe strongly that all aspects of the spending and revenue side of the equation must be on the table."

Sen. Chuck Schumer, D-N.Y., accused congressional Republicans of wanting to end Social Security by privatizing it.

"Privatize means end," Schumer said Thursday after the meeting of the Senate Social Security Caucus.

Schumer was referring to a widely distributed plan by Rep. Paul Ryan, R-Wis., chairman of the House Budget Committee. Ryan's plan would offer workers under 55 the option of investing over a third of their current Social Security taxes into personal retirement accounts.

Social Security has been supported by a 6.2 percent payroll tax paid by both workers and employers. In December, Congress passed a one-year tax cut for workers, to 4.2 percent. The lost revenue is to be repaid to Social Security from general revenue funds, meaning it will add to the growing national debt.



Read more: http://www.sfgate.com/cgi-bin/article.cgi?f=/n/a/2011/01/26/national/w123022S60.DTL#ixzz1EYh89N9s

The Unfunded Liabilities Time Bomb

Richard Fisher, the President of the Dallas Fed stated that the Federal Government's total unfunded liabilities are approximately $99 Trillion! In other words, the projected gap between future payments social security and medicare payments promised and revenue entering the system is $99 Trillion! Even if taxes were substantially increased (to the detriment of the general economy) and payments were decreased, the system would still be deep in the red.

The least painful outcome we can hope for is to commit ourselves to following through on the payments promised, because two generations of Americans have in good faith planned around anticipated social security and medicare payments. As for those 45 years and younger, fiscal realities dictate that universal entitlements will have to be phased out. In other words, if we immediately begin a regimen of extreme austerity (higher taxes, lower spending) we may be able to preserve a limited, emergency safety net for the poorest, most deserving Americans. But, wealthy, middle class and upwardly mobile individuals must plan their retirement based on the assumption that they will receive nothing from the federal government. This means they will have to cut consumption, save money and strengthen their nuclear and extended family ties; in other words plan on living with your kids, as the elderly do in 80% of the world.

Sustaining a limited, emergency safety net will be contingent upon ceasing the subsidies towards fiscally unsustainable behaviors, such as widespread singlemotherhood and the chronically unemployed. Progressives will surely howl in protest, but the fact of the matter is we cannot continue to subsidize those who choose to produce child after child that they cannot support. And some (so called) conservatives will equally resist calls to dismantle the American Empire; but we cannot continue to build or uphold other nations, when we cannot even pay for our own. Rather than undertake the painful and unpopular steps required to defuse the unfunded liabilities time bomb, I expect our political class to continue the easy, but ultimately destructive path of printing money or what Über Douche Meister, Herr Krugman refers to as "quantitative easing."

China warns Federal Reserve over 'printing money'

China has warned a top member of the US Federal Reserve that it is increasingly disturbed by the Fed's direct purchase of US Treasury bonds.

By Ambrose Evans-Pritchard

24 May 2009

Richard Fisher, president of the Dallas Federal Reserve Bank, said: "Senior officials of the Chinese government grilled me about whether or not we are going to monetise the actions of our legislature."

"I must have been asked about that a hundred times in China. I was asked at every single meeting about our purchases of Treasuries. That seemed to be the principal preoccupation of those that were invested with their surpluses mostly in the United States," he told the Wall Street Journal.

His recent trip to the Far East appears to have been a stark reminder that Asia's "Confucian" culture of right action does not look kindly on the insouciant policy of printing money by Anglo-Saxons.

Mr Fisher, the Fed's leading hawk, was a fierce opponent of the original decision to buy Treasury debt, fearing that it would lead to a blurring of the line between fiscal and monetary policy – and could all too easily degenerate into Argentine-style financing of uncontrolled spending.

However, he agreed that the Fed was forced to take emergency action after the financial system "literally fell apart".

US bonds sale faces market resistance 24 May 2009
Nor, he added was there much risk of inflation taking off yet. The Dallas Fed uses a "trim mean" method based on 180 prices that excludes extreme moves and is widely admired for accuracy.

"You've got some mild deflation here," he said.

The Oxford-educated Mr Fisher, an outspoken free-marketer and believer in the Schumpeterian process of "creative destruction", has been running a fervent campaign to alert Americans to the "very big hole" in unfunded pension and health-care liabilities built up by a careless political class over the years.

"We at the Dallas Fed believe the total is over $99 trillion," he said in February.

"This situation is of your own creation. When you berate your representatives or senators or presidents for the mess we are in, you are really berating yourself. You elect them," he said.

His warning comes amid growing fears that America could lose its AAA sovereign rating.


http://www.telegraph.co.uk/finance/financetopics/financialcrisis/5379285/China-warns-Federal-Reserve-over-printing-money.html

Race To The Fiscal Bottom (MUST READ)

David Stockman: The U.S. Is In A "Race To The Fiscal Bottom"

By Jennifer DePaul, The Fiscal Times

Oct. 6, 2010

It’s been nearly three decades since David Stockman was the brash and brilliant enfant terrible of President Reagan’s White House, but he hasn’t mellowed with age.

Stockman, Reagan’s budget director from 1981 to 1985, initially became famous for his zeal in slashing government spending on almost everything except defense. Less government and lower taxes, he fervently believed, would ultimately mean more prosperity for everyone. But he will be best remembered for confessing, in an interview with William Greider for The Atlantic Monthly, his disillusionment with the “supply-side” economic policies that led to soaring deficits under Reagan. “None of us really understands what’s going on with all these numbers,’’ he declared, along with many other criticisms that nearly got him fired.

Today, Stockman is working on a book about the financial crisis, and he recently shared his thoughts with The Fiscal Times about some of today’s most pressing fiscal issues. No surprise — he’s as brutally candid as ever.

The Fiscal Times (TFT): What should the president and Congress do about the Bush tax cuts this year?

David Stockman (DS): The two parties are in a race to the fiscal bottom to see which one can bury our children and grandchildren deeper in debt. The Republicans were utterly untruthful when they recently pledged no tax increases for anyone, anytime, ever. The Democrats are just as bad — running their usual campaign of political terror on social security and other entitlements while loudly exempting all except the top 2 percent of taxpayers from paying more for the massively underfunded government they insist we need.

The fact is, the Bush tax cuts were unaffordable when enacted a decade ago. Now, two unfinanced wars later, and after a massive Wall Street bailout and trillion-dollar stimulus spending spree, it is nothing less than a fiscal travesty to continue adding $300 billion per year to the national debt. This is especially true since these tax cuts go to the top 50 percent of households, which can get by, if need be, with the surfeit of consumption goods they accumulated during the bubble years. So Congress should allow the Bush tax cuts to expire for everyone. By doing nothing, the government would be committing its first act of fiscal truth-telling in decades. In effect, we undertook a national leveraged buyout, raising total credit market debt to $52 trillion, which represented a 3.6X leverage ratio against national income or GDP.

TFT: Should the government provide more stimulus for the economy, or cut spending to bring the deficit down?

DS: We are not in a conventional business cycle recovery, so stimulus is futile and just adds needlessly to the $9 trillion of Treasury paper already floating dangerously around world financial markets. Instead, after 40 years of profligate accumulation of public and private debt, and reckless money-printing by the Fed, we had an economic crash landing, which left us with an enduring structural breakdown, not just a cyclical downturn.

In effect, we undertook a national leveraged buyout, raising total credit market debt to $52 trillion which represented a 3.6X leverage ratio against national income or GDP. By contrast, during the 110 years prior to 1980, our aggregate leverage hugged closely to a far more modest ratio at 1.5 times national income.

The only solution is a long period of debt deflation, downsizing and economic rehabilitation, including a sustained downshift in consumption and corresponding rise in national savings.

And a key element of the latter is a drastic reduction in government dis-savings through spending cuts and tax increases — and these measures need to start right now. Keynesian policymakers who say wait for the midterms to address the deficit are like battleship admirals: They are fighting the last war with the same failed strategy that gave rise to our current predicament.

TFT: Do you see the work of President Obama’s deficit commission as important or a waste of time?

DS: The deficit commission is a complete waste of time. The nation has become fiscally ungovernable because the fiscal policy of both parties is based on what is essentially the Big Lie. The earnest remonstrations of the commission’s report will be lost in the deafening partisan rancor which is certain to swell after the coming election.

TFT: You spent many years as a public official. What do you consider your greatest contribution?

DS: For a flickering moment I helped revive a vision of small government based on low taxes, the denial of weak fiscal claims rather than weak clients, and social progress through liberation of the nation’s entrepreneurial endowments and energies. But that vision has been subsequently crushed by 30 years of fiscal profligacy, warfare state adventurism and crony capitalist policies championed by the lobbies of K Street, the financiers of Wall Street and the farmers, homebuilders, energy producers and sick-care companies of Main Street. After the abomination of the Bush/Paulson bailout of the big banks, the state has no boundaries whatsoever. So fiscal policy is now just a fiscal food fight.

TFT: What’s your biggest regret from your years as President Reagan’s budget director — was it talking to Bill Greider for the Atlantic article?

DS: I do not regret talking to Bill Greider at all. My alleged “confessions” were inadvertent, but in historical hindsight the article was just the wakeup call that was needed at that delusionary hour. By the fall of 1981, we had just gone through an orgy of tax-cutting which reduced the revenue base by a staggering 5 percent of GDP, far more than Reagan had asked for, due to the pile-on of goodies for oil and gas, property developers, equipment vendors, homebuilders and scores of other special interests. At the same time, domestic spending had been cut by less than 1 percent of GDP and even that was being offset several times over by an explosion of defense spending. It was a formula for fiscal catastrophe. Grieder’s piece colorfully dramatized this condition, and helped trigger a slow march of policy — the tax increases of 1982-84 and the slowdown in the defense buildup — backward from the precipice.

TFT: With the midterms just a month away, do you think the GOP will gain as many seats as some are predicting, and if so, will that doom Obama's agenda?

DS: The Republicans will undoubtedly gain a lot of seats, if not congressional majorities. But the main result of that will be not only to doom the Obama agenda, which deserves to be stopped, but also any chance of addressing the fiscal issue until April 2013 at the earliest. Unfortunately, since we are in a chronic debt deflation, the GDP deflator is heading toward zero and real growth may limp along at 1 to 2 percent. That means that money GDP is growing at the shockingly low rate of 2 to 3 percent, or not even $40 billion per month. By contrast, the built-in deficit will result in $100 billion of bond issuance each and every month — meaning that through at least the spring of 2013, our national debt will be growing two or three times faster than the economy. So we are rolling the dice big time in a global bond market which is now a volcano of leveraged speculation and massive front-running of the expected multitrillion quantitative easing 2.0 (i.e. debt monetization) by the Fed. In this environment, one hiccup and it’s game over.

TFT: Your assessment of the Obama's presidency at this point?

DS: Obama’s presidency is a profound disappointment. So far, he’s proven that when Republican’s start elective wars, Democrats can’t end them; when Republicans empty the Treasury, Democrats can’t replenish it; when Republicans put a middle-class destroying money printer at the head of the Fed, Democrats reappoint him; and when the Republicans unleash an orgy of dangerous speculation on Wall Street, Democrats pass a contentless, 2,300 page, enabling act which will do nothing to protect Main Street from another financial meltdown, even as it keeps K Street fully employed.

TFT: What will happen to health care if the Republicans become the majority party?

DS: Health care accounts for 17 percent of GDP and is the dysfunctional heartland of crony capitalism. They only thing which will change if the GOP becomes the majority is that the RNC will collect more of the vigorishes.

This article originally appeared at The Fiscal Times and is republished here with permission.

Read more: http://www.businessinsider.com/david-stockman-us-is-in-race-to-the-fiscal-bottom-2010-10#ixzz17x1dEFug

Illinois is Broke

I have heard progressives weave compelling arguments about why we need to maintain or even expand the size and scope of government. But in the end, a good kick in the ass from financial reality trumps any argument they can make. For more details check out this organization:

http://www.illinoisisbroke.com/

The Trillion Dollar Pension Gap - Is Cannibalism On The Way?

I cannot emphasize enough the social and economic risk that the trillion dollars in unfunded pension liabilities poses to the public. Not only will this growing gap lead to increased taxation, but it will crowd out educational, environmental, health, welfare and infrastructure programs. Funds that should directed towards the neediest members of our society will be consumed by public sector pensions. Truly the public sector is increasingly becoming an unsustainable force that economically and socially cannibalizes other segments of society.

The Trillion Dollar Gap: Pew Pensions and Retiree Health Benefits Report

$1 trillion. That’s the gap at the end of fiscal year 2008 between the $2.35 trillion states had set aside to pay for employees’ retirement benefits and the $3.35 trillion price tag of those promises.

Why does it matter? Because every dollar spent to reduce the unfunded retirement liability cannot be used for education, public safety and other needs. Ultimately, taxpayers could face higher
taxes or cuts in essential public services.

A new pensions and retiree health care report from the Pew Center on the States, The Trillion Dollar Gap: Underfunded State Retirement Systems and the Road to Reform, shows why states
must take strong action now—or taxpayers will suffer later.

To a significant degree, the $1 trillion reflects states’ own policy choices and lack of discipline:


• failing to make annual payments for pension systems at the levels recommended by their own actuaries;
• expanding benefits and offering cost-of-living increases without fully considering their long-term price tag or determining how to pay for them; and
• providing retiree health care without adequately funding it.

Key Findings From Pew's Pensions and Retiree Health Care Report

Retirement benefits provide a reliable source of post-employment income for government workers, and they help public employers retain qualified personnel. For states that have not been disciplined about fulfilling their obligations, the financial pressure builds each year.

• In 2000, just over half the states had fully funded pension systems. By 2006, that number had shrunk to six states. By 2008, only four—Florida, New York, Washington and Wisconsin—could make that claim.
• In eight states—Connecticut, Illinois, Kansas, Kentucky, Massachusetts, Oklahoma, Rhode Island and West Virginia—more than one-third of the total pension liability was unfunded. Two states—Illinois and Kansas—had less than 60 percent of the necessary assets on hand.
• Nine states were deemed solid performers, having enough assets to cover at least 7.1 percent—the 50-state average—of their non-pension liabilities. Only two states—Alaska and Arizona—had 50 percent or more of the assets needed.
• Forty states were classified as needing improvement, having set aside less than 7.1 percent of the funds required. Twenty of these have no assets on hand to cover their obligations.
Read more about the issue, the factors driving change and the states that have promising approaches to reform. Download the full report. (Adobe PDF)

States that ignored public sector retirement challenges now face a growing bill come due—one that may have significant consequences for taxpayers. To examine the roots of the problem and how the economic crisis is spurring states into action, the Pew Center on the States held a Webinar on February 18 featuring Susan Urahn, managing director, the Pew Center on the States, and Ronald Snell, state services division director, the National Conference of State Legislatures.

Download Susan Urahn's and Ronald Snell's PowerPoint slide from the Webinar or listen to audio of the event. (MP3, 25.6 MB)

State Data

To help policy makers and the public understand the challenges states are facing, Pew assessed all 50 states on how well they are managing their public sector retirement benefit obligations.

Download the state fact sheets or use Trends to Watch to track national data and access previously unreleased data.

States’ Responses to the Pensions and Retiree Health Care Crisis

For ongoing reporting and analysis about how states are responding to the challenge of public sector retirement benefit obligations, follow the Stateline team’s coverage at stateline.org. Stateline is the independent news gathering arm of the Pew Center on the States.

Methodology

Pew’s analysis for The Trillion Dollar Gap is based on data from states’ own Comprehensive Annual Financial Reports, pension plan system annual reports and actuarial valuations. Pew researchers analyzed the funding performance of 231 state-administered pension plans and 159 state-administered retiree health care and other non-pension benefit plans, which include some localities’ and teacher plans.

Media Inquiries

If you are with the media and would like additional information on The Trillion Dollar Gap, please contact Nicole Dueffert, communications manager, The Pew Center on the States, 202.552.2274.



http://www.pewcenteronthestates.org/report_detail.aspx?id=56695

Illinois Pension Liability Worst In Nation

In order to wake up my progressive friends who don't realize that excessive spending and entitlements are driving us to the brink of economic ruin, I have been forced to turn to a liberal source: the Huffington Post.

Illinois' Pension Liability Worst In Nation, Could Sink State Economy

02-18-10 02:17 PM

A new report by the Pew Center on the States shows Illinois facing the largest unfunded pension liability in the country.

Nationwide, 84 percent of pension liabilities for state employees are funded--that is, states have set aside 84 percent of the money they've promised their retirees. This, the report says, is good news; anything above 80 percent is considered responsible by economists.

As of 2008, Illinois' pension liability was only 54 percent funded, the worst figure in the nation. And new estimates put that figure below 50 percent.

Part of the problem is that, under indicted ex-governor Rod Blagojevich, Illinois borrowed against the money it expected to earn from its pension fund. But the recession has undercut those earnings; the fund now earns 3.8 percent, as opposed to the anticipated 8.5 percent.

The state has resorted to borrowing and accounting tricks to duck its obligations, the report says. But Pew Center managing director Susan Urahn warns that the mounting liabilities "could have significant consequences -- higher taxes, less money for public services and lower state bond ratings."

Though it is worst in the nation, Illinois is hardly alone. Only two states, New York and Florida, had fully funded pension liabilities; 19 states were listed by the report as meriting "serious concern" in the area.

A new report by the Pew Center on the States shows Illinois facing the largest unfunded pension liability in the country.

Nationwide, 84 percent of pension liabilities for state employees are funded--that is, states have set aside 84 percent of the money they've promised their retirees. This, the report says, is good news; anything above 80 percent is considered responsible by economists.

As of 2008, Illinois' pension liability was only 54 percent funded, the worst figure in the nation. And new estimates put that figure below 50 percent.

Part of the problem is that, under indicted ex-governor Rod Blagojevich, Illinois borrowed against the money it expected to earn from its pension fund. But the recession has undercut those earnings; the fund now earns 3.8 percent, as opposed to the anticipated 8.5 percent.

The state has resorted to borrowing and accounting tricks to duck its obligations, the report says. But Pew Center managing director Susan Urahn warns that the mounting liabilities "could have significant consequences -- higher taxes, less money for public services and lower state bond ratings."

Though it is worst in the nation, Illinois is hardly alone. Only two states, New York and Florida, had fully funded pension liabilities; 19 states were listed by the report as meriting "serious concern" in the area.

http://www.huffingtonpost.com/2010/02/18/illinois-pension-liabilit_n_467693.html

Why Chicago, Cook County & Illinois Are Going Broke (part III)

Private sector unions are disciplined by market forces. They are forced to see a balance between their desire to maximize the wages and welfare of their members, while not eroding the cost effectiveness and competitiveness of the company. Accordingly, many private sector unions acquiesced to layoffs, wages cuts and restructuring to weather hard economic times. On the other hand public sector unions have largely remained impervious to the recession, resisting any efforts to trim the ranks of bloated government bureaucracies. In fact, as the public experiences record job losses, the number of government workers and their compensation continues to grow. The inevitable result will be increased taxation and debt, something that the public can scarcely afford, least of all during a major recession. I am hoping that more pro-labor progressive will be able to draw a sharp distinction between private and public sector unions.


Vallejo Con Dios: Why Public Sector Unionism Is a Bad Deal for Taxpayers and Representative Government



by Don Bellante, David Denholm and Ivan G. Osorio

Rates of unionization in the United States today are at historic lows and are unlikely to rebound. However, there is one sector in which organized labor is growing in strength: government. This has severe implications for the future of public finances for state and local governments across the nation, and for the nature of organized labor itself.

High rates of unionization in the public sector have led to very high labor costs in the form of generous collective bargaining contracts. Now state and local governments are under increasing financial pressure, as a worsening national economy has led to decreased revenues for states and municipalities—many of which remain locked into the generous contracts negotiated in more flush times. Thus, as businesses retrench, governments find themselves in a financial straitjacket. In addition, as government unions grow stronger relative to private-sector unions, their prevalence erodes the moderating influence of the market on the demands that unions make of employers.

Now, as an economic downturn threatens state and local government revenues, officials who want to keep their fiscal situations under control would do well to look skeptically at public-sector bargaining—especially since the existing political checks on it have proven ineffective. Public officials should eschew public-sector bargaining when possible, or at the very least, seek to limit its scope.

As keepers of the public purse, legislators and local council members have an obligation to protect taxpayers' interests. By granting monopoly power to labor unions over the supply of government labor, elected officials undermine their duty to taxpayers, because this puts unions in a privileged position to extract political goods in the form of high pay and benefits that are much higher than anything comparable in the private sector.

This paper shows how the unionization of government employees creates a powerful, permanent constituency for bigger government— one that is motivated, well-funded, and organized. It also makes some recommendations as to how to check this constituency's growing power—an effort that promises to be an uphill struggle.

http://www.cato.org/pub_display.php?pub_id=10569

Why Chicago, Cook County & Illinois Are Going Broke (part II)

In Illinois unfunded liabilities for pensions have soared past $95 billion dollars. A major factor in this frightening deficit is the role of public sector unions. Before I continue, I must emphasize that I draw a sharp distinction between private and public sector unions.

Private sector unions involve a dynamic interplay between owners and workers in which both parties are forced to contend with market forces and fiscal realities. Historically, when a company was profitable and a labor market was tight, companies and unions were able to reach accords that resulted in higher wages and benefits. And as markets and profits contracted, unions are forced to concede to economic realities and agree to wage cuts and layoffs, as recently seen with auto marker unions. Ultimately the auto market unions realized that if they did not agree to painful concessions the companies would continue hemorrhaging with the end result of a total loss of employment and income for all workers.

On the other hands, public sector unions do not enjoy this dynamic interplay for a multitude of reasons:

1. Private companies have tremendous incentives to minimize expenses (worker compensation) because the money in question is their own. On the other hand, politicians and bureaucrats have little or no incentives to control expenses because they are spending the public's money. The end result is a pension plan with billions of dollars in unfunded liabilities.

2. If a private company is inefficient and unprofitable, both owners and workers face a threat to their livelihood, which forces them to function within the boundaries of economic reality. On the other hand public sector workers face little or no consequences when a government bureaucracy offers horrendous service while simultaneous costing the public billions of dollars.

3. Poor performing companies in competitive markets will be castigated by diminished profits and by going out of business. Politicians can be voted out of office. But, to remove public sector bureaucrats is virtually impossible.

Budget catastrophe escalates while law makers watch

November 13, 2009

While the Tribune was right to emphasize the Minority Report of the Pension Modernization Task Force ("Just send your $7,000," Nov. 8), even that report understates the full extent of the calamity now at hand. That report showed that unfunded liabilities of the five pensions that the state guaranties total $95 billion – roughly $7,000 for every person in Illinois. In fact, the broader problem is over twice that size:

Illinois has over 600 other municipal pensions with at least $62 billion in unfunded liabilities, aside from the five pensions guaranteed by the state,. Those pensions are generally ignored and were not part of the task force report. Their deficits are reported biannually by the Illinois Department of Insurance and the reports are on their website. That $62 billion deficit figure is from the 2007 report – before the markets tanked – so the 2009 report will likely be much worse.

Retired state workers also get state-paid health care, which has also been mostly ignored. That's another $40 billion unfunded liability, based on an earlier study by the Civic Committee of the Commercial Club of Chicago, and $2 billion more per year is required just to cover the growth in this liability.

Add these two items to the $95 billion state-guarantied pension debt and you get $197 billion, which is roughly $15,000 for every person, or $60,000 for every family of four in Illinois. Most families don't have resources to pay off a debt that size and shifting an even higher burden to everybody else would spark a genuine tax revolt.

Keep in mind that the unfunded pension liabilities are worsening at the rate of $8 billion per year just on the five state-guarantied funds, according to the Civic Committee. That's in addition to annual budget deficits being incurred in brazen violation of the Illinois Constitution's balanced budget requirement, which are now projected at roughly $14 billion. Add on that $2 billion per year needed to stay even on retiree healthcare, and the real annual shortfall is roughly $24 billion.

Governor Quinn's proposed tax increase would raise $3 billion per year; Dan Hyne's proposal, $5.5 billion, so neither plan gets remotely close to funding the budget deficits or stopping further bleeding on pensions and health care. The already-accumulated deficits of $60,000 per family are on top of all that and have no chance of being whittled down. Nobody has proposed any solution or scenario that begins to address all this.Illinois is hopelessly insolvent.





-- Mark Glennon, Wilmette

Why Chicago, Cook County & Illinois Are Going Broke (part I)

Robert Dugan, a Daley crony will now collect a yearly pension check totalling $92,208. This particular case is jarring because of the issues of nepotism and corruption, but beyond that the larger, looming issue of the over $62 billion in unfunded liabilities that Illinois pensions face. Clearly no one is as careless with money as a politician or bureaucrat spending the money of the public on other politicians and bureaucrats.

Brother of Daley pal quits CTA job

Robert Degnan stands to collect two government pensions

June 17, 2009

BY FRAN SPIELMAN City Hall Reporter/fspielman@suntimes.com

The brother of one of Mayor Daley's closest friends in politics has quit the $116,000-a-year CTA job created just for him, paving the way for Robert Degnan to simultaneously collect two government pensions.

In 2002, Degnan retired as the city's $115,260-a-year Fleet Management commissioner to accept a $95,000-a-year job at the CTA.

By jumping through an early retirement window, Degnan got a lump-sum bonus of 10 percent of his annual city salary. He was also free to collect both a city pension and a CTA paycheck.

His May 31 retirement from the CTA means Degnan can now collect two local government pensions. His annual retirement check from the city amounts to roughly $92,208 or 80 percent of Degnan's highest city salary. After just seven years on the CTA job, he'll collect a $10,997-a-year CTA pension.

Robert Degnan is the brother of Tim Degnan, the Bridgeport buddy of Daley who preceded Victor Reyes as director of the mayor's Office of Intergovernmental Affairs.

Civic Federation President Laurence Msall said Robert Degnan's double-pension is particularly galling at a time when under-funded city pensions threaten to saddle future generations of Chicagoans with a debt they cannot handle.

"It's a shining example of why the city's pension system -- and all other local government systems authorized by the General Assmbly -- need to be reformed and structured to what is economically reasonable for taxpayers, rather than insiders who are able to manipulate the system," Msall said.

Robert Degnan could not be reached. He told CTA spokeswoman Noelle Gaffney that he'd been comtemplating retirement for some time to become a part-time consultant.

"In 2008, he went to eight funerals and six were for people younger than him. It made him evaluate how he was spending his time," Gaffney said.

In a court filing during the 2006 trial that culminated in the conviction of Daley's former patronage chief, Robert Sorich, federal prosecutors named Tim Degnan as one of several former mayoral aides who could be linked to a conspiracy to rig city hiring and promotions in favor of the Hispanic Democratic Organization and other pro-Daley armies of political workers.

Tim Degnan was never charged with wrongdoing.

Robert Degnan was appointed Fleet Management commissioner after his predecessor, Rick Santella, was accused of steering city business to perennial city trucking contractor Michael Tadin.

In almost four years at the helm of Fleet Management, Degnan ushered in reforms that saved the city money and expanded his own vehicle empire.

He signed an $11 million contract with NAPA Auto Parts that reduced the opportunity for theft by eliminating the need for City Hall to maintain vast inventories of parts. The NAPA contract was renewed last month -- for $190 million over five years.

City Hall eliminated the Chicago Fire Department's scandal-plagued repair shop and folded its responsibilities into Fleet Management. And contracts were signed with the CTA, Chicago Park District, the Chicago Housing Authority and City Colleges that called for Fleet Management to repair their vehicles.

At the CTA, Degnan served as general manager of systems maintenance support, maintaining and upgrading a 650-vehicle "non-revenue" fleet that included everything from snowplows and garbage trucks to service vehicles and construction equipment.

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