The controller of Harrisburg, Pennsylvania’s capital city, says “Bankruptcy is inevitable.” Chapter 9 was put into the bankruptcy code in 1934 and gives municipalities protection from creditors while developing a plan to pay off debts.
“We can’t raise taxes; they’re already very high,” Controller Miller says. “If we did, people would just leave. It’s cheaper to move out to the suburbs.”
The burden of paying union contracts prompted Vallejo, CA to file Chapter 9 in 2008 and the city has not yet emerged from bankruptcy.
In a related story, the WSJ reports that virtually all state retirement plans are underfunded.
While union membership has fallen in the private sector, many government employees work under union contracts. Combine that with the ability of union support to sway election results (and have union government employees serving in legislatures) at the state and local level and it’s a recipe for fiscal disaster.
{ 13 comments }
Mish covered the state pension issue today, in more detail:
http://globaleconomicanalysis.blogspot.com/2010/02/pew-study-shows-trillion-dollar-state.html
Some highlights (or lowlights)
Too bad these entities can’t just sell assets and disappear. But they have lifted themselves by their bootstraps into being equated with “the people” and when debts are due will not let that be forgotten that the collectors (that they are hurting the people). But when they create new liabilities through spending and promises, they are magically distinct from the people, and are their great benefactor.
By propping up these losing entities the Fed govt is inviting a great social bust on the order of the fall of Rome. Cutting ties by allowing “Kentucky” to dissolve and letting its assets and roles be passed to other (non-bailed-out) States and private entities is the only way to protect the prosperity of the people who live under their current tyranny. But I don’t expect that to happen.
Mr. Hewitt: Thanks for the information regarding Oklahoma’s bankruptcy. I had no idea the state had such a large base of future liabilities.
I will look into this a bit more and may be writing an article for some OK-based newspaper or something. Thanks for the tip!
Aww, it’s just money. Uncle Ben will print more and shower the retirees with it. All will be well.
Also, it’s a great time to be a libertarian! Rand Paul leading in the polls, Ratowitz sealing up the nomination in Illinois, and other C4L candidates making headway…
And now the news that the small-scale branches of the state are going broke and will need to spend the next couple of years scrambling for pennies rather than coming up with new ways to bully people? This is great news! As soon as foreign countries start downgrading US T-Bills and the fat millionaires in DC have to do the same, we’ll really be in good shape!
Well duh. Public employee unions have been legislating salaries, benefits and pensions for themselves without regard to revenues or economic reality. Now its the problem of their political stooges to explain why it can’t happen.
If the Fed prints money to monetize these giveaways, we will have inflation and a huge flight of capital, followed by US bankruptcy.
Inflation is the chosen “solution”.
Speaking of public sector unions, check out this:
Union Boss for cops has a gun and wants your money
In general, isn’t all the “I’m getting mine through The Law no matter who has to suffer” exactly the socialist trap about which Bastiat tried to warn humanity? How long will it be before I too, in my quest for the end goal of happiness, am obligated to substitute political means for economic means? How long before each of us is forced to start trying to live at the expense of everyone else?
” Public employee unions have been legislating salaries . . . .”
No, we negotiate exactly as every (company) employed person on this list should be doing.
I put in my 30 years and now I should lose my pension so that you can have 2 cars, a 4,000 sq ft house, a swimming pool . . . ?
“Income no longer stemmed from the process of supplying the wants of the consumers in the best possible way, but from the taxes levied by the states apparatus of compulsion and coercion. He was no longer a servant of his fellow citizens, subject to their sovereignty; he was a partner of the government which ruled the people and exacted tribute from them.” – Ludwig von Mises, Human Action.
Not to worry, the state will just ramp up their efforts of sequestering the property of their subjects: http://www.youtube.com/watch?v=UdB2YiymmUc&feature=player_embedded
to billwald:
the point is not that these union members don’t have a contractual right to their entitlements, as you correctly say, just that they aren’t exempt from the risk that everyone has to sustain – risk of employer default.
anyway, there’ll be a fix.
“I put in my 30 years and now I should lose my pension so that you can have 2 cars, a 4,000 sq ft house, a swimming pool . . . ?”
Should we lose all those things for the sake of your pension? Do you work in the public sector? If so, justify the pension. It is spurious to say that thirty years of work is necessarily of value. I can swing a hammer into the ground for eight hours a day for thirty years, but I certainly won’t expect a pension from it, nor would I expect to be paid. In the private sector, it can easily be demonstrated that a worker has contributed to the wealth of an enterprise. In the public sector, regardless of good intention, the worker is paid with money gathered from the taxpayer. The service being provided is not necessarily of value to those who are forced to pay. For instance, to what end is the homeowner paying for public schools if he or she is being educated at a private institution? If anything, their quality of life is less than it would have been with that money in pocket.
So should I have all those things at the cost of your pension? No. I disagree entirely. I prefer cheeses, actually. A fine assortment of cheese would do nicely.
Suppose we had a law that once per month anyone could take anything they wanted from another person. My choice would be to participate or die. Even if no violence were used, there are enough starving people to take all my food leaving me to starve unless I also take from others. This, it seems, is close to the system we now have. I worked consistently at productive work and payed taxes until I turned 50 years old. Then I got a cushy state job from which it is very difficult to be laid off or fired. The state has lived off my back for a good 30 years. Now I get to live off the backs of others. Taxes were violently taken from me for 30 years. Now I live by the violent taking of taxes from others.
We are all in a constant state of war against one another using government as proxy force. Welcome to democracy, and keep those taxes coming!
“Life is a shit sandwich – eat it or starve.”
Comments on this entry are closed.