Bailout for Public Pensions? Schiff Says So….

I’ve read all of Peter D. Schiff’s books and I admire his fiscal perspicacity but, since pensions aren’t his field, when he tackles our public pension miasma he relies on sources that, though pessimistic, don’t quite grasp the utter hopelessness of the situation.  In his new book ‘The Real Crash: America’s Coming Bankruptcy’ he dedicates a page to the pro0blem (transcribed below in its entirety) to which I respond:

State and local governments will come up about $2.5 trillion short of the pension obligations to their government employees, according to a 2011 assessment by New Jersey’s former pension boss.  In an incestuous relationship between public employee unions and the politicians they help elect, generous pension benefits have been promised to government employees.  However, to avoid the wrath of private sector voters, such benefits have not been properly funded.  The liabilities have merely been put on the backs of future taxpayers.  Well, the future is here and the taxpayers cannot afford to pay the bills.

A 2010 study by the Pew Center on the states found that only ten states had their pensions funded at 91.6 percent or more.  Only three states were fully funded.  Illinois has no way to pay for 46 percent of its $119 billion public-employee pension obligations.  California’s shortfall is $59.5 billion according to the Pew Center.  New Jersey’s is $34.4 billion.

These numbers reflect a snapshot taken in 2009, but things are deteriorating rapidly.  In the State Employees’ Retirement System of Michigan, for instance, unfunded pension liabilities jumped from $3.1 billion in 2009 to $4.0 billion in 2010.

States are already bailing out local pension plans.  Pittsburgh officially asked Pennsylvania to bail out its pension plan.  The next question is whether the federal government will bail out state pension plans.  Obama’s 2009 stimulus bill dedicated huge sums to fill local and state deficits.  In 2010, Congress passed a special bailout just for state and local employees.

So, will Washington run to the rescue of failed state-employee pension plans?  Republicans in both chambers have introduced bills to prohibit bailouts of state pension plans.  But of all things where you might be tempted to trust Republicans, blocking bailouts should be one of the last.

I wouldn’t be surprised to see a Republican president push a federal bailout of state and local pension plans, calling on conservative-sounding rhetoric about states’ rights and local control – and under pressure from investment firms that depend on state pension funds for business.

In any event, public pensions are another reason our actual debt – measured by unfunded obligations – is much bigger than anyone admits.

Response to Schiff:

  1. Those official shortfall numbers and funded ratios are garbage.  They’re based on unrealistic assumptions and faulty actuarial methodology.  New Jersey’s liabilities are closer to $120 than $34 billion.
  2. Be very surprised at any bailouts.  Prichard and Central Falls didn’t get them and Nebraska taxpayers are not going to be easily convinced to fund the retirements of New Jersey state troopers.
  3. Only one page?

13 responses to this post.

  1. Posted by Tough Love on June 9, 2012 at 12:09 pm

    About the only certain thing, is that a huge battle will ensue between the Public Sector workers expecting their VERY generous “promised” pensions, and the Taxpayers (who get far far less) who will refuse to pay for them.


    • Posted by dentss on June 9, 2012 at 7:28 pm

      TL your right except in the phrase “refuse” to pay them …more like can’t pay them .When it comes to feed and cloth your own family or give your money to pay someone else’s retirement the answer is obvious …the can has hit the wall


      • Posted by Tough Love on June 10, 2012 at 9:23 am

        Of course I didn’t mean “refuse” literally, after all, if you don’t pay your property taxes, you’ll eventually lose your house. And if you don’t pay you income taxes, you might be jailed.

        By “refuse” I meant:

        (1) If taxes are substantively raise on the wealthy, a good % will just move away, and few will move here (along with the jobs they might have created)
        (2) Taxpayers would ramp up pressure on legislators NOT to raise taxes. That would require either (a) further reductions in basic service or (b) reductions in public Sector compensations …… hopefully the latter via very significant pension reductions
        (3) By taxpayers making it VERY clear to legislators that their continued support of excessive Public Sector compensation, as well as their refusal to substantively address pension reform, will mean being voted out of office.


  2. Posted by Anonymous on June 9, 2012 at 12:43 pm

    Hey John, why is it that the FEDERAL government has much worse debt problems than the STATE government but nobody including yourself seem to be concerned. It would seem this is more important than what is happening with states.


    • A major reason that federal debt is both (a) worse and (b) less worrisome is that the federal government can print money and people will accept it…..for now.


      • Posted by Tough Love on June 9, 2012 at 3:00 pm

        Which is why the Euro-zone contiry’s problems are more immediate. The individual members CANNOT print Euros.


        • Yup. Just like individual states can’t print their own currency.

          In any case, I’m with John that there will be no bailout. Municipalities will go bankrupt in the usual way. It will be a lot messier for states.

          I’m also thinking that Medicare will collapse and Social Security will be shrunk. One can print those dollars for only so long.


          • Posted by Anonymous on June 10, 2012 at 6:55 pm

            And you all think that printing money is a successful strategy that will prevent collapse? dream on.

  3. Posted by Javagold on June 9, 2012 at 3:04 pm

    It so much worse than anyone will ever admit. But it will be fun to watch it all collapse on the public takers.


  4. Posted by Anonymous on June 10, 2012 at 6:55 pm

    Javagold fails to realize the nobody is save once there is a collapse


  5. Posted by TREEeditor2 on June 11, 2012 at 3:09 pm

    going to be the 3-G’s soon….gold, guns and get as far away as possible.


  6. Posted by s2192a on June 12, 2012 at 5:44 pm

    Prichard and Central Falls were not state plans, they were not too big to fail. Central Falls has already had a partial bailout as the state put up money to top up police & fire payouts to 75% of promised value for 5 years.


    • Posted by Tough Love on June 12, 2012 at 7:43 pm

      That’s a “top up” ? No, that was a compromise to get the Unions to agree w/o litigation.


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