Tag Archives: Deficit

How exposed is your state to the problem of underfunded pensions?

I am thinking about moving to a new state in the future, and one of the factors I am considering is underfunded pension liabilities. This basically refers to the ability of a state to pay out pensions to retiring public sector employees going forward. I’m going to tell you everything you need to know to solve this problem in this post.

First, Investors Business Daily explains the problem:

A new report by Hoover Institution Senior Fellow Joshua Rauh shows that, unless action is taken soon, many local governments could face bankruptcy because they can’t meet their pension obligations.

[…]The problem is surprisingly simple: States and cities overestimate returns on their pension fund investments, while systematically underfunding them. The result is a growing deficit that will require massive tax hikes or dramatic and painful cuts in government services and promised pensions to public workers.

Rauh’s study looked at 564 state and local pension systems, representing $4.8 trillion in pension liabilities and $3.6 trillion in assets — for an apparent current deficit of just $1.19 trillion.

So far, so good. But Rauh notes the average expected return on pension assets is about 7.6% — which means a doubling every 9.5 years. He calls that assumption “wildly optimistic,” and says a more realistic assumption would be the Treasury bond rate of 3% or lower — less than half the expected return.

Unless pension managers, politicians and voters do something now, the unfunded liabilities of the national system will continue to grow out of control, reaching $3.4 trillion in just 10 years. States and cities across the country would have to raise taxes massively to keep from becoming insolvent.

Right now, state and local governments set aside about 7.3% of revenues for public pensions. To keep the funding gap from exploding and taking down governments across the nation, pension spending would have to rise to  17.5% of revenues on average — roughly equal to a 240% tax increase.

How did things get so bad? Generations of feckless politicians have refused to face down public employee unions, which have negotiated massively expensive pensions for their members while concealing their true cost. Politicians have gone along with it because, heck, it’s not their money and anyway, the problems will take place long after they’re out of office. That’s where we are now.

States and cities will come under intense pressure to raise taxes on local citizens to pay for this travesty. Instead, they should get rid of the public employee unions that have plundered the public for too long and have made local government inefficient, expensive and dysfunctional. If not, they can expect to face the same economy-crippling effects as Detroit, San Bernardino and a number of other cities have — financial insolvency.

Now, obviously states with kick-ass governors like Scott Walker of Wisconsin are not going to have the same exposure to such problems as incompetent governors like Maggie Hassan of New Hampshire. Scott Walker know how to rein in public sector unions.

Let’s get the numbers to confirm this hypothesis.

Bloomberg has the numbers:

Bloomberg ranked 49 U.S. states based on their pension funding ratios in 2014 under GASB 25. (Delaware is not included because of insufficient data for GASB 25.)

Here are the best states… Wisconsin is 100% funded:

States with the best-funded pension liiabilities
States with the best-funded pension liiabilities

And actually there is a comprehensive analysis of the fiscal solvency of all the states right here from George Mason University.

Here’s the map:

Overall fiscal solvency by state
Overall fiscal solvency by state

I notice that the deep blue states like California, Massachusetts, Illinois, Connecticut, New Jersey, etc. are just horrible states. No wonder everyone is fleeing them in droves. Socialism doesn’t work. Eventually, the money runs out.

So, if you’re thinking of moving to a new state, look at that. And if you don’t want to move, then vote for governors like Scott Walker who will take on public sector unions – otherwise, you’re headed for a big tax hike in the future, to pay for the big spending liberals of the past.

Is government good at spending taxpayer money to stimulate the economy?

Canada Election 2015: Socialists in red, Communists in Orange, Conservatives in blue
Canada Election 2015: Socialists in red, Communists in Orange, Conservatives in blue

I’ve been seeing a lot of talk up north in Canada from the substitute drama teacher they elected about how he wants to stimulate the economy by taking money out of the productive private sector and putting into the inefficient, wasteful public sector.

Here’s an example of how he intends to stimulate the economy, as reported by Life Site News. (H/T Kevin the Super-Husband)

It says:

The Liberal government is pledging $81.5 million to the United Nations’ Population Fund to fund “sexual and reproductive health services and rights,” International Development Minister Marie-Claude Bibeau announced Monday.

And that could include access to abortion in countries where it is legal, according to a “senior government official,” who told iPolitics reporter Amanda Connelly that the individual countries in the UN Population Fund (UNFPA) are free to allocate funding to provide access to abortion.

“Sexual and reproductive health services and rights” is well-known UN-speak for contraception and abortion on demand, noted Campaign Life Coalition’s Matt Wojciechowski, who represents CLC at the United Nations.

The Liberals’ decision is a reversal of the Conservatives’ stated ban on abortion funding as part of international aid in the 2010 Muskoka Initiative on Maternal Health.

At that time, the Conservatives pledged $2.8 billion over five years towards improving maternal health and the lives of newborn infants in developing countries, but the initiative, including the Tories apparent refusal to fund abortion, was subject to ongoing criticism.

The Conservatives pledged a further $3.5 billion from 2015 to 2020 for maternal, newborn and child health care projects in developing nations in May 2014, at which time Harper was again criticized when he reiterated that his government would not fund abortion overseas as part of that initiative.

The Liberals promised during the October 2015 election campaign that they would “cover the full range of reproductive health services as part of the [Muskoka] initiatives,” which a Liberal Party official at the time confirmed included abortion where legal, reported Connelly.

“Canada is committed to universal access to sexual and reproductive health services and rights,” Bibeau stated in a press release Monday. “We also believe that programming decisions on these matters should be driven by evidence and outcomes, not ideology.”

Trudeau has been very energetic about how he is going to stimulate the economy by taking money from job creators in the private sector and spending it to “create jobs”. Well, this is what happens when Christians vote for government to “create jobs” by “infrastructure spending”. And they are going to be running budget deficits much worse than what they promised. This is what the vast majority of Canadians voted for in their last election.

But we also waste money down here in the United States, too. Do you ever wonder what happens to the cut that the government takes out of your pay for your private sector activities? The Constitution sets out areas where the federal government is authorized to spend money. But the Democrat Party doesn’t believe in the Constitution, they believe in buying votes and pushing the culture to the left.

Congressional Budget Office: Debt to GDP ratio
Congressional Budget Office: Debt to GDP ratio

Here’s a story from the Daily Caller to explain what stimulating the economy looks like in the United States. (H/T Dad)

Excerpt:

Academics at the University of Oregon have determined that glaciers and the science that studies them are deeply sexist.

“Merging feminist postcolonial science studies and feminist political ecology, the feminist glaciology framework generates robust analysis of gender, power, and epistemologies in dynamic social-ecological systems, thereby leading to more just and equitable science and human-ice interactions,” reads the paper’s abstract. The research was published in the peer-reviewed journal Progress in Human Geography in January.

The study, by historian Dr. Mark Carey and some student researchers, was financially supported by taxpayer dollars. The National Science Foundation (NSF) gave Carey a five-year grant which he used to write his “feminist glaciology” paper. Carey has received $709,125 in grants from the NSF, according to his curriculum vitae.

“Most existing glaciological research – and hence discourse and discussions about cryospheric change – stems from information produced by men, about men, with manly characteristics, and within masculinist discourses,” Carey wrote. “These characteristics apply to scientific disciplines beyond glaciology; there is an explicit need to uncover the role of women in the history of science and technology, while also exposing processes for excluding women from science and technology.”

Carey concluded glacier research is intertwined with gender relations, masculine culture, geopolitics, institutional power and racism — these apparently led to to glacier-related academic and governmental jobs being predominantly filled by men. Damages from melting glaciers target women and ethnic minorities, who “are more vulnerable to glacier changes and hazards than are men,” according to Carey.

That’s a shovel ready project, right there. That will create jobs for sure. And no wonder that people in academia tend to support Democrats. They support Democrats for the same reason that people on welfare support Democrats – because that’s where they get their money for sitting around doing nothing. Private sector research into new products and services is more useful, and doesn’t cost taxpayers a dime.

Public Works

Henry Hazlitt’s book “Economics in One Lesson” explains the problem with taxing the private sector to build public works.

Henry Hazlitt’s Economics in One Lesson, chapter 4, entitled “Public Works Mean Taxes”.

Excerpt:

Therefore, for every public job created by the bridge project a private job has been destroyed somewhere else. We can see the men employed on the bridge. We can watch them at work. The employment argument of the government spenders becomes vivid, and probably for most people convincing. But there are other things that we do not see, because, alas, they have never been permitted to come into existence. They are the jobs destroyed by the $10 million taken from the taxpayers. All that has happened, at best, is that there has been a diversion of jobs because of the project. More bridge builders; fewer automobile workers, television technicians, clothing workers, farmers.

And consider Chapter 5 as well, entitled “Taxes Discourage Production”.

In our modern world there is never the same percentage of income tax levied on everybody. The great burden of income taxes is imposed on a minor percentage of the nation’s income; and these income taxes have to be supplemented by taxes of other kinds. These taxes inevitably affect the actions and incentives of those from whom they are taken. When a corporation loses a hundred cents of every dollar it loses, and is permitted to keep only fifty-two cents of every dollar it gains, and when it cannot adequately offset its years of losses against its years of gains, its policies are affected. It does not expand its operations, or it expands only those attended with a minimum of risk. People who recognize this situation are deterred from starting new enterprises. Thus old employers do not give more employment, or not as much more as they might have; and others decide not to become employers at all. Improved machinery and better-equipped factories come into existence much more slowly than they otherwise would. The result in the long run is that consumers are prevented from getting better and cheaper products to the extent that they otherwise would, and that real wages are held down, compared with what they might have been.

There is a similar effect when personal incomes are taxed 50, 60 or 70 percent. People begin to ask themselves why they should work six, eight or nine months of the entire year for the government, and only six, four or three months for themselves and their families. If they lose the whole dollar when they lose, but can keep only a fraction of it when they win, they decide that it is foolish to take risks with their capital. In addition, the capital available for risk-taking itself shrinks enormously. It is being taxed away before it can be accumulated. In brief, capital to provide new private jobs is first prevented from coming into existence, and the part that does come into existence is then discouraged from starting new enterprises. The government spenders create the very problem of unemployment that they profess to solve.

We need to realize that outside of Constitutional spending authority, taxes are a waste of money. We’re $19 trillion in debt. We can’t afford talk of “stimulating the economy” through government spending. It’s a lie. Government spending kills job creation. They can hide the impact by adding the spending to the debt, but eventually, we do feel the impact of wasting money. Especially the foolish young socialists, who are going to have to pay it all back.

Liberal Party has made Ontario’s economy a disastrous failure

Liberal Party has dominated Ontario since 2003
Liberal Party has dominated Ontario since 2003

I like to follow the economic situations in the most liberal Canadian provinces to see how bad things can get when liberals are in charge. This article is by Joe Oliver, who I have mentioned before on this blog.

Here’s the article from the Financial Post:

The numbers tell the story. Ontario is the largest sub-national debtor in the entire world, just one alarming distinction. Its debt is more than twice that of California, a state with three times the population and one that has its own severe fiscal problems. Its debt is $294 billion, or over $21,000 per capita. Net debt to GDP is up 48 per cent in the past 10 years to almost 40 per cent, second only to Quebec. Last year’s interest obligations totalled $11.4 billion, about the same as the cost of community and social services. I doubt many Ontarians realize how much they are paying just in interest on the provincial debt. It averages $840 per person every year and rising. Not surprisingly, Standard and Poor’s downgraded Ontario’s bond credit from AA- to A+, citing a very high debt burden and very weak budgetary performance

The energy sector is nationalized in Ontario – there is no free market competition, it’s all government-run. Consumers have one choice when they want to purchase electricity – the provincial government. How well has nationalizing the energy sector (“Ontario Hydro”) worked out?

Some of its biggest problems are self-inflicted. Recently, we received a stunning revelation from Bonnie Lysyk, the province’s Auditor-General. In the past eight years, electricity cost $37 billion above market price. Even more staggering, it will pay a further $132 billion above market by 2032. The by-now infamous Green Energy Act guaranteed the price for wind and solar, so that they cost double and 3.5 times the U.S. market price respectively. As a result, energy costs have skyrocketed by 70 per cent, a regressive tax that hurts lower income earners disproportionately and depresses personal consumption. Higher energy costs also render businesses less competitive, which discourages job-creating capital investment.

Surprise! Green energy doesn’t lower electricity bills. But that hasn’t stopped the Liberal government from jumping into it with both feet.

There is no respect for the taxpayer in Ontario… every dollar earned there is seen by the ruling elite as more fuel for her vote-buying schemes. They want to spend their way to prosperity, as if spending money in the right way will cause economic growth. Well, here’s the truth: the government can never cause the people who start businesses and create value to produce more by taking more from them. The more the government takes from job creators, the more job creators scale back their productivity.

We should learn from the failure of socialism in other countries so that we don’t repeat their mistakes here.

Related posts

Who’s better at managing money – Republicans or Democrats?

One of the best jobs for managing money is being governor of a state. So, let’s take a look at the 50 states and see which ones have the best governors for managing money.

Here’s a new report from George Mason University, and it’s written up in Investors Business Daily.

IBD says:

A new report from George Mason University’s Mercatus Center ranks all 50 states based on 14 measures designed to determine whether states can pay their short-term bills and meet their long-term obligations — debt, pension liabilities and such. The data go through 2013.

The best-run states have enough cash to pay its current bills, enough revenue coming in to meet its fiscal year needs, a cushion for economic shocks, and management long-term liabilities.

The worst states, in contrast, have “tens, if not hundreds, of billions of dollars in unfunded liabilities — constituting a significant risk to taxpayers in both the short and the long term.”

[…]There’s only one factor these fiscal winners and losers share in common. And that’s their political leanings. Of the top 10 states in the Mercatus ranking, just two — Florida and Ohio — voted for the Democratic presidential candidate in the past four elections, and just one — Montana — has a Democratic governor. Even if you look at the 25 best-performing states, only three could be considered reliably liberal.

At the other end of the list, just two of the 10 lowest-ranked states — Kentucky and West Virginia — have voted for the Republican in the past four presidential elections. And while four of them have Republican governors, they all are in solid blue states and all were elected to clean up messes left by their Democratic predecessors.

It’s also worth noting that these same states consistently show up at the top and bottom of other lists that measure business friendliness, tax burden and economic freedom.

In fact, six of the 10 worst-performing states in the Mercatus ranking — California, New York, Illinois, New Jersey, Massachusetts, and Connecticut — are also states with the heaviest tax burdens and rated the least business friendly, according to rankings from the Tax Foundation and Chief Executive magazine.

It would appear, then, that abiding by a philosophy of limited government, lower taxes and fewer regulations leads to growth, prosperity and fiscal soundness.

Here’s the full map from the George Mason University study:

George Mason University study on fiscal solvency
George Mason University study on fiscal solvency

At the state-level, everyone understands that Republican governors know what they are doing, because they understand economics. So then why do we forget that and elect a community organizer when it comes to the Presidency? Do we just not care about the debts we are piling onto our children when we elect wastrels and profligates?

Puerto Rico debt crisis will impact U.S. investors

Which financial companies hold Puerto Rica debt?
Which financial companies hold Puerto Rico debt?

Pay attention to this article from Investors Business Daily if you have investments.

It says:

With the financial world transfixed by Greece’s debt-driven meltdown, Puerto Rico announces it can’t pay its $73 billion in debt. Once again, we’re learning that welfare statism is no replacement for fiscal responsibility.

Compared to Greece’s $353 billion in debt, Puerto Rico’s $73 billion doesn’t sound so big. On a per capita basis, it’s about a third less.

But appearances deceive. Puerto Rico is in deep, owing actually much more than that amount.

We learned this after a report on Monday, co-authored by former International Monetary Fund No. 2 Anne Krueger, revealed the island’s finances are a shambles.

The devastating analysis noted that some 150 agencies ran up deficits that couldn’t even be accurately counted, so the true indebtedness might be even higher — as much as $100 billion by some estimates.

Now Republicans favor privatizing state-owned organizations because the private sector is more efficient. Democrats want to nationalize private sector services so that they can control access to it and use their monopoly to buy votes.

What does Puerto Rico do?

The government has funneled public money to state-owned enterprises that are supposed to be financially independent. Worse, the report said, many workers no longer even look for jobs, since welfare benefits pay more than actual work.

Now guess whether a Republican or a Democrat is to blame for this. Which party likes to borrow money from future generations in order to buy votes with spending right now?

In short, the government has been horrendously mismanaged.

[…]The problem is, Puerto Rico’s dysfunctional economy means the debts only piled higher, with no way to pay them. Deficits grew, too, since spending was never really cut.

Now, as a commonwealth, it can’t declare bankruptcy. It can default, however. That would be messy, creating a financial crisis in the territory, causing businesses to close and sending thousands fleeing to the U.S. mainland. Yet the Democrat-led government has said that, while it hopes to avoid default, it won’t cut either pensions or spending. So disaster looms.

Wow, just like Greece – they refused to cut pensions, raise retirement ages and cut spending, too. There is some good news – we probably won’t have to bail them out:

A bailout? Even President Obama rules that out. If the White House couldn’t bail out union-run Detroit, it sure couldn’t do it for Puerto Rico.

And, despite Padilla’s denials, politics is very much a part of the equation. Just like Greece and dozens of other financial basket cases, Puerto Rico has become a welfare state run by leftist bureaucrats and politicians that overspends on public pensions without having the money to pay for it all.

It’s a story repeated over and over around the world.

If Puerto Rico defaults, it won’t suffer alone, however. As the New York Times notes, “much of Puerto Rico’s debt is widely held by individual investors on the United States mainland, in mutual funds or other investment accounts, and they may not be aware of it.”

So better check your 401(k). Or your hedge fund. Because virtually all of that $73 billion is held by the U.S.

This is not to time for you to quit your job and go on vacations or focus on fun in any way. There is a world-wide financial crisis brewing. It’s nothing to panic over, but this is serious enough for us all to focus on our careers and savings, and cut our own spending. It’s not just Greece or Puerto Rico either, there are other warning signs from other countries, e.g. – China, Japan, etc.

Look:

Meanwhile, across the globe, we’re headed toward a reckoning on excessive debt, and it won’t be pretty. The welfare state model with big pensions for all and lavish unemployment benefits is dead. We’re watching its death throes now. Only the politicians don’t get it.

Even here, many states have severe debt problems with underfunded public sector obligations, as well as other problems. There’s just this problem with people wanting to depend on government. There are too many people wanting a free ride, and too few people willing to work and raise the next generation of workers.