Today, the Orange County Register has has a nice piece on why California is Illinois with sunshine. The California economy, while described by Democrats as the tree that grows money, is actually very fragile and susceptible to economic panics like 2008 and the coming national insolvency.
Within the span of only 11 years, the hole at the bottom of California’s state and local pension funds increased a staggering 3,046 percent.
The monstrous growth of the gap between what public agencies have promised workers upon retirement and what they actually have – from $6.3 billion in 2003 to $198.2 billion in 2013, according to figures gathered by the state controller’s office – matters to all Californians, reformers argue.
The article suggests that it must be filled with better investments, this in a state that chooses political criteria for pension fund investments, or the difference has to be made up by taxpayers.
Because in California, the promises made to public workers on Day One of their employment can never, ever be broken – at least, not outside of federal bankruptcy court. And even in court, officials from Vallejo and Stockton and San Bernardino did not request permission to modify these burdens, fearing they’d have trouble attracting and retaining workers if the city next door offered something better.
In Illinois, the new governor tried to modify pensions but was rebuffed by the state Supreme Court.
A judge on Friday struck down the state’s landmark pension law that sought to fix Illinois’ $104.6 billion government retirement system debt, declaring the measure unconstitutional and clearing a path for a showdown in the Illinois Supreme Court.
Sangamon County Circuit Court Judge John Belz agreed with public employee unions and retirees who challenged the December 2013 law, maintaining that it “without question” violates the state constitution’s provision that a public worker pension cannot be “diminished or impaired.”
The Tribune approves of this decision which was upheld by the Supreme Court but it is a disaster and will probably lead to an Illinois bankruptcy filing within two years.
Notice that California’s pension hole is deeper than Illinois’ which has the reputation of a corrupt and poorly managed state while California had an undeserved reputation as an economic powerhouse.
Unfunded liability is not debt and shouldn’t be viewed that way, said a spokesman for Californians for Retirement Security, a coalition of unions trying to protect the current system.
Sure and promises are not intended to be kept except by those who were promised something.
“For citizens and taxpayers, unfunded pension liabilities are actually more of a burden than bonded debt,” said David Crane, a research scholar at the Stanford Institute for Economic Policy Research. That’s because they tend to rank higher in priority in bankruptcy proceedings than other kinds of debt and are repaid first. He pointed to New York City’s woes in 1975, when it suspended interest payments on debt but kept paying pension liabilities.
That’s what they say now but there is a big “haircut” coming for the whole country, I believe, and pensions will be just part of it when the national debt becomes unsustainable. Just ask Greece about that.
Meanwhile Los Angeles becomes a third world city as the middle class leaves the state. Who do they think will pay those taxes ?
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