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Ed Driscoll

“We Are All Going to Pension Hell,” econo-blogger Megan McArdle writes at Bloomberg.com. After flashing back to the adorable magical thinking last month from a Michigan state judge who claimed that she couldn’t sanction Detroit’s bankruptcy without St. Obama’s permission, and then noting that back on Planet Earth, the federal government can’t save that exhausted city’s tumble into the abyss, McArdle writes that Chicago’s teacher pension fund could be the next huge Blue State domino to fall, sometime within the next decade:

Yes, I know that this was often bad politics, not sound public stewardship. But we have to treat decisions made by elected officials as, well, decisions made by the citizens of those locales. If the citizenry can demand to renege at any time because they don’t like the outcome, government can’t function at all — not even the bits we like, like police and roads.

We can’t seize and sell off the city of Chicago to make those obligations good. And so we will argue … in court and out of it, because the fact is, many state and local governments will be unable to pay for all the promises made by the politicians of yesteryear:

If you define municipal debt simply as what states and localities have borrowed, the total nationwide comes to about $3 trillion. Nevertheless, these governments actually owe more than twice that much, according to estimates from groups like the States Project. The reason for the discrepancy is that states and localities carry another kind of debt — promises of retirement benefits to public-sector workers — and they have radically underfunded the systems that must pay for it. As Boston University Law School professor Jack Michael Beermann wrote recently in the Washington and Lee Law Review, the situation is a “double whammy” for future taxpayers, who not only will have to pay for “the consumption of prior generations” but also will receive “reduced government services” as increased spending on retirement debt crowds out other programs.

There is, in the end, a limit to how tightly past taxpayers, or their representatives, can bind the citizens of the future. It is a genuine tragedy that people who worked hard for the city of Detroit for 30 years should lose pension benefits. But that doesn’t mean that the city of Detroit should turn off the streetlights and get rid of schools and ambulance service in order to fund those lost pensions. And it’s hard to argue that the taxpayers of other places are morally obligated to step in.

But how much should cities have to cut, once the tax base is exhausted? Senior centers? Parades? Maintenance at city parks? We’d better start asking those questions, because pretty soon, we’re going to need to answer them.

Speaking of which, this isn’t going to end well, either: the Southern California city of Santa Ana “to pay new city manager more than $500,000 annually,” the Los Angeles Times reports:

Santa Ana was hard-hit by the recession and housing market crash and in recent years faced steep budget cuts. At one point, there was talk of possible bankruptcy. Last year, it passed its first balanced budget after years of fiscal turmoil.

Earlier this year, the city pushed out Manager Paul Walters, who was earning a base salary of $265,000 and had previously been Santa Ana’s longtime police chief. Walters was hired to help resolve the multimillion-dollar budget shortfall and was seen as an ally of longtime Mayor Miguel Pulido, who has become a minority voice on the council

“Right now we’re in a much better condition than we were a couple of years ago,” Councilman Vincent Sarmiento said. “We see this as bringing on somebody who has resources that were not available here in the city.”

Or to put it other way, right now we’re in a much better condition than we were a couple of years ago — but we’re still really peeved at Bell, California getting all of the headlines when it went broke because of ridiculously inflated public sector salaries, and we’re determined to crash into the abyss as well.

Between Detroit’s bankruptcy, the multiple bankruptcies in California, the acquisitions of Newsweek, the Boston Globe and most famously the Washington Post at fire sale prices, the media inventing racism-driven stories out of whole cloth, leftwing sexual predators and misogynists either running for office or already in office in major cities on both coasts, and a gaffe-prone president trying desperately to implement his agenda piecemeal through executive orders, we may very well be witnessing the wholesale collapse of the large portions of the century-old “Progressive” model. But because old media has so much invested in that model, they’re far too close to see anything approaching the big picture, and would be far too scared to admit what they’re seeing to their readers, even if they could. Too bad, as Matt Welch wrote last year at Reason, that history is written by the losers.

Related: “Famous Metropolitan Disasters.”

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All Comments   (7)
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The way out of this eventually is for localities to cnvert their pensions to 401k's, just like most private sector companies have. The advantage of a 401k is they have to be fully funded, and they also belong personally to the retiree. This leads to 2 advantages, one for taxpayers, and 9ne for the retirees:
1. Being fully funded means the localities must pay for the benefits now, instead of foisting them on future taxpayers, which prevents present politicians from making unrealistic promisses to public service unions that they cant keep later. It also prevents localities from being backrupted by pension obligations they cant pay, since they already have been paid.
2. Since a 401k belongs to the worker, not the locality, if the locality goes broke, the workers pension still cant be touched.
3. This does mean that public sector unions cant negociate quite as lavish of pensions as they used to, since they must be funded with real dollars now, rather than future fictional dollars. But it also means that whatever pensions are promissed, have to be kept, since they are fully funded, and belong to the worker, not the gov.
36 weeks ago
36 weeks ago Link To Comment
"We can’t seize and sell off the city of Chicago to make those obligations good...."

Uhhh? Why not?
36 weeks ago
36 weeks ago Link To Comment
Excellent question.

"But how much should cities have to cut, once the tax base is exhausted? Senior centers? Parades? Maintenance at city parks?"

That would be yes, yes, and yes. Next?
36 weeks ago
36 weeks ago Link To Comment
Collapse or total victory of the blue model? If the institutions, authority, and people endure, they will not care about the poverty and oppression they have created. Wake me when they lose an election and the IRS is abolished.
36 weeks ago
36 weeks ago Link To Comment
I believe there is a total collapse coming. That means that the "blue model" will take everyone down with it.
36 weeks ago
36 weeks ago Link To Comment
Love the Nietzsche.
36 weeks ago
36 weeks ago Link To Comment
'Nobody ever fought and died to preserve their standard of living.' - Larry Niven

'A good shepherd shears his flock; He does not flay it.' - Old Roman proverb

The Progressives are merciless, they cannot stop, and that will be their undoing.
36 weeks ago
36 weeks ago Link To Comment
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