Yes, a bailout is probably unavoidable, but it’ll be a bitter pill to swallow. Published by Jane the Actuary View all posts by Jane the Actuary
14 thoughts on “Forbes post, “Pension Debt, Fiscal Mismanagement, And Why State/Local Bailout Requests Are So Maddening””
Since a state collects a lot of money through property taxes and those are not included in the table on state annual median taxes (from what I could tell), does that have an effect on the validity? I live in California and pay high property taxes based on my homes value. Some who have owned homes for a long time have the benefit of prop 13 but not any of us buying in the last 40 years.
Just curious on your thoughts
Alexa in Ca
Actually, property taxes are included in both the 2019 and 2020 calculations I referenced. (A caveat: I’m not exactly thrilled with the methodology, but it appears to be the only available calculation.)
I have compassion for the tax payers of the States where there administrators have handled their pension funds so poorly. However, it is the taxpayers who voted and elected the totally incompetent state and local leaders. The problem should not be transfered to taxpayers of other states by way of The Federal Gov’t bailing their ineptitude out of incompetent Budgeting. Let these states FAIL. Hard Lessons make for future competence!!!
What’s maddening is that the lack of revenue these states are experiencing are due to the Covid 19 outbreak. The places experiencing the worst outbreaks are urban centers that are the Americas gateways to the world. Yet you would like to put the blame on poor management. No one visiting the US flies into Louisville or Georgetown, it’s more likely to be Queens NY, or Newark, NJ. Also, considering the fact that these areas generally pay more taxes than we ever get back, a little help when it’s needed is the least you can do. Is this the UNITED states, or not. If not, just send our tax money back and we’ll take care of ourselves.
What factor does the federal income tax disparity play in all this? For example NY State pays billions of dollars more to the federal government than is returned to the state and other states such as Kentucky and Florida receive billions more in return than they pay in. There are more examples on both sides of that fence.
This disparity is hugely misunderstood. Politicians speak as if the state government itself sends money to DC, and recipient states receive the money in bulk, as a redistribution. But it’s not that way at all. The differences are due to such items as what proportion of the population is elderly (collecting Social Security benefits) or young (collecting government money for education spending), vs. working-age, plus differences in how many are disabled, differences in poverty rates (collecting food stamp money, SSI benefits, etc.), and where the military bases are (because government paychecks are “counted” in the total “recipient” money). Every instance of a retiree moving to Florida shifts the balance further but doesn’t mean that the states they move from are somehow getting shafted by the feds.
So money being sent to states with a financially poorer population in need of social service funds, food stamps etc… is essentially an income redistribution program. Don’t get me wrong, I’m not against it personally but it becomes somewhat of a bitter pill to swallow when many of the recipient states are run by “fiscal conservatives” who are always against social programs and suggestions of taxing the rich to help the poor. This is essentially a similar situation except they distance themselves from it politically. As far as helping states harder hit financially by Covid-19 for those provable costs I also do not see a problem with helping. We send money to southern states hit by hurricanes and similar storms on a fairly regular basis. Most if not all of them are “fiscally conservative” and like to brag about that fact for lack of a better word. I guess we could suggest they plan and budget for this and do not expect or ask for help from the federal government when it happens next time since they are so good with money. I never thought about it like this before but do now since some states that usually do not ask or need help for much are being told too bad now. Maybe I am misinterpreting all of this but I do not think by much.
I have lived in WI, IL, MN, CA and FL in my adult life. Illinois is by far the least financially responsible. We used to hear a giant sucking sound coming from Chicago which dominates the state legislature. Cook County is tremendously mismanaged financially. CA was very wasteful and teacher and state and local govt pensions are outrageous with outrageous calculation rules.
FL and MN did a great job even though MN taxes are high. WI is in the middle, but looks like they are going to head south under Gov. Evers. We cannot allow the federal government to bail out stupidity, lack of fiduciary responsibility, waste, greed and false promises. Its all about getting votes and maintaining power.
The governors of these states think they have the perfect storm to get the bailout they want. Pelosi and Schumer are “there to help”.
Let’s try a novel approach if in fact a bailout is ever agreed to and make it as a 100% loan with an adjustable interest rate that is 1 – 2% above the federal government is paying on their debt payable on a 25-year term that cannot be forgiven or reduced without 2/3 of Congress approving. That would be much more amenable to all parties than a bailout or no bailout and playing Robin Hood or Scrooge.
I think most states prefer Scrooge in this case though.
I find it interesting that the Boeing Corporation, that is in trouble due to their own stupidity and mismanagement,( building planes that fall out of the sky) didn’t even have to ask for help. It was offered without a second thought, yet states that find themselves in the hole, due to no fault of their own, go begging. I really hope there is a full accounting of the trillions being throw around, and any malfeasance is prosecuted to the full extent of the law.
If I were politician in a state that had adequately funded its public pension plan, and saw Illinois or Jersey get billions from the federal government o bail out their public pensions, my reaction would be to simply quit funding the state plan and promise more and larger benefits. Hey, why not? Promise every public employee at least $150K/year pension benefit.. Then when the bill comes due, go to Washington for the funds. If the Feds did it for Illinois and New Jersey, they can do it for every state that decides not to fund their plans.
I don’t think the states are looking for pension bailouts, they’re looking for funds to continue payroll due to a huge drop in tax revenues. The whole pension bailout story is just some BS story the repubs are using to try to stick it to Democratic run states. No time like a pandemic to try and spread misinformation to inflame the public. Next thing you know, the president will be egging on protestors in Dem run states, under the guise of “freedom”……oh wait…..that already happened.
I will retire in a few years, and can’t wait to leave Illinois. Pritzker’s latest is to expand Medicaid to illegal aliens while decreasing funds for mental health to citizens. I am tired of it! Pritzker’s IS delaying reopening to milk COVID for a bailout. If I were a neighboring state, I’d be livid.