Politics: November 2012 Archives

Forbes staffer William Baldwin has a list of 11 states in a "fiscal death spiral" because the number of takers exceeds the number of makers and because of high levels of debt and unfunded pension liabilities. For those 11 states, Baldwin says, if you have to live there, fine, but don't buy a house and don't buy municipal bonds in those states.

New Mexico has the worst taker to maker ratio, followed by Mississippi, California, Alabama, Maine, New York, South Carolina, Kentucky, Illinois, Hawaii, and Ohio. Here's the complete list. Note that Federal employees are excluded from the total, as state spending is the issue.

UPDATE: I removed the video as Forbes seems to have changed it to start automatically.

Illinois Governor Mark Quinn offers a clear and creative explanation of the crisis faced by his state as a result of decades of underfunding contributions to public pensions:

Quinn avoids casting blame on the public employees or their unions, putting the blame instead on politicians who didn't worry about making the public pension funds actuarially sound. What goes unsaid is that the politicians were buying public employee union support (volunteers, endorsements, campaign funds) with more generous pensions and retirement benefits, while not paying the political price of asking taxpayers to pay enough additional taxes to cover the additional costs of those expanded pensions and benefits.

Other pages on thisismyillinois.com go into a bit more detail about the depth of the crisis and its causes. One interesting stat: There are now more people drawing from Illinois state pension funds as retirees than contributing as current employees. That situation is likely to worsen as pension liabilities force cuts in headcount for current operations. As with Social Security, Illinois politicians assumed, wrongly, that they'd always have more people paying in than taking out. But lifespans have grown and government employees have retired at earlier ages.

This is not an Illinois problem. I'm reminded of a Reuters story that I linked last week about the crisis in the City of San Bernardino, California -- the result of "a vicious circle of self-interest":

Yet on close examination, the city's decades-long journey from prosperous, middle-class community to bankrupt, crime-ridden, foreclosure-blighted basket case is straightforward -- and alarmingly similar to the path traveled by many municipalities around America's largest state. San Bernardino succumbed to a vicious circle of self-interests among city workers, local politicians and state pension overseers.

Little by little, over many years, the salaries and retirement benefits of San Bernardino's city workers -- and especially its police and firemen -- grew richer and richer, even as the city lost its major employers and gradually got poorer and poorer.

Unions poured money into city council elections, and the city council poured money into union pay and pensions. The California Public Employees' Retirement System (Calpers), which manages pension plans for San Bernardino and many other cities, encouraged ever-sweeter benefits. Investment bankers sold clever bond deals to pay for them. Meanwhile, state law made it impossible to raise local property taxes and difficult to boost any other kind....