Monday, December 20, 2010

Our deadbeat states

Sixty Minutes covers the disaster in state budgets. Perhaps now people will pay more attention to what has been going on in the states.
As Governor Christie says on the show,
We spent too much on everything. We spent too much. We spent money we didn’t have. We borrowed money just crazily. The credit card’s maxed-out. And it’s over. It’s over. We have to now get to the business of climbing out of the hole. We’ve been digging it for a decade or more. We’ve got to climb now. And a climb is harder. We got to do it.
My husband links to this NYT story about San Francisco's liabilities to cover the health care of municipal retirees and their dependents. It's amazing what the city's leaders have promised their employees.
All city employees hired before 2009 were promised lifetime health care after five years of work. The coverage includes all dependents, and it does not matter how long before retirement the employee stopped working for the city.
Can you think of any other job where five years of work gets you and all your dependents lifetime health care? It was only last year that new city employees had to start paying in 2% of their salary into a health care trust fund and requirements for lifetime coverage were tightened.

The city now expects to pay $4.4 billion to cover those promised benefits. They have only $9.7 million set aside. Yes, pay attention to which number begins with a "b" and which begins with an "m." And then ponder this fact.
To put the $4.4 billion liability in perspective, San Francisco has borrowed $2.6 billion through general obligation bonds in its entire history.
And then pay attention to this.
The retiree health care liability is separate from the city’s rapidly growing contribution to its pension fund. This year, the city paid more than $138 million for retiree health care. The city’s contribution to its pension fund was $173 million.

The controller projects the city’s budget deficit for the coming year at $712 million, though the mayor’s office has asserted more recently that the shortfall is now only about $380 million.

In November 2009, the United States Government Accountability Office studied retiree health care liabilities of the 39 largest local governments. San Francisco’s then-$4 billion tab ranked No. 6 on the list, behind larger cities like New York and Los Angeles.
Future employees and taxpayers will have to be paying for those benefits for retirees and their families. But it is still unsustainable. Public employees cannot keep expecting governments to bankrupt themselves to pay promised pension benefits that no officials in their right minds should have promised. But politicians seemed to have been happy to buddy up with the public employees unions to promise these absurd benefits and then close their eyes to the calamity they were bringing on their constituents. There is a special circle in Hell reserved for both those politicians and those union bosses.