Monday, October 24, 2011

As Rhode Island follows the Greek model, what states will be next?

Rhode Island may well be the first U.S. state to give Americans a taste of what it is like to be Greece.
After decades of drift, denial and inaction, Rhode Island’s $14.8 billion pension system is in crisis. Ten cents of every state tax dollar now goes to retired public workers. Before long, Ms. Raimondo [the state treasurer] has been cautioning in whistle-stops here and across the state, that figure will climb perilously toward 20 cents. But the scary thing is that no one really knows. The Providence Journal recently tried to count all the municipal pension plans outside the state system and stopped at 155, conceding that it might have missed some. Even the Securities and Exchange Commission is asking questions, including the big one: Are these numbers for real?
The pension fund can't keep up and cities will have to declare bankruptcy. And don't take comfort that this is just Rhode Island, a small state that doesn't say anything about the rest of the country.
Illinois, California, Connecticut, Oklahoma, Michigan — the list of stretched states runs on. In Pennsylvania, the capital city, Harrisburg, filed for bankruptcy earlier this month to avoid having to use prized assets to pay off Wall Street creditors. In New Jersey, Gov. Chris Christie wants to roll back benefits, too.
For years and years, state and local governments have promised generous benefits to their workers without real regard for where the money would come from in the future to fulfill those promises. If these governments pay all that they've committed to pay for retired workers, they soon will be in the position that they will be spending all their money on workers who aren't working and have nothing left over for schools or prisons or roads or any of the other functions for which people look to their state and local governments.
But unlike, say, California, with its large, diverse economy, Rhode Island is so small that there is little margin for error. Leaving the state, to escape its taxes, is almost as easy as moving to the other side of town. Efforts to balance the state budget by shrinking the public work force have left Rhode Island with a problem like the one that plagues General Motors: the state has more public-sector retirees than public-sector workers.

More ominous still, in each of the last 10 years, the state pension fund paid more money to retirees than the fund collected from state employees and taxpayers combined. The fund is shrinking, even though the benefits coming due are growing.
Now that the moment of reality is starting to sink in with Rhode Islanders, there is a lot of anger. Retirees feel that their promised benefits are being threatened. Public employee workers vow to block any reform. They don't seem to care about the ultimate health of the state's finances. As Walter Russell Mead writes,
The union leadership in Rhode Island, as in the majority of US public and private workplaces, failed in the first task of the stakeholder: they failed to undertake and support changes that would ensure the health of the enterprise down the road. This is partly about wages, pensions and work rules: making unrealistic demands only stores up trouble down the road. But more profoundly it is about not thinking seriously about the future of the company or, in Rhode Island’s case, of the state.
And nothing that the liberals who have been running Rhode Island have been supporting the same sort of answers that the Obama administration is advocating.
What economic development options did Rhode Island have to build a sustainable new economy as the old one withered away? Locked into the assumptions of the blue social model, Rhode Island planners, like their counterparts across the country, fell for white elephant concepts like convention centers, those cliched “new urbanism” pedestrian malls and downtown redevelopments that never seem to work, Solyndra style industrial policy and all the other failed nostrums that strike upper middle class social engineers as cool but that rarely make anything as vulgar and utilitarian as money.

There was a lot of expensive churn, many consultants deposited checks, but the underlying economy never turned around. The serial failure of one plan after another to regenerate solid growth, turn around the population trend, put Medicare on a sustainable path, and reverse the decline of the cities never led to a questioning of basic assumptions — and it never led the Ostrich Party to think through the implications of economic stagnation and decline for the state’s pension system and its future budgeting.
Sound familiar?

The answer is for honest, transparent information on the debts that politicians have promised to future retirees. And then politicians have to cease the demagoguing and start dealing with that reality.

Otherwise, as Rhode Island goes, so goes the nation.

9 comments:

ic said...

Let's face it, union leadership, like our political leadership are for themselves, no better, no worse. Have you heard, a day of substitute "teaching" with no teaching credentials or experience netted two union officials each a million dollars pension?
Stakeholders? Don't be absurd.

equitus said...

I hear libs and Dems talk about all the greed that is destroying the country. They've got a point, but they are looking in the wrong place.

mark said...

No, libs and dems aren't looking in the wrong place; they're just not looking in all the places. As I've said before, our financial woes have been caused by greedy and/or stupid people of both parties.

So Cal Jim said...

Mark -- No doubt there are/have been plenty of stupid & greedy Republicans but there's NO WAY anyone can deny that the policies and governing philosophies behind our financial mess come straight from the Progressive Playbook. Further, there’s no serious question about which party is most wedded to that playbook and it’s NOT the Republican Party. Democrats and progressives of ALL stripes are responsible for the length and severity of our current recession/depression. I don’t care what party someone belongs to – if they put more faith in “experts” and government action than they do in free markets then they are unqualified for national office. Why? Because history conclusively proves that progressive economics are an unmitigated disaster and anyone too stupid to learn from history is too stupid to be an American leader.

mark said...

Because history conclusively proves that progressive economics are an unmitigated disaster

Really? So go ahead and prove it (conclusively). Saying that doesn't make it so. It just means you watch too much Fox news and you've been duped by the Koch brothers. Where are your facts?

Pat Patterson said...

When the full panopoly of Keynesian and progressive economic policies were tried in 1937 the country lost all the meager gains it had made since 1930. The expansion of the money supply and the rising inflation caused a downturn in spending and thus manufacturing cut back put more people out of work. I think the question should be where exactly has progressive economics worked?

tfhr said...

mark,

What could possibly be more greedy than "share the wealth", as espoused by Candidate Obama and practiced by his failed administration?

Sure, "give me some of yours", doesn't sound too poetic but it is accurate and it is nothing other than "share the wealth". That's greed, mark.

mark said...

More greedy than "share the wealth"? How about war profiteering? I'd say stealing money from taxpayers intended to help soldiers win the war on terror is far worse. That's what a number of contractors have been doing for the past 10 years (yes, under Obama, also).
Would you like me to provide the links again? Perhaps you can make another joke about soldiers getting tainted water and food, or being exposed to toxic burn pits so a few CEOs can pocket more money.
I'm gonna go out on a limb and say that that is worse than me paying extra taxes for public services.

tfhr said...

mark,

By all means YOU should send more tax dollars in for public services. In fact, I think YOU and people like you should send all of your money to the US Treasury since Congress obviously knows how to spend, save or invest it better than you do.

Get back to us why Obama hasn't nailed Haliburton for "profiteering".