Best of the Week
Most Popular
1.London House Prices Bubble, Debt Slavery, Crimea 2.0 - Russia Ukraine Annexation - Nadeem_Walayat
2. Gold And Silver – 2014 Coud Be A Yawner; Be Prepared For A Surprise - Michael_Noonan
3.Sheffield, Rotherham Roma Benefits Plague, Ch5 Documentary Gypsies on Benefits & Proud - Nadeem_Walayat
4.Glaring Q.E. Failure Spotted - Money Velocity Is Falling Rapidly - Jim_Willie_CB
5.Don't Miss the Boat on Big Biotech Catalysts: Keith Markey - Keith Markey
6.Gold Prices 2014: Do What Goldman Does, Not What It Says - David Zeiler
7.Bitcoin Price Strong Appreciation to Be Followed by Declines? - Mike_McAra
8.Gold Preparing to Launch as U.S. Dollar Drops to Key Support - Jason_Hamlin
9.Doctor Doom on the Fiat Money Empire Coming Financial Crisis - Andrew_McKillop
10.The Real Purpose Of QE - It’s Not Employment - Darryl_R_Schoon
Last 72 Hrs
Rome Wasn't Burnt In A Day - 24th Apr 14
When Does Government Policy Become Criminal Behavior? - 24th Apr 14
The Great Recession Grinds On - Measuring Misery around the World - 24th Apr 14
Apple, Facebook Beat Expectations - Stock Markets Long-term Recap - 24th Apr 14
Broad Stock Market Situation on the Remains Tense as Companies Release Quarterly Earnings - 24th Apr 14
How High-Frequency Traders Use Dark Pools to Cheat Investors - 24th Apr 14
Stock Market Bears Wrong Again, Apple to Push Dow to New All time High - 24th Apr 14
Gold Prepared for the Attack of the Short Sellers - 24th Apr 14
Weak U.S. Housing Data Supports Euro - 24th Apr 14
Killing the Maximum-Wage Myth - 23rd Apr 14
U.S. Quarterly Economic Review - Optimism at the Fed - 23rd Apr 14
Why Mohamed El-Erian Left Pimco - Video - 23rd Apr 14
QE Is A Fraud Perpetrated By Made Men - 23rd Apr 14
Gold and Miners Outperform Once Again - 23rd Apr 14
G-20 and the US Tell the Bank of Japan to End Quantitative Easing - 23rd Apr 14
How to Get in the Trading Game and Profit - 23rd Apr 14
Fed Follies, U.S. Housing Market Fiasco - 23rd Apr 14
What Will December 31, 2014 Financial Headlines Look Like? - 23rd Apr 14
Why Gasoline Prices are Surging Again - 22nd Apr 14
Cold War 2.0 - 22nd Apr 14
The JIS – Junk Ideology Syndrome - 22nd Apr 14
How to Avoid Losing All Your Money - 22nd Apr 14
Silver Up, Stocks S&P Down - 22nd Apr 14
U.S. Mainstream Media Propaganda Setting the Stage for War With Pakistan - 22nd Apr 14
U.S. Interest Rates are NOT Rising! - 22nd Apr 14
A Crisis vs. the REAL Crisis: Keep Your Eye on the Debt Ball - 22nd Apr 14
Bitcoin Implications of Lack of Price Action - 22nd Apr 14
Japan - The Twilight Of The Rising Sun - 22nd Apr 14
Is This What a Credit Bubble Looks Like? - 22nd Apr 14
The Dark Side Of The Silver Mining Industry - 21st Apr 14
Strong U.S. Dollar Rally Could Pull Rug From Under Gold and Silver - 21st Apr 14
Silver Feeble Rally Fails to Hold Breakout, Falling Back Towards Support - 21st Apr 14
Stock Market Smart Money – All Out or More to Go? - 21st Apr 14
Fast Rising Pump Prices Counterattack - 21st Apr 14
Extreme Climate Change And Life On This Planet - 21st Apr 14
Gold and Silver Stocks Sitting Tight - 21st Apr 14
Stock Market Minor Correction Imminent - 21st Apr 14

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

California Dreaming: Bankruptcy, Pensions and Taxes

Politics / US Debt Dec 05, 2012 - 05:29 AM GMT

By: BATR

Politics

The California Public Employees' Retirement System lives in the rarified air where financial magic somehow materializes to pay for their irrational exuberant pensions. When the drug high is over, the real world requires a harsh penalty for ebullient irresponsibility. The Chicago Tribune reports:

"San Bernardino, a city of 210,000 about 60 miles east of Los Angeles, filed for bankruptcy protection on August 1. Since then, it has halted its bi-weekly, $1.2 million payment to Calpers, saying it wants to defer any payments to the fund until fiscal year 2013-2014. Calpers says the city is already $6.9 million in arrears since August 1.


The San Bernardino bankruptcy is fast emerging as a precedent-setting case over how creditors, especially Wall Street bondholders and insurers, are treated in a municipal bankruptcy, because never before has a city seeking bankruptcy halted payments to Calpers or threatened its historical primacy as a creditor.

Under Californian state law, the contract between Calpers and debtor cities is viewed as inviolate and has been treated as such by state courts. Unlike Calpers, other creditors have historically been forced to renegotiate or forgive debt to debtor cities."

The concept of an inviolate obligation tied to public employee retirement payouts is a sacred cow that needs purging from law and, more importantly from populace endorsement.

Notwithstanding, expressing such supportive government orthodoxy, that bastion of objective news as reported by the Sacramento Bee, writes on the pro taxation argument of Jerry Brown: California tax vote start of national tax hike sweep.

"Revenue means taxes, and certainly those who have been blessed the most, who have disproportionately extracted, by whatever skill, more and more from the national wealth, they're going to have to share more of that."

The Democratic governor's remarks follow passage last week of Proposition 30, his initiative to raise the state sales tax and income taxes on California's highest earners.

According to Governor Brown the expanded role for government programs and, by inference, public employee unions, is never ending. Just ask the taxpayers who live in San Bernardino if they are paying enough. Next, ask the municipal bond creditors, who stand to lose significant capital from the forthcoming bankruptcy.

Defining the extent of the self-inflicted injury, California: Anatomy of an exploding government obligation, reveals an alarming example of the cold hard truth why the state is financially broke.

"A promise to pay a retiree's health care coverage is essentially a kind of defined benefit plan, in which government pledges to cover a certain percentage of the cost of health insurance regardless of how much money it has actually set aside for this benefit. As the State Budget Task Force's recent report on California explains, right now workers covered in California by this retirement benefit are earning credits that should be financed to the tune of $4.7 billion a year, if California is going to have enough money to pay off this obligation over the years.

But instead of pre-funding the benefit, California has chosen to pay for it on a pay-as-you-go basis, taking the cash for the health insurance premiums of retirees right out of its annual budget. Right now that's only costing the state $1.7 billion annually because of the limited number of retirees who qualify for the benefit. But over time more and more workers will qualify, and those workers will live on average decades in retirement, swelling the rolls of those whom California must provide health coverage for."

Where in the present distressed economy are there new corporate employment contacts that include defined benefit plans? The old name is a pension. In the corporate world, IRAs and 401 K are common. The dinosaur companies that accepted union contracts with future defined benefit obligations are out of business, either escaped offshore or are hanging on by their fingernails.

Why should government employees have a privileged position, when the realities of further municipal bankruptcies are growing daily? It seems that Governor Brown forgets his own rhetoric.

Populism, Progressives and Public Unions cites a quotation from the current California governor.

"Several unions have agreed to larger employee contributions for their members. Taxpayers are living with cuts and making sacrifices to deal with the reality of California's budget crisis, state workers are going to have to do the same." Jerry Brown

Another quote referenced in a Public Employee Unions Guarantee National Bankruptcy article, also confronts the unrealistic mindset that exists in "The Golden State". Someone needs to explain to public officials that the state has used up their precious metal riches and their union members are not willing to do the hard labor of mining new veins of revenue benefit reductions that will balance their budgets.

"The Assembly Public Safety Committee today is considering one of the most noxious, special-interest pieces of legislation we’ve seen in a while—one that will endanger public safety, tread on the California constitution and reinforce the perception that some government workers are part of a special, coddled group that’s exempt from the normal legal and ethical standards that are applied to other Californians." The Registry

In this same BATR essay the Steven Greenhut’s critique in the WSJ, Public Employee Unions Are Sinking California, is emphasized. California legislators inhabit the same psychotropic mental escapism, exemplified with the double dippers that create the public employee entitlement culture. Financial reality never hits the retirement paychecks of the civil service sector, while the tormented taxpayer is told they must pay more.
The rush to leave the state has Californians perplexed for solutions as long as the Sacramento progressive ‘pols’ refuse to challenge the public union mafia. Those who remain will bear an even higher tax burden to feather the nests of the most unproductive elements in society, namely government.

Governor Brown preaches. "And everyone is going to have to realize that building roads is important, investing in schools is important, paying for the national defense is important, biomedical research is important, the space program is an indicator of the world leader - all that takes money". Just maybe a bankrupt state and municipalities needs to reduce the size and scope of government itself.

James Hall – December 5, 2012

Source : http://www.batr.org/negotium/120512.html

Discuss or comment about this essay on the BATR Forum

http://www.batr.org

"Many seek to become a Syndicated Columnist, while the few strive to be a Vindicated Publisher"

© 2012 Copyright BATR - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors

BATR Archive

© 2005-2014 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Free Report - Financial Markets 2014