Day of Reckoning on California Pensions?

Via Pension Pulse.

The LA Times posted an editorial, Day of reckoning on pensions:

The
housing bubble and subsequent Wall Street collapse wreaked havoc on
the nation's retirement savings, as many pension funds and 401(k) plans
suffered losses of 30% or more. State and local governments are now
facing huge unfunded pension liabilities, prompting policymakers to
scramble for ways to close the gap without slashing payrolls and
services. But a new report from the
Little Hoover Commission in Sacramento makes a more troubling point:
Many state and local government employees have been promised pensions
that the public couldn't have afforded even had there been no crash.

The
commission's analysis of the problem is hotly disputed by union
leaders, who contend that the financial woes of pension funds have been
overblown. The commission's recommendations are equally controversial:
Among other things, it urges state lawmakers to roll back the future
benefits that current public employees can accrue, raise the retirement
age and require employees to cover more pension costs. Given that state
courts have rejected previous attempts to alter the pensions already
promised to current workers, the commission's recommendation amounts to a
Hail Mary pass. Yet it's one worth throwing.

A bipartisan, independent agency that promotes efficiency in government, the Little Hoover Commission
studied the public pension issue for 10 months before issuing its
findings Thursday. Much of the 90-page report is devoted to making the
case that, to use the commission's blunt words, "pension costs will
crush government." Without a "miraculous" improvement in the funds'
investments, the commission states, "few government entities —
especially at the local level — will be able to absorb the blow without
severe cuts to services."

The problem is partly demographic.
The number of people retiring from government jobs is growing rapidly,
and longer life expectancies mean that a growing number of retirees will
collect benefits for more years than they worked. But the report
argues that political factors have been at least as important in
driving up costs, starting with the Legislature's move in 1999 to
reduce the retirement age for public workers, base pensions on a higher
percentage of a worker's salary and increase benefits retroactively.
The increases authorized by Sacramento soon spread across the 85 public
pension plans in California.

Compounding
the problem, the state has increased its workforce almost 40% since
the pension formula was changed and boosted the average state worker's
wages by 50%. Local governments, meanwhile, raised their average
salaries by 60%. Much of the growth came in the ranks of police and
firefighters, who increased significantly in number and in pay.

There's
nothing inherently wrong with generous pension plans. Pensions, after
all, are just a form of compensation that's paid after retirement, not
before. The problem, particularly for local governments, is that the
plans are proving to be far costlier than officials anticipated or
prepared for. By their own reckoning, the 10 largest public pension
systems in California had a $240-billion shortfall in 2010.

When
the funds don't have enough money to cover their long-term liabilities,
state and local governments are compelled to increase their
contributions. In Los Angeles, the report says, the city's retirement
contributions are projected to double by 2015, taking up a third of the
city's operating budget. It projects that governments throughout the
state will have to raise their contributions by 40% to 80% over the next
few years, then maintain that higher rate for three decades.

The
more tax dollars governments have to devote to pensions, the more
they'll have to take from other programs or from taxpayers. That means
more layoffs or pay cuts for public employees, higher taxes, fewer
services, or all of the above.

The situation won't be so dire
if the plans earn more on their investments than expected. But with the
plans typically counting on annual returns near 8%, or twice the
"risk-free" level suggested by some analysts, it seems just as likely that they'll earn less than that, forcing local governments to contribute even more.

The
Legislature and some local governments have sought to ameliorate the
situation by reducing benefits for new hires and persuading current
workers to contribute more to their pension funds. The commission's
report, however, argues that these moves aren't sufficient. The savings
from the lower pensions for new employees won't be realized for many
years, and the increased contributions aren't nearly enough to close the
funding gap.

The only real solution, the report contends, is to
reduce the benefits that current employees are slated to earn in the
coming years. That's hard to do. California courts have held that
pensions for current employees can be increased without their approval,
but not decreased unless they're given a comparable benefit in
exchange. Nevertheless, the commission calls on the Legislature to give
itself and local governments explicit authority to trim the benefits
that current employees have not yet accrued, without touching the
amounts they have already earned. It also calls for a hybrid retirement
plan that combines a smaller pension with a 401(k) plan and Social
Security benefits, as well as the elimination of a variety of loopholes
used to inflate pensions.

The commission is right about the
importance of reducing the liabilities posed by current employees. And
though picking a fight with unions over unilateral reductions in
pensions probably isn't the solution, the report should persuade both
sides to do more at the negotiating table to prevent pension costs from
swamping state and local budgets. As the commission notes, public
employees in California enjoy some of the most generous pension plans
in the country. Those plans won't do them much good, however, if their
employer can't afford to keep them on the payroll.

You can read the Little Hoover Commission's report
for details. It basically sounds the alarm on pensions and states
outright: "pension costs will crush government". From the report:

The
problem, however, cannot be solved without addressing the pension
liabilities of current employees. The state and local governments need
the authority to restructure future, unearned retirement benefits for
their employees. The Legislature should pass legislation giving this
explicit authority to state and local government agencies. While this
legislation may entail the courts having to revisit prior court
decisions, failure to seek this authority will prevent the Legislature
from having the tools it needs to address the magnitude of the pension
shortfall facing state and local governments.

The situation is
dire, and the menu of proposed changes that include increasing
contributions and introducing a second tier of benefits for new
employees will not be enough to reduce unfunded liabilities to
manageable levels, particularly for county and city pension plans. The
only way to manage the growing size of California governments’ growing
liabilities is to address the cost of future, unearned benefits to
current employees, which at current levels is unsustainable. Employers
in the private sector have the ability and the authority to change
future, unaccrued benefits for current employees. California public
employers require the ability to do the same, to both protect the
integrity of California’s public pension systems as well as the broader
public good.

Freezing earned pension benefits and re-setting
pension formulas at a more realistic level going forward for current
employees would allow governments to reduce their overall liabilities –
particularly in public safety budgets. Police officers, firefighters and
corrections officers have to be involved in the discussion because
they, as a group, are younger, retire earlier and often comprise a
larger share of personnel costs at both the state and local level.
Public safety pensions cannot be exempted from the discussion because of
political inconvenience.

There is no doubt that pension
reforms are needed in California and elsewhere in the US. But all
stakeholders need to do their part. It's not just about cutting
benefits. How about amalgamating all these dinky underfunded city plans
into one large defined-benefit plan and introducing better governance on
existing large plans, including better compensation for pension fund
managers.

Finally, I invite readers to carefully go through a recent presentation by Jean-Claude Ménard,
Chief Actuary of Canada, to the Board of Directors of the Canada
Pension Plan Investment Board. I quote Mr. Ménard: "Overall, the
results confirm that the current legislated rate of 9.9% is sufficient
to sustain the Plan over the long term, with assets projected to
accumulate to $275 billion by the year 2020."

If US states want to bolster their public pension plans, I urge them to contact the Office of the Chief Actuary of Canada.
I consider this to be one of the best departments in the federal
government of Canada made up of truly top-notch professionals who take
great care in researching their findings. Moreover, they are transparent
and welcome exchanges with actuaries from around the world. There is no
reason why US public pensions can't be fixed. All the doomsayers who
want to scrap public pension plans are just peddling fear and nonsense.

Comments

[Leo Kolivakis]

***Additional comments by Bernard Dussault***

Bernard Dussault, the former Chief Actuary of Canada, provided these additional comments, which I share with you:

Any social insurance program like the CPP is not basically different from any public program such as the California system. They are both defined benefit pension plans providing retirement benefits. The main two not basic areas of differences are generally benefit design and financing. The following analysis pertains exclusively to defined benefit (as opposed to contribution) pension plans.
Benefit design
Social programs (covering essentially all workers of a country) generally include anti poverty-related measures, such as the CPP drop-out provisions, i.e, a few (about 8 out of 47) years of lowest employment earnings being disregarded for the determination of the retirement pension benefit rate. Surprisingly, public pension plans (covering goverment employees), like most private plans, generally drop out an even larger number of years of lowest pensionable earnings by considering only the last five years or so of earnings for the determination of the retirement benefit rate. This looks as if private plans had more anti poverty measures than social programs, which is true to a certain extent but the irony is that these measures are in some cases more beneficial to richer participants.
Financing
Ideally, any pension plan, be it private, public or social, should be fully funded.

• Private and public pension plans are generally designed and meant to be fully funded, as their contributions rates are required by local government to be determined in such fashion. Therefore, their funding ratio should theoretically be at any time at least 100%. However, funding ratios can hardly not avoid getting under 100% at times due mainly to the normal statistical fluctuations in market values of investments. It happens that most private and public plans' funding ratios get too often and too much under 100% because of contribution holidays beign inappropriately taken by the plan sponsors as soon and any time the funding ratio exceeds 100%.
• Social pension plans are rarely, if never, fully funded or even designed to be so. However, following the CPP 1998 reform, any amendment to the CPP shall now be financed in a fully funded basis. The CPP was implemented on a partial funding basis and, despite the 1998 reform, does and will remain a partially funded scheme. Before 1998, the CPP funding ratio was about 7%. With the reform, it is projected to increase gradually to no more than 20% and to stay so for ever. If the CPP had been implemented on a fully funded basis in the first instance in 1966, its contribution rate would now need to be only about 6% rather than 9.9%. In other words, all current and future contributors now have to compensate for the insufficient amount of contributions made by cohorts of contributors from 1966 to about 1996.

Clarifications of certain points raised by Bill Tufts

• "This is close to the 34% cost that the CD Howe estimates and this number is backed up by Keith Ambachtsheer." If the CPP were fully funded, increasing its benefit rate from 25% to 70% would require a contribution rate of about 16.8% (rather than 30% or 34%), i.e. the above-mentioned CPP full-cost rate of 6% times the ratio of 70% over 25%. The CD Howe 34% rate rather pertains to its estimated cost of the Canadian fedeal public service pension plan (PSPP). This CD Howe's 34% estimate of the PSPP is grossly overestimated because it assumes that all PSPP assets would be invested in bonds, while a large portion of PSPP assets are actually invested in the private markets (equities, real estate, etc.). The PSPP cost is more appropriately and realistically estimated at about 19% rather than 34% in the triennial statutory actuarial reports prepared by the Office of the Chief Actuary.
• "The CPP assumes that workers will be paying CPP until age 65 or even 75, with the new late retirement rules". CPP contributions are required only until age 65. Contributions may be made from age 65 to 70 (not 75), in which case the CPP retirement benefit rate is thereby increased two-fold, fristly to account for the shorter period over which benefits are paid and secondly to account for any CPP contributions made over age 65.
• "The public security workers in Canada and the US can retire with as little as 25 years of service or age 50. " Under the Canadian PSPP, any plan member is entitled to an unreduced pension only if the plan participant is either:
  • at least 60 years of age and has at least two years of pensionable service
  • at least 55 years of age and has at least 30 years of pensionable service
• "The CPP expects workers to draw pensions for about 14 years currently and the California pensions will have to support pensioners for almost 30 years." As shown on page 17 of the latest (25th) actuarial report onf the CPP (http://www.osfi-bsif.gc.ca/app/DocRepository/1/eng/oca/reports/CPP/CPP25_e.pdf), the average life expectancy at age 65 combined for men and women is about 21 years rather than 14 years.
• "This contrasts with Canada for example, where we are bringing in 300,000 foreign workers a year. The foreign workers are paying into the CPP and have no expectation of getting any pension benefits from it. The CPP is based on all future workers in Canada paying into the fund. " Net immigration to Canada is less than 300,000 and does not include exlusively workers. Moreover, not all immigrating workers do find a job in Canada. The CPP partial financing approach relies on all Canadian workers contributing 4.95% of salary up to YMPE, minus the YBE, and the employer contributing the same amount. Like any other CPP contributors, foreign workers paying into the CPP will receive CPP retirement benefits consistent with contributions made to the CPP as for any other CPP contributors.
• "The CPP is based on a constantly growing workforce contributing into the plan. The California system will probably have a shrinking system paying into the plan." If a plan is financed on a fully funded basis, as should be the case for the California plan, a gradually shrinking proportion (as opposed to number) of participating contributors to the plan has essentially no effect on the funding ratio and solvency of the plan. As the CPP is not fully funded, a growing workforce should help improving its funding ratio or reduce its required constant contribution rate of 9.9%. However, as shown in Table of page 19 of the 25th CPP actuarial report, the ratio of population in age group 20-64 to that in age group 65+ is projected to decrease gradually from 4.6 in 2010 to 2.1 in 2075. If it were projected to remain at 4.6 or to increase, the estimated required constant contribution rate of 9.9% would be lower.
• "The average CPP payout is a little over $6,000 per year and this is funded by workers paying in 9.9%." The CPP 9.9% contribution rate is shared equally by workers and employers (i.e. 4.95% each).
• "I am no actuary but most tell me the CPP seems secure based on current funding formulas." The CPP is secure to the extent that:
  • the long-term economic and demographic assumptions upon which rests the contribution 9.9% contribution rate will be realized
  • future employers and contributors will remain willing to pay the required contribution rates
  • provisions of the existing plans remain unaltered

In this vein, the Chief Actuary claims on page 6 (under the heading Open Group) in his Actuarial Study number 8 on the CPP (http://www.osfi-bsif.gc.ca/app/DocRepository/1/eng/oca/studies/actetd8_e.pdf) that the CPP is fully funded if the actuarial projections are made on an "open group" basis because under such projection basis the present value of projected benefits is equal to the projected value of projected contributions. I already indicated to the Chief Actuary that this is a seriously inappropriate actuarial statement because it infers that the CPP could also be claimed to be fully funded if it were financed on a pay-as-you-go basis (i.e. if if where not funded at all), as under pure paygo financing contributions are equal to benefits in any year.

As always, I thank Mr. Dussault for providing me with his excellent comments.

[Zero Govt]

Leo Kockupalotis,  "How about amalgamating all these dinky underfunded city plans into one large defined-benefit plan.."

Have you got any example in history where BIG and centralised is better than lots of small? The Japan Pension scheme is under-performing smaller plans by a considerable margin and in addition is structurally unsound/insecure to place your bet into one big central pool. You continue your total strategic ignorance on how the world works (best) and continue to compound your incompetent advise on pensions.    

"...and introducing better governance on existing large plans, including better compensation for pension fund managers."

Better Governance improves nothing pinhead. The only thing that improves anything is competition. Your advise is to pool into a bigger monopoly and reward extra to follow stupid governance rules. What should be happening is farming the pensions out to various private sector competitors and reward the best performing with extra business. Your dumb-arsed suggestion suffocates competition and stops comparisons on how they're performing. Another twatish suggestion Mr Kockupalotis. 

"There is no reason why US public pensions can't be fixed. All the doomsayers who want to scrap public pension plans are just peddling fear and nonsense."

When you say "fixed" you mean bailout a failure don't you? As for talking "nonsense" nobody has cornered the market better at ZH than your constant crony BS and strategic incompetence. You are a total idiot

[Leo Kolivakis]

Yeah, thanks for proving to me and the rest of the folks here what an utter moron you are. How about asking yourself why Canadian, Dutch and Swedish defined-benefit plans are outperforming private defined-contribution plans and other DB plans around the world? You're just embarassing yourself...please do yourself a favor and STOP commenting. And man up, start addressing me by my real name...COWARD!!!

[Zero Govt]

Kockupalotis

I don't know where you think you've got the support of other ZH'ers here! If you want the mandate of the crowd you'd already have fuked off by now because everyone thinks you're a dick and a crony.

On the topic of State pensions outperforming private pensions is it a level playing field?

Do State pensions get larger tax breaks? I know from UK private pensions are in an awful state after Gordon Brown raided them no less than 3 times during his bankrupt 13 years in office. A stark contrast to the over-generous State pension which is now also bankrupt with a £600mn liability actually being £1.1bn by private estimates.

I don;t know of anything State run that isn't a sack of shit. But you know something the opposite. Is that why you're writing an article on an effective bailout for now bankrupt State pensions? You know the usual fuking incompetent State run everything you so admire

[Leo Kolivakis]

If private sector is so terrific, how come Wall Street fucked up so bad? Ask yourself that next time you're spanking the monkey...(you're a clown, an insignificant ZH flea)

[Zero Govt]

Because Wall Street are lazy monopolists. The 401k in traditional fat cunt stylee was 'designed' by WS and Washington to offer tax breaks to firstly destroy smaller competitors and secondly suck people up into an easily exploitable national product (ie. to suck local wealth up into a central national monopolist command). How do imagine WS product got tax breaks over and above smaller competitiors products Einstein? The usual Big Govt Big Corp collusiona nd corruption, perverting the market and favouring the WS porkers with tax breaks for their product.

We have the exact same Big Govt Big Corp fat-cat pension product in the UK called an ISA also having the collusion of tax breaks so that the fat cats could trounce small competition and the Govt could have an easy to target to raid (precisely as happened when Labour raped it 3 times).

The products are designed to underperform because they're being lined up by Govt to raid. If anyone has a 401k they should get out before the bankrupt US Govt screws them, just as the UK Govt has as per design screwed the ISA 

Had the industry remained small, flexible and offered lots of offerings this centralised monopolists carve-up would not have happened and everything would be considerably healthier 

[nmewn]

"How about asking yourself why Canadian, Dutch and Swedish defined-benefit plans are outperforming private defined-contribution plans and other DB plans around the world?"

Statist socialism?

[ThirdCoastSurfer]

As with Social Security, the impact of the survivor benefits that will soon apply to  same sex marriages has yet to be quantified or implicated in the situation of pension shortfalls. After all, small numbers make a big difference when you're talking about lifetime benefits with COLA adjustments. 

[ebworthen]

The big picture physical response to such a crisis would be partial collapse, riots, crime waves, anarchy, and lots of people being killed or dying.

Financial crises don't just have financial consequences; they manifest physically.

[geno-econ]

Does not taste good. Makes you want to puke on the polititians, bankers,unions. global bankers, neo-cons, generals . Yesterday Sec of Defense Gates at West Point said "any future President who sends large contingents of US troops to Asia or the Middle East should have his head examined". Either Gates is ready to resign , has been honestly sesurrected or is signaling that US unable or unwilling to intervene in Libya. Wow .Also interesting US sent one small ferry for purposes of evacuation while China sent two large ships . How has globilized economy helped US or US worker?

Perhaps we are all RingToneDeaf 

[RingToneDeaf]

Wow, What a bunch of snivelers!

We did this to ourselves. We are getting the country we want, only thing is no one wants what is coming up.

Unions, Banksters, Politico's, Businessmen, all destroyed the worker, he is broken, dead gone, so now get over it, enjoy the harvest feast of our collective greed.

[geno-econ]

Dice it ,slice it, fit it into mathamatical models,just a mad scramble to get what you can. In other words, greed has replaced a working capitalistic system for all the reasons enumerated on ZH. Intuitively, most including Leo ,have expressed this frustration from Greece to Egypt to Canada to various States in US. Its a global phenomonen because we are in a global economic system now questioning its governence, fairness and sustainability

[JR]

From Union Members Summary | Bureau of Labor Statistics | January 21, 2011

Union Members

In 2010, the union membership rate—the percent of wage and salary workers who were members of a union—was 11.9 percent.  The number of wage and salary workers belonging to unions…14.7 million.

--The union membership rate for public sector workers (36.2  percent) was substantially higher than the rate for private sector workers (6.9 percent).

--Workers in education, training, and library occupations had the highest unionization rate at 37.1 percent.

Within the public sector, local government workers had the highest union membership rate, 42.3 percent. This group includes workers in  heavily unionized occupations, such as teachers, police officers and fire fighters.

Private sector industries with high unionization rates included transportation and utilities (21.8 percent), telecommunications (15.8), and constrution (13.1 percent).

Earnings

In 2010, among full-time wage and salary workers, union members had median usual weekly earnings of $917, while those who were not represented by unions had median weekly earnings of $717...

http://www.bls.gov/news.release/union2.nr0.htm

[prophet_banker]

and it's a good thing detroit closed half of there schools, cause they lost more than half of their population in last 15 years, so if they didn't i'd really be wondering what's going on!

[Leo Kolivakis]

***Update and clarification***

Bill Tufts who maintains the blog, Fair Pensions for All, shared these thoughts with me:

I think you are a little off in trying to compare the CPP with public sector pensions in California.

I had a chance to go to the conference that Jack Dean (of PensionTsunami.com) sponsored last week. There is a big difference between a 70% of final salary pay for the California system and the 25% that the CPP tries to replace. If we assume that the CPP costs 9.9% of pay for 25% replacement income the California plans replacing 70% would require close to 30% contributions. This is close to the 34% cost that the CD Howe estimates and this number is backed up by Keith Ambachtsheer.

The CPP assumes that workers will be paying CPP until age 65 or even 75, with the new late retirement rules. The public security workers in Canada and the US can retire with as little as 25 years of service or age 50. The CPP expects workers to draw pensions for about  14 years currently and the California pensions will have to support pensioners for almost 30 years. This is a big difference.

A big problem in the US is that many workers pay nothing into the pension plans so the total cost is on counties and cities to fund the pensions. Also with the severe financial challenges that the state of California is facing, they are expecting that the state will be reducing its public workforce by about 150,000 in the next several years. This means no new employees coming on board to fund the ponzi style pension schemes. This contrasts with Canada for example, where we are bringing in 300,000 foreign workers a year. The foreign workers are paying into the CPP and have no expectation of getting any pension benefits from it. The CPP is based on all future workers in Canada paying into the fund.

The CPP is based on a constantly growing workforce contributing into the plan the California system will probably have a shrinking system paying into the plan.

The average CPP payout is a little over $6,000 per year and this is funded by workers paying in 9.9%.

The CPP report shows that by 2019 the actuarial liability on the CPP plan will have grown to $1.3 Trillion and have accumulated assets of $ 258 Billion. That is a long ways out there and a lot has to go awfully smooth for us to get there. There has not been any contingency plans built into it. I am no actuary but most tell me the CPP seems secure based on current funding formulas:

http://www.osfi-bsif.gc.ca/app/DocRepository/1/eng/oca/reports/CPP/CPP25_e.pdf

There are a whole lot of assumptions on the CPP plan for it's continued success:

• Fertility rates
  
• Migration and immigration
  
• Mortality rates
  
• Working age population
  
• Labour participation rates
  
• Unemployment and job creation
  
• Inflation/CPI (flat inflation at 2% forever)
• Earnings assumptions
  
• Investment returns
  
  • Bonds
    
  • Equities
    
  • Private equity
    
• Asset mix assumptions
  
• Contribution rates
  

In other words if all these conditions match the assumptions that are made in the pension plan the CPP will be solvent forever. If we truly thought that this wold be the case over the next 40 years we are not very good students of history!

One other big challenge coming to the state that the LA times article did not address is the cost of future other post-employment benefits (OPEBs). Many of the experts at Jack's conference are expecting the shortfalls in OPEBs to be even bigger than the pension shortfalls.

I thank Bill for sharing these comments with me. First, let me clarify, I'm not making a direct comparison between CPP, a partially funded plan, and state pension plans that are fully funded plans suffering severe deficits. There are obvious differences, many of which Bill outlines above. What I was trying to convey is that pension reforms are not just about cutting benefits to existing and retired workers. There are ways to bolster pension plans and it requires concessions from all stakeholders, including taxpayers. I know this will not please people but the states have to assume their responsibilities in this pensions mess because they too went years without topping up their pension plans.

Second, I have confidence in the assumptions the Office of Chief Actuary of Canada (OCA) uses for the CPP over the long-term fully recognizing that things can drastically change here in Canada and around the world in the near term. The Canadian economy is highly leveraged to global growth and it's vulnerable if things go awry again. But the OCA knows this and they have models which project outcomes for various possible scenarios, including dire economic and financial scenarios.

Final point I really want to make here. There is a concerted effort going on right now to weaken public pension plans or abolish them altogether. I'm of the school of thought that this is pure fear mongering and totally ridiculous. Yes, we have to reform public pension plans in the US and across the world, to bolster them, not to weaken or abolish them. I understand the frustration of taxpayers who saw their private retirement savings get hammered after the 2008 crisis. But why take it out on public sector workers who accepted lower paying jobs for the security of a stable retirement income? (There are abuses but they're not the norm).

In the meantime, Wall Street continues to enjoy record bonuses. They couldn't care less about what is going on with private and public retirement systems. In my opinion, they should care and they should be very concerned about what is going on right now. But in their myopic world, all that counts is your last trade. That shortsighted mentality is going to end up costing them trillions down the road.

[ebworthen]

Comparing Canada and the U.S. is fallacious; they are geographically connected but otherwise Canada is it's own world.

If you put Canada where the U.S. is without the buffer the U.S. provides to Central and South America, not to mention the buffer the U.S. provides militarily and in all aspects Canada would be in our shoes.

This isn't about formulas or amounts or percentages - it is much simpler.

The U.S. is morally and ethically bankrupt. 

The legal average U.S. citizen trying to do the right thing has been SOLD OUT. 

It is that simple. 

The rest is just political and economic Sophistry and equivocation to excuse or fog the reality that the Republic has sold it's soul to the devil and is on it's last legs.

[JR]

Leo, thanks for bringing out this powerful new information; you dah man.

A letter writer to the editor this week in California writes, in part:

“I was born in Madison and grew up there…

“The governor (Walker) says he wants to end collective bargaining for benefits, not salaries, to give school districts flexibility. Public employees in many states have no collective bargaining rights and they seem to be OK.

“The U.S. Bureau of Labor Statistics reports that government salares are 30 percent hgher than those in the private sector and their benefits 70 percent higher.  The Department of Education reports that only 32 percent of Wisconsin’s eighth-graders read at the ‘proficient’ level, despite a doubling of education spending between 1998 and 2009.  The reading rates have not gone up even 1 percentage point.

“That’s what should make voters angry.”

[GoinFawr]

Headline:

Banks Raped Pension Funds, Crushes Governments

The report doesn't mince words: "bailout costs, ZIRP, TARP, have already crushed municipal, state, and national governments. Additional pounds of flesh to be drawn from taxpayers will be derived from slashing public services and privatizing profitable public works for pennies on the dollar. Say Goodbye to America, Hello Ecuador".

[Alexmai]

1933: Hitler Abolishes Unions

May 1933: Hitler Abolishes Unions

On May 2nd, 1933, the day after Labor day, Nazi groups occupied union halls and labor leaders were arrested. Trade Unions were outlawed by Adolf Hitler, while collective bargaining and the right to strike was abolished. This was the beginning of a consolidation of power by the fascist regime which systematically wiped out all opposition groups, starting with unions, liberals, socialists, and communists using Himmler’s state police.
Fast forward to America today, particularly Wisconsin. Governor Walker and the Republican/Tea Party members of the state legislature are attempting to pass a bill that would not only severely punish public unions (with exception for the police, fire, and state trooper unions that supported his campaign), but it would effectively end 50 years to the right of these workers to collectively bargain.

http://investmentwatchblog.com/1933-hitler-abolishes-unions/

[nmewn]

"On May 2nd, 1933, the day after Labor day, Nazi groups occupied union halls and labor leaders were arrested. Trade Unions were outlawed by Adolf Hitler, while collective bargaining and the right to strike was abolished. This was the beginning of a consolidation of power by the fascist regime which systematically wiped out all opposition groups, starting with unions, liberals, socialists, and communists using Himmler’s state police."

Let me guess, your a unionized Wisconsin public school history teacher...LOL.

There is a vast difference between public sector unions and private trades unions.

Chiefly, governments don't make profits in order to share with union members.

[snowball777]

Neither do corporations.

[nmewn]

I didn't know corporations unionized amongest each other...I always thought GM & F were competitors instead of on the same team.

Huh...how bout that ;-)

[Seasmoke]

looks like the Civil War has arrived

[duncecap rack]

Why do Leo's posts always get such low ratings? Here he has a post that has started a spirited discussion that agrees with his premise yet he gets a rating of 2.5. I think people should vote on the merits of the article not on their personal feelings about the author.

[Stuck on Zero]

For those of you who are interested in California pay scales I invite you to find out what California State employees earn. Go to and start your hunt here:

http://www.sacbee.com/statepay/

[geno-econ]

How can anyone in thier right mind suggest compensating pension fund managers more, when they lost 30% of investments . Might as well include Madoff who lost even more.  Its no wonder the stock market is being juiced by the fed and banksters in last ditch effort to save system at expense of our children. All Ponzi schemes end up the same way ---lots of pain now, even more later. Relying on Hedgies Magic is futile and  more hocus pocus. Same with $600 trillion Las Vegas derivatives, the invention of desparate banksters to make profits when conventional methods are failing and financial system is crumbling

[vomamint]

My sister works for CA. She gets 120k/yr, plans to retire at 62 with 80% of that figure for the rest of her life. She will also continue to recieve the state's health care plan after retirement. Her position, in my opinion, is useless to the people of the state. She was hired when Pete Wilson was Governor. She was on a waiting list for two years. When Gray Davis took over, the waiting list was gone and the size of her division quintupled in a couple of years.

[snowball777]

What does your sister do? Not that your 'opinion' with zero evidence isn't truly compelling and all.

[vomamint]

Attorney. Defending the state against the incarcerated who get pro bono legal help. Not even a US Marine has that benefit when he's in trouble. Why not let an arbitration board settle the prisoner complaints? But I love sis!

[rwe2late]

 The civil service system was meant to prevent patronage abuses.

Unfortunately, over the years, the politicians have worked around the protections. Many top level political appointments are both overcompensated and unreasonably afforded public benefits originally intended only for actual clerical and other lower level civil servants.

That point is too often missed by those who lump "average" pay and benefits for government workers, most of whom do not receive $120,000 salaries.

[falak pema]

Contrary to custom in Europe, in the USA every important govt. post comes up for election. This means there is constant politicking and no continuity in impartial bias exercised by the civil servants. It's time the USA changed this. This is an open invitation to lobbying and whoring at every level of government where the big wig goes out to collect votes to exercise his power. Neutral the government servant like a harem eunuch and you won't have miscarriages of justice. Simple as lobotomy...(only kidding).

[rwe2late]

"Compounding the problem, the state has increased its workforce almost 40% since the pension formula was changed and boosted the average state worker's wages by 50%. Local governments, meanwhile, raised their average salaries by 60%. Much of the growth came in the ranks of police and firefighters, who increased significantly in number and in pay."
 [To the above, I would also add prison guards.]

 This is all related to the building of a "Homeland" security state. This excess is related to the post 9/11 delirium.

 After 9/11, firefighters, police, and veterans were all elevated to the status of "heroes". I am not saying they may not be brave, or that all the jobs are not worthwhile, or that none of the jobs are necessary, or that public service should not be fairly compensated ...

but there is a difference between respect and worship.

between appreciation and indulgence.

[savagegoose]

look up some news stories about russian collapse, no pensions no food no jobs.

oh and the mob taking over everything profitable, until gov secret services can wrest control back.

thats your future ,

[Stuck on Zero]

Yesterday, Obama said Americans have the right to collective bargaining.  I say we all get together and form a Taxpayers Union.  Next step, every TU member goes on strike.  We picket Washington and demand reforms.  We picket city hall and do not pay taxes.  Who's going to imprison the whole nation.  We taxpayers have rights, too.

[f16hoser]

So far, no one is mentioning POLITICIANS PENSIONS! Those must truely be guaranteed!

[cranky-old-geezer]

They will be ...and your peon pension will be gutted to guarantee those politician pensions.

[Treeplanter]

Bankruptcy is the legal way to dump these monster debts.  Has Jerry got the guts?

[snowball777]

No.

[Tic tock]

..States which died from beauracracy...Let's see;

France - bankrupted itself and led to the Revolution. Mazzini and Bismarck, used superior organization of the state and treaties to amalgamate Europe. The Arab empire, divided by the conflict between the Ummayids and Abbasids, caused it to fragment.

The Federation of Greek cities was subjected to the hegemony of Athens due to a policy where the cities could pay money in lieu of contributing military resources. Thus, Athens received money from the other cities to develop the Greek military, to counter the Persian threat, but which it subsequently used to colonise those same Greek cities.

The East India Co. took down India. The West India Co. took out S.E. Asia

Recently, Venuzuela, Bolivia, Chile, Iran, USSR, not Iceland, Pakistan. nuff. 

[nmewn]

+1

And, what the hell...some more bang for the buck...LOL.

"As nearly 5,000 city teachers face the ax, their union shells out millions of dollars on feasting, boozing and partying, the Daily News has learned.

Free-spending United Federation of Teachers brass last year spent nearly $1.4 million for the UFT's 50th anniversary gala at the Hilton - complete with a movie, a book and a paperweight."

More...

http://www.nydailynews.com/ny_local/education/2011/02/24/2011-02-24_lessons_in_livin_large_uft_brass_having_a_ball_as_teachers_face_layoffs.html

[Money Squid]

ok, who is the coward that junks me? No balls to admit it? That's what I thought.

[jomama]

did you want a virtual tissue?

build a bridge and get over it already.

[cranky-old-geezer]

Moron.

[snowball777]

Last refuge of those with pathetic arguments, ya tentacled freak. ;)

[ddtuttle]

More empires have been destroyed by bureaucrats and bankers than all the armies of the world.

[snowball777]

FAIL. You go ahead and list the ones you think died from bureaucracy. I'll respond with the list that died from military misadventure. There may be some overlap, but just think about how many empires fell before there even were such things as banks (stupid templars).

[Stuck on Zero]

Go look up Joseph A. Tainter.  He has done a lot of research in this area.  Most great societies "complexified themselves to death". 

Ever try to do anything in California?  The permitting is unbelievable.

Tainter collapse baby!

[snowball777]

I appreciate the focus on energy (the limits of same often being the 'why' we get into wars and empirical expansion), but there are many instances of expansion merely for the aggrandizement of leader's egos and the "every one solve it your own way" meme may only lead to even faster depletion of resources rather than sustainability. How we find the balance and get the benefits of complexity without going over the tipping point to decline is key (see the Laffer-curve-like graphs in Tainter's Complexity, Problem Solving, and Sustainable Societies paper). We want to be at that C2 point.

Cube-square law, FTW!

[tim73]

USA is going to collapse precisely for the same reasons why USSR collapsed: Bloated military-industrial complex sucking up money and other resources like a blackhole. Political institutions either paralysed or hijacked by the rich elite. Simply put: Nothing works anymore.

[Bob]

The obvious truth is apparently not a compelling argument for the frenzied vampires who feast on the coach passengers of the Titanic.