Detail, east Portland photo, courtesy Miles Hochstein / Portland Ground.



For old times' sake
The bojack bumper sticker -- only $1.50!

To order, click here.







Excellent tunes -- free! And on your browser right now. Just click on Radio Bojack!






E-mail us here.

About

This page contains a single entry from the blog posted on January 22, 2011 10:46 AM. The previous post in this blog was Scary thought for air travelers. The next post in this blog is Howler of the Week. Many more can be found on the main index page or by looking through the archives.

Archives

Links

Law and Taxation
How Appealing
TaxProf Blog
Mauled Again
Tax Appellate Blog
A Taxing Matter
TaxVox
Tax.com
Josh Marquis
Native America, Discovered and Conquered
The Yin Blog
Ernie the Attorney
Conglomerate
Above the Law
The Volokh Conspiracy
Going Concern
Bag and Baggage
Wealth Strategies Journal
Jim Hamilton's World of Securities Regulation
myCorporateResource.com
World of Work
The Faculty Lounge
Lowering the Bar
OrCon Law

Hap'nin' Guys
Tony Pierce
Parkway Rest Stop
Utterly Boring.com
Along the Gradyent
Dwight Jaynes
Bob Borden
Dingleberry Gazette
The Red Electric
Iced Borscht
Jeremy Blachman
Dean's Rhetorical Flourish
Straight White Guy
HinesSight
Onfocus
Jalpuna
Beerdrinker.org
As Time Goes By
Dave Wagner
Jeff Selis
Alas, a Blog
Scott Hendison
Sansego
The View Through the Windshield
Appliance Blog
The Bleat

Hap'nin' Gals
My Whim is Law
Lelo in Nopo
Attorney at Large
Linda Kruschke
The Non-Consumer Advocate
10 Steps to Finding Your Happy Place
A Pig of Success
Attorney at Large
Margaret and Helen
Kimberlee Jaynes
Cornelia Seigneur
Mireio
And Sew It Goes
Mile 73
Rainy Day Thoughts
That Black Girl
Posie Gets Cozy
{AE}
Cat Eyes
Rhi in Pink
Althouse
GirlHacker
Ragwaters, Bitters, and Blue Ruin
Frytopia
Rose City Journal
Type Like the Wind

Portland and Oregon
Isaac Laquedem
StumptownBlogger
Rantings of a [Censored] Bus Driver
Jeff Mapes
Vintage Portland
The Portlander
South Waterfront
Amanda Fritz
O City Hall Reporters
Guilty Carnivore
Old Town by Larry Norton
The Alaunt
Bend Blogs
Lost Oregon
Cafe Unknown
Tin Zeroes
David's Oregon Picayune
Mark Nelsen's Weather Blog
Travel Oregon Blog
Portland Daily Photo
Portland Building Ads
Portland Food and Drink.com
Dave Knows Portland
Idaho's Portugal
Alameda Old House History
MLK in Motion
LoveSalem

Retired from Blogging
Various Observations...
The Daily E-Mail
Saving James
Portland Freelancer
Furious Nads (b!X)
Izzle Pfaff
The Grich
Kevin Allman
AboutItAll - Oregon
Lost in the Details
Worldwide Pablo
Tales from the Stump
Whitman Boys
Misterblue
Two Pennies
This Stony Planet
1221 SW 4th
Twisty
I am a Fish
Here Today
What If...?
Superinky Fixations
Pinktalk
Mellow-Drama
The Rural Bus Route
Another Blogger
Mikeyman's Computer Treehouse
Rosenblog
Portland Housing Blog

Wonderfully Wacky
Dave Barry
Borowitz Report
Blort
Stuff White People Like
Worst of the Web

Valuable Time-Wasters
My Gallery of Jacks
Litterbox, On the Prowl
Litterbox, Bag of Bones
Litterbox, Scratch
Maukie
Ride That Donkey
Singin' Horses
Rally Monkey
Simon Swears
Strong Bad's E-mail

Oregon News
KGW-TV
The Oregonian
Portland Tribune
KOIN
Willamette Week
KATU
The Sentinel
Southeast Examiner
Northwest Examiner
Sellwood Bee
Mid-County Memo
Vancouver Voice
Eugene Register-Guard
OPB
Topix.net - Portland
Salem Statesman-Journal
Oregon Capitol News
Portland Business Journal
Daily Journal of Commerce
Oregon Business
KPTV
Portland Info Net
McMinnville News Register
Lake Oswego Review
The Daily Astorian
Bend Bulletin
Corvallis Gazette-Times
Roseburg News-Review
Medford Mail-Tribune
Ashland Daily Tidings
Newport News-Times
Albany Democrat-Herald
The Eugene Weekly
Portland IndyMedia
The Columbian

Music-Related
The Beatles
Bruce Springsteen
Seal
Sting
Joni Mitchell
Ella Fitzgerald
Steve Earle
Joe Ely
Stevie Wonder
Lou Rawls

E-mail, Feeds, 'n' Stuff

Saturday, January 22, 2011

Sky is not falling on state and local government finance

So say these folks. Let's hope they're right. I wouldn't bet on it.

Comments (13)

The authors note that post-employment health care obligations for public employees are not contractually protected the way pension benefits are so we should be less concerned; they further state that those obligations can be reduced by simply renegotiating contracts with public employee unions so they are less generous, thereby solving the long-term problem.

While technically correct, that strategy is almost impossible to actually implement. For example, TriMet has given away the store on benefits over the past two decades and the agency now has the most costly firnge benefits in the entire industry. Management is finally trying to rein in the costs, but is getting virtually nowhere. Union negotiators don't get paid to give thing back.

As OPEB costs pile up, the real effect on current budgets grows. At some point you can't hide it.

"Economists generally support use of the riskless rate in valuing state and local pension liabilities because the constitutions and laws of most states prevent major changes in pension promises to current employees or retirees"

Courts have mistakenly applied older court rulings about pension guarantees (cannot be diminished) that pertained to wholly unfunded plans where there were no investments of any kind and applied them to plans that have individual accounts and that are invested in risky stocks and secretive vulture funds. There should be one, and only one, set of rules governing investment trusts -- which make no distinction whatsoever whether the plan participants obtained their income from government employment or otherwise. This would isolate out the complete nonsense of extending to public employees, and public employees alone, any immunity from private risk for the private investment of their earnings long past the time when such money became their own to do with as the damn well please.

Just because the reach of Congress was not extended as fully to government plans as to private plans, thereby establishing mandatory rules only as to private plans, is not itself a justification for states to circumvent state prohibitions on equal privileges and immunities and graft huge favors specific to public employees into all manner of special laws. The status of "public employee" should be wholly irrelevant to everything except the employment itself, and cease the instant the employment relationship is terminated.

It is preposterous that state officials (the PERB specifically) can demand that local governments make any post-employment boost in public employee pay ("employer contributions") long after they have received their pay checks. The conduct should instead be subject to the same rules that were applied to Wilshire Credit/Jeffrey Grayson/Andy Wiederhorn. We have transformed "public employee," and laws favorable to them, into one giant exception to federal anti-racketeering laws, for almost the exact conduct. Except that we have added the twist of making a mess of the law itself under the guise of promoting the "legitimate" public purpose of overtly favoring the purely private (private investment) interests of public employees as a describable class worthy of special "riskless" favors.

They are wrong, and that you can bet on.

This analysis is at a macro level, but the problems are at a micro level. That is, as a whole the problem may be manageable but it is not manageable for certain specific governmental units, and they are big ones like California, New York, Illinois, New Jersey, Ohio etc. Interesting enough, California now looks like it is making the strongest effort to correct itself, with Gov. Brown proposing drastic cuts and wanting to take tax increases to the voters. New Jersey, well we have already discussed how Gov. Christie is balancing the budget by simply not making payments.

On the discount rate, the use of 8% instead of 2-3% is preposterous. If you make the same assumption about your 401k Plan, don't expect to be able to retire before your 95th birthday. In the real world, as opposed to the ones Politicians inhabit simply assuming away a problem does not really make it go away, although it can kick it down the road. Denial is not that river in Egypt.

I question the assertion that states and localities will simply renege on retiree health care promises. That, and "when the recovery gets here, everything will be fine."

A small number of state and local government units, some of them very large will renege on post retirement health care promises and pension benefits.

The "why" is fairly simple. Taxpayers will not be willing to suffer the tax increases or cuts in basic services to fund those liabilities. Elected officials, at least those that want to continue in office will tell them they do not have to. (again, see Gov. Christie but also Illinois and others)

The "how" is a bit more problematic. Here is one scenario.

The Federal Government will amend the Bankruptcy Code to allow a "partial bankruptcy" by state and local governmental units. Under this partial bankruptcy, bond interest and principal will be fully protected (or maybe a small haircut allowed for political reasons. The reasons for this are (1) bond holders tend to be Conservatives, and many Conservatives will be the elected officials who want to declare bankruptcy and more importantly (2) keeping bond holders whole will be necessary to preserve access to credit markets. Otherwise the Federal Gov and/or the Federal Reserve will have to be their lenders, and we know that is not going to happen. Preservation of bond holders has happened in Europe in bailouts of Greece and Ireland, for the same reason.

The partial bankruptcy will allow State and Local Governmental units to abrogate contracts, including post retirement health care and pensions. Because of sovereignty reasons, the elected officials will serve as their own Bankruptcy Trustees, and thus be able to make unilateral decisions and impose any settlements on the retired employees.

It is possible that when this is enacted Congress will allow state and local retirees who are not otherwise eligible for Medicare to join the system, although not if Conservatives control the legislation. Remember, for Conservatives government has never created a single job (their words, not mine) so to them the 20+ million of government employees must not exist as real workers and do nothing but eat from the public trough and thus don't deserve any benefits,particularly if they are Union members.

I have to stop this now, it is time for my weekly injection of cynicism.

This was structural, not a garden variety business-cycle recession followed by a robust rebound. We aren't getting back to where we were -- indeed we couldn't return to pre-recession "norms" without making the very same mistakes and going through the meltdown process again. It will take many, many years for growth to occur in non-real estate and non-financial sectors that will even start to fill in output gaps (idiot federal, state and local governments throwing capital at developers doesn't help to hasten this day). In the meantime, unfunded post-employment liabililities explode.

We are advised to go back to the 1980's to assume 8 percent rates of return going forward. That long-term average historical return was driven largely by ten to fifteen percent yields on Treasury Bonds issued during the 1980's. If someone thinks those yields will occur going forward then one should also shudder a few times when thinking about the implications of quadrupling the cost of servicing $14 trillion dollars in US Government debt with a $20 trillion debt burden already clearly in sight. In the type of investment mix that a pension funds ought to have (heavily weighted towards bonds) 8 percent averages aren't going to happen except with conditions that lead to financial Armageddon for the Federal Government.

It's true that the overwhelming majority of state and local governments aren't going to default. Left unsaid, it's the only the largest and most reckless we need to be concerned about. And oh yes, those agencies, those pesky little agencies and authorities, like your Metro and our WMATA, they would never default (Oh Whoops!).

Very good comments by Newleaf

It is true that only a few units are likely to default, but the problem is the ripple effect. Greece and Ireland are extremely small relative to the entire European economic community, but their financial and fiscal collapse have brought about a large crisis in Europe, threatening the Euro itself. Imagine what will happen if a truly significant European economy requires a bailout.

Despite the dislike of government by many Conservative, effective, efficient and competent government, particularly at the state and local level is an essential requirement for a stable society and economic growth. Their potential collapse endangers the country much more than the failure of Lehman Brothers or AIG or even Fanny and Freddy.

It appears Congress anticipates the call for help and is going to act. This will force their hands to make some cuts, and reconfigure those obligations. Does this "emergency" create that window of opportunity that PERS could be renegotiated?

http://www.investors.com/NewsAndAnalysis/Article/560607/201101211903/GOP-Plans-Ahead-To-Prevent-Bailout-Of-States-Pensions.htm

Interesting article on Norway and its high taxes, and the effect on businesses:

http://www.inc.com/magazine/20110201/in-norway-start-ups-say-ja-to-socialism.html

Sid, my read is that the Euro-Dollar section, EU bailout of Greece and Ireland was strategic; it had more to do with export-driven Germany's desire to keep the poor cousins in the currency coalition for the long haul, than anything else. If Greece and Ireland were to withdraw or be expelled, then the resurrected Deutsche Mark or a more narrowly drawn Euro, would be higher in value, cutting into Germany's exports.

Also note, for example, that the EU bailout of Ireland was implemented primarily through loans to its banks. The Irish government is left to fend for itself within limits prescribed as conditions of the financial system bailout. It's pretty hard-headed and hard-hearted stuff.

Interesting theory by Newleaf, and certainly a default by either Ireland or Greece would have harmed the EU and Germany. As far as the bailout to Ireland is concerned, the Irish guaranteed the debts of insolvent banks, and are now on the hook for the loans from the EU.

My point, to reiterate, is that the default by these very small economies threatened the entire EU, and that default by even a small number of state and local units threatens the economic stability and growth of the U. S.

To paraphrase Woody Allen: We have a choice to make. To allow any major state and local governments to default would be catastrophic for the country, to bail out any major state and local governments would be devastating to the economy. Let's hope we have the wisdom to make the right choice.

Let's hope that those in the decision making places do have the wisdom to make the right choice.

I make widgets. I lose one dollar for every widget I make and sell. How many widgets do I have to make before I break even or make a profit?
A) 100
B) 1,000
C) 1,000,000

A truer measure of liability is when a plan terminates. Under federal law a pension plan is deemed terminated when contributions can no longer be made to the plan. How much obligation would Oregon renege on if PERS is terminated?

ORS 238.600(2) still reads as follows:

(2) If the Public Employees Retirement System is terminated, or if contributions may no longer be made to the system, each member of the system has a nonforfeitable right to the benefits that the member has accrued as of the date of the termination, or as of the date that contributions may no longer be made to the system, to the extent that those benefits are funded.

There is nothing in the federal law that requires, or that can require, a state to offer any pension plan at all. Alternatively, the OEA can offer their own pension plan for members that wish to voluntarily participate.

Is there really any legitimate purpose for the state, any state, to operate any pension plan -- specifically plans that have an investment pool and individual accounts -- other than as an illegitimate way to circumvent ordinary obligations of trustees and to circumvent the natural assignment of risk for any generic capitalist enterprise?

One minor fix is the same one I surmised several years ago: Let individual public employees opt-out, both as to the pensions and as to any health care component of their pay. A public employee should not be either a captive investor or captive customer.


Sponsors


As a lawyer/blogger, I get
to be a member of:

In Vino Veritas

Lange, Pinot Gris 2015
Kiona, Lemberger 2014
Willamette Valley, Pinot Gris 2015
Aix, Rosé de Provence 2016
Marchigüe, Cabernet 2013
Inazío Irruzola, Getariako Txakolina Rosé 2015
Maso Canali, Pinot Grigio 2015
Campo Viejo, Rioja Reserva 2011
Kirkland, Côtes de Provence Rosé 2016
Cantele, Salice Salentino Reserva 2013
Whispering Angel, Côtes de Provence Rosé 2013
Avissi, Prosecco
Cleto Charli, Lambrusco di Sorbara Secco, Vecchia Modena
Pique Poul, Rosé 2016
Edmunds St. John, Bone-Jolly Rosé 2016
Stoller, Pinot Noir Rosé 2016
Chehalem, Inox Chardonnay 2015
The Four Graces, Pinot Gris 2015
Gascón, Colosal Red 2013
Cardwell Hill, Pinot Gris 2015
L'Ecole No. 41, Merlot 2013
Della Terra, Anonymus
Willamette Valley, Dijon Clone Chardonnay 2013
Wraith, Cabernet, Eidolon Estate 2012
Januik, Red 2015
Tomassi, Valpolicella, Rafaél, 2014
Sharecropper's Pinot Noir 2013
Helix, Pomatia Red Blend 2013
La Espera, Cabernet 2011
Campo Viejo, Rioja Reserva 2011
Villa Antinori, Toscana 2013
Locations, Spanish Red Wine
Locations, Argentinian Red Wine
La Antigua Clásico, Rioja 2011
Shatter, Grenache, Maury 2012
Argyle, Vintage Brut 2011
Abacela, Vintner's Blend #16 Abacela, Fiesta Tempranillo 2014
Benton Hill, Pinot Gris 2015
Primarius, Pinot Gris 2015
Januik, Merlot 2013
Napa Cellars, Cabernet 2013
J. Bookwalter, Protagonist 2012
LAN, Rioja Edicion Limitada 2011
Beaulieu, Cabernet, Rutherford 2009
Denada Cellars, Cabernet, Maipo Valley 2014
Marchigüe, Cabernet, Colchagua Valley 2013
Oberon, Cabernet 2014
Hedges, Red Mountain 2012
Balboa, Rose of Grenache 2015
Ontañón, Rioja Reserva 2015
Three Horse Ranch, Pinot Gris 2014
Archery Summit, Vireton Pinot Gris 2014
Nelms Road, Merlot 2013
Chateau Ste. Michelle, Pinot Gris 2014
Conn Creek, Cabernet, Napa 2012
Conn Creek, Cabernet, Napa 2013
Villa Maria, Sauvignon Blanc 2015
G3, Cabernet 2013
Chateau Smith, Cabernet, Washington State 2014
Abacela, Vintner's Blend #16
Willamette Valley, Rose of Pinot Noir, Whole Clusters 2015
Albero, Bobal Rose 2015
Ca' del Baio Barbaresco Valgrande 2012
Goodfellow, Reserve Pinot Gris, Clover 2014
Lugana, San Benedetto 2014
Wente, Cabernet, Charles Wetmore 2011
La Espera, Cabernet 2011
King Estate, Pinot Gris 2015
Adelsheim, Pinot Gris 2015
Trader Joe's, Pinot Gris, Willamette Valley 2015
La Vite Lucente, Toscana Red 2013
St. Francis, Cabernet, Sonoma 2013
Kendall-Jackson, Pinot Noir, California 2013
Beaulieu, Cabernet, Napa Valley 2013
Erath, Pinot Noir, Estate Selection 2012
Abbot's Table, Columbia Valley 2014
Intrinsic, Cabernet 2014
Oyster Bay, Pinot Noir 2010
Occhipinti, SP68 Bianco 2014
Layer Cake, Shiraz 2013
Desert Wind, Ruah 2011
WillaKenzie, Pinot Gris 2014
Abacela, Fiesta Tempranillo 2013
Des Amis, Rose 2014
Dunham, Trautina 2012
RoxyAnn, Claret 2012
Del Ri, Claret 2012
Stoppa, Emilia, Red 2004
Primarius, Pinot Noir 2013
Domaines Bunan, Bandol Rose 2015
Albero, Bobal Rose 2015
Deer Creek, Pinot Gris 2015
Beaulieu, Rutherford Cabernet 2013
Archery Summit, Vireton Pinot Gris 2014
King Estate, Pinot Gris, Backbone 2014
Oberon, Napa Cabernet 2013
Apaltagua, Envero Carmenere Gran Reserva 2013
Chateau des Arnauds, Cuvee des Capucins 2012
Nine Hats, Red 2013
Benziger, Cabernet, Sonoma 2012
Roxy Ann, Claret 2012
Januik, Merlot 2012
Conundrum, White 2013
St. Francis, Sonoma Cabernet 2012

The Occasional Book

Kent Haruf - Our Souls at Night
Peter Carey - True History of the Kelly Gang
Suzanne Collins - The Hunger Games
Amy Stewart - Girl Waits With Gun
Philip Roth - The Plot Against America
Norm Macdonald - Based on a True Story
Christopher Buckley - Boomsday
Ryan Holiday - The Obstacle is the Way
Ruth Sepetys - Between Shades of Gray
Richard Adams - Watership Down
Claire Vaye Watkins - Gold Fame Citrus
Markus Zusak - I am the Messenger
Anthony Doerr - All the Light We Cannot See
James Joyce - Dubliners
Cheryl Strayed - Torch
William Golding - Lord of the Flies
Saul Bellow - Mister Sammler's Planet
Phil Stanford - White House Call Girl
John Kaplan & Jon R. Waltz - The Trial of Jack Ruby
Kent Haruf - Eventide
David Halberstam - Summer of '49
Norman Mailer - The Naked and the Dead
Maria Dermoȗt - The Ten Thousand Things
William Faulkner - As I Lay Dying
Markus Zusak - The Book Thief
Christopher Buckley - Thank You for Smoking
William Shakespeare - Othello
Joseph Conrad - Heart of Darkness
Bill Bryson - A Short History of Nearly Everything
Cheryl Strayed - Tiny Beautiful Things
Sara Varon - Bake Sale
Stephen King - 11/22/63
Paul Goldstein - Errors and Omissions
Mark Twain - A Connecticut Yankee in King Arthur's Court
Steve Martin - Born Standing Up: A Comic's Life
Beverly Cleary - A Girl from Yamhill, a Memoir
Kent Haruf - Plainsong
Hope Larson - A Wrinkle in Time, the Graphic Novel
Rudyard Kipling - Kim
Peter Ames Carlin - Bruce
Fran Cannon Slayton - When the Whistle Blows
Neil Young - Waging Heavy Peace
Mark Bego - Aretha Franklin, the Queen of Soul (2012 ed.)
Jenny Lawson - Let's Pretend This Never Happened
J.D. Salinger - Franny and Zooey
Charles Dickens - A Christmas Carol
Timothy Egan - The Big Burn
Deborah Eisenberg - Transactions in a Foreign Currency
Kurt Vonnegut Jr. - Slaughterhouse Five
Kathryn Lance - Pandora's Genes
Cheryl Strayed - Wild
Fyodor Dostoyevsky - The Brothers Karamazov
Jack London - The House of Pride, and Other Tales of Hawaii
Jack Walker - The Extraordinary Rendition of Vincent Dellamaria
Colum McCann - Let the Great World Spin
Niccolò Machiavelli - The Prince
Harper Lee - To Kill a Mockingbird
Emma McLaughlin & Nicola Kraus - The Nanny Diaries
Brian Selznick - The Invention of Hugo Cabret
Sharon Creech - Walk Two Moons
Keith Richards - Life
F. Sionil Jose - Dusk
Natalie Babbitt - Tuck Everlasting
Justin Halpern - S#*t My Dad Says
Mark Herrmann - The Curmudgeon's Guide to Practicing Law
Barry Glassner - The Gospel of Food
Phil Stanford - The Peyton-Allan Files
Jesse Katz - The Opposite Field
Evelyn Waugh - Brideshead Revisited
J.K. Rowling - Harry Potter and the Sorcerer's Stone
David Sedaris - Holidays on Ice
Donald Miller - A Million Miles in a Thousand Years
Mitch Albom - Have a Little Faith
C.S. Lewis - The Magician's Nephew
F. Scott Fitzgerald - The Great Gatsby
William Shakespeare - A Midsummer Night's Dream
Ivan Doig - Bucking the Sun
Penda Diakité - I Lost My Tooth in Africa
Grace Lin - The Year of the Rat
Oscar Hijuelos - Mr. Ives' Christmas
Madeline L'Engle - A Wrinkle in Time
Steven Hart - The Last Three Miles
David Sedaris - Me Talk Pretty One Day
Karen Armstrong - The Spiral Staircase
Charles Larson - The Portland Murders
Adrian Wojnarowski - The Miracle of St. Anthony
William H. Colby - Long Goodbye
Steven D. Stark - Meet the Beatles
Phil Stanford - Portland Confidential
Rick Moody - Garden State
Jonathan Schwartz - All in Good Time
David Sedaris - Dress Your Family in Corduroy and Denim
Anthony Holden - Big Deal
Robert J. Spitzer - The Spirit of Leadership
James McManus - Positively Fifth Street
Jeff Noon - Vurt

Road Work

Miles run year to date: 62
At this date last year: 144
Total run in 2016: 155
In 2015: 271
In 2014: 401
In 2013: 257
In 2012: 129
In 2011: 113
In 2010: 125
In 2009: 67
In 2008: 28
In 2007: 113
In 2006: 100
In 2005: 149
In 2004: 204
In 2003: 269


Clicky Web Analytics