City Journal Winter 2014

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Winter 2014
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Steven Greenhut
Deadbeat City « Back to Story

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Why would anyone - anyone - buy a municipal bond after this? In fact, given the way the goernment has used bailouts and bankruptcies why would anyone make a loan to any corporation or governmental entity without an enormous amount of collateral?

California is about to rewrite the rules for muncipal finance, and after this using bonds as a funding mechanism is going to become progressively more difficult/expensive. Even with the tax advantage municipal bonds are going to lose any atractiveness to investors. And investors are important - California's dismissal of them could have severe consequences if investors simply walk away from the bond market.

So the insanity continues - government unions mean that municipalities can't afford to hire. The nexus between salaries paid and any market for employees is completely lost. What counts is the union, and its ability to pay off Democratic politicians. Call this what it is - legal corruption, and the voters have to share some of the blame.

Republicans/conservatives mistakenly believe that as the bottom is reached voters will see reason and magically come to their senses - that as services are reduced and wages and benefits go up voters elect people who will put a stop to it. But that will NEVER happen, many of the voters are also living off the taxpayer paid largesse, and they will not vote to end it, even as their community decays - expecially since major media works hand in glove with the Democrats.

The answer for those who pay for all this is to leave for other places, where government has not made a corrupt bargain with employee unions. But, that isn't the way to address this - first of all, Democrats will simply replace those who leave with more compliant immigrants. Also, why not directly challenge these practices - Republicans should assume that people do not want corrupt government, they do not want induced dependence, they do not want a plethora of single parent families raising children who are far too likely to be criminals, do poorly in school, join gangs and simply carry on what is now the tradition of single parent families. Democrats do want this to continue of course - since these conditions lead to more votes for Democratic politicians.

But it takes courage to address the foregoing issues and Democratic media has made the price for telling the truth very steep - so that even citing facts isn't politically correct, and leads to charges of racism. It takes people of strong character to even discuss what we all know, that is, that Democrats have made a corrupt bargain with public unions, and are fleecing taxpayers. Somehow that message has to get through the Democratic lock on the nations agenda.

Otherwise, take a good look at Stockton and all the other places where Democrats are in control. That is your future, unless Republicans, conservatives SOMEONE finds the courage to address these issues, which will end up destroying us.
A couple of comments

"The average celpers pension is only $27K - Perhaps true but certainly misleading. Most pensions are for working part of a career for an agency. The true test of the pension reasonableness is a full career pension and in that respect they are far higher than other states and private sector. Add to that the tricks of bundling vacation time and sick leave to spike the last year, excess overtime etc.

While Stockton is crippled , Calpers is not at all healthy and will eat increasing slices of the California budget. One of the huge flaws of the system is that it is run by politicians and beneficiaries without real taxpayer representation. It's not an accident that a former employee of Calpers received $80 of placement fees from people who wanted to sell investments to Calpers. The official explanation is that the $80 million was lost in gambling the the better answer is that it went to calpers insiders. However, there's no push to fully understand what happened , just a token insider punished.

The amount of additional contributions needed by Calpers over the next decades to lower the ratio of unfunded to total obligations is staggering but ignored
Let'sTalkCandidly April 07, 2013 at 6:00 AM
Please correct me if I am wrong. I'm Canadian so that is distinctly possible! But up here we have known that California is a debt-ridden ditch that you would never "invest" in for, well, decades. One may come down to oogle the stars, who redistribute everyone else's money while hanging on to their own, but you DO NOT invest there. If Canadians want to invest in the USA they go to Texas or Arizona. Yet, it seems that there are still enough empty-headed Americans that actually buy bonds in this state! Methinks they deserve to be robbed if they are that silly.
What I do not understand is why anyone would keep ANY Cal. municipal bonds in their portfolio? I see actions for negligence against any mutual fund that loses money in any California State bond in the future, as they have been legally proven to be unsecured by anything.
When it comes to coverage of situations like Stockton, Detroit, and other cities facing financial woes, no one seems to mention the impact that both LEGAL and ILLEGAL IMMIGRATION are having on State and Municipal budgets - costs like education and housing to name a few. Of course, on the Federal level, there's the cost of providing medical care. I suppose it's easier to single out the White Devil Public Sector Union people
Instead of demonizing CALPERS,it should be remembered that the average pension under that system is $27,984 per year.
Dave, at 4:47: part of the value of such articles is the warning to those other states you mention, mainly their residents who are largely unaware of how their tax moneys are spent on their government. It shocked me to read about the insane pensions for retirees, whilst duty cops are being laid off for lack of funds. Which is more important? Insane pensions for past service, or present service to protect life and property? I've recently been INNStockton, and it ain't a fun place to be. I did not tarry long. Cities in my own state are being rapidly overrun by this sort of union hijacking, and seeing the result played out in Stockton, Vallejo, San Bernardino, can help turn them aside before they manage to infect the whole state. Its only a matter of (not much) time before California will be so upside down it quits functioning. The best part about that is the game will finally be up. WHO will pay for the huge numbers of pensions, poor, food stamps, freeloaders? Regulations, crazy high taxes, loss of rights, government manufactured "shortages", barriers to business, trade, interstate commerce, and so forth, will continue to drive off any and all who are intelligent and driven sufficiently to actually create wealth. After all, "wealth" is accumulated income. If a man can't make an income, he will NEVER gather any wealth. No wealth, no production. No production, no income. No income, no wealth.... tailspin. Soon will come the crash and burn scene. California would well turn out to be as untenuous as the Dust Bowl in the 1930's..... maybe Ma and Pa Joad will end up back in Oklahoma dirt farming, three generations later. SOMEONE has to grow the food, else we none of us eat. California has done a great job of making such endeavours nigh impossible.
I watch from afar the grisly spectacle of California's finances having gone wrong so quickly. In Australia we started making serious objection to excessive underfunded public sector pension plans about 1975 and in a mere 18 years we had most of the states and municipalities on the right track with defined contribution rather than defined benefit schemes. Still, California, and no doubt Illinois and other states, have the huge political advantage or truly disastrous problems with which to frighten voters. And unlike the federal government they don't have their own currencies or control interest rates.

What would really put me off moving to California and any other state exhibiting the same symptoms would be the fear that my house and garden might be subjected to a property tax or rates raised without limit to pay off the municipality's debts or pension liabilities.

What security have Californian homeowners got against being bankrupted in favour of police pensions?

fun and games... the unions seem to have managed to take over such cities, and the state governments that control them, to their own benefit. WHY do these clowns think they need a $200K/year pension when beat cops are paid far less, and getting laid off cause all the available cash goes to retired union pension hogs? What will it take before the golden-egg laying goose is finally cooked? Amazing stuff, this.
Creditors of bankrupt munis have an unsecured claim against nothing. A GO is as good as its issuer's desire to honor it. Once a muni loses market access, Grandma's nest egg becomes "Wall Street". The purpose of wealth in America is to subsidize unions. In the end, they will take your money.
Stockton has to pay municipal employees well, along with their retirement benefit because it is Stockton. Detroit without snow.
Although I agree with the views expressed in this piece, how many more times must we read about California's bankrupt cities, CALPERS, the way unions control California government, etc, etc, etc. By now, I think, this topic is seared into our brains like no other. Can we just let California slide into the oblivion to which it's destined . . . and move on? Surely there are other states that deserve our attention--states that, perhaps, can be saved before they suffer California's fate. Please? After all, if California's electorate wishes to vote itself to Hell, then who cares? Let 'em. If they're all that stupid (and they surely seem to be), then let them suffer the fate they've chosen. Let's concentrate on those states that can still be saved--what they're doing right AND wrong. Give Mexifornia back to Spain, and let's move on already.
Steven,
This is the third article I remember reading in the City Journal (there may have been more) about Stockton's woes, and the refusal of the public sector, courts included, to get a clue about where the prosperity came from, and how it is being selfishly siphoned off. Demonizing the private sector creates the feel of a "win" for the public sector, and delays judgement day for the American economy. But, it will come, and by then it will probably be too late.
David Christian
Steve, if cities in California were to not pay the bondholders, what would that do to California's credit rating and do you think that in the future, this would deter people/investors from buying California bonds???