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Steven Malanga
The Indebted States of America « Back to Story

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Nice summary. I have beat my head against the wall for 25 years once I did a calculation of how much my softball and basketball teammates in teaching and public safety were going to collect. It is a great way to make enemies. I can assure you the 15% of workers in govt know EXACTLY how much they are owed, and thier relatives and spouses(who of course benefit) will fight tooth and nail against any changes. Unless everyone gets outraged bankruptcy is the only answer
Thanks for this Steve. As you've said, this is a time bomb. When the right confluence of events brings America to its next financial crisis, these fiscal shenanigans may be the straw that breaks the camel's back.
The only solution I can see is for states to limit total employee numbers to 5% of the working private sector and offer no retirement or healthcare benefits. This might help reduce the debt or at least keep it in check.
We may have to prohibit public debt entirely to stop this insane and unsustainable spending. All levels of government since no politician can be trusted to not practice accounting that would put a private person in prison.

We have to do it so we can at least have an all cash government.

At some point the decision to keep borrowing and borrowing will be made for us. When we no longer have any credit left.

And the cash will be worthless at that point.
There is one way to ensure that local government officials will adopt a better attitude towards spending: simply make a requirement that any budget shortfalls and fines incurred due to financial shenanigans come out of their personal income. The only way to make a politician honest is to put his own wallet on the hook.
Seems to me that in the 90s NYS also sold its Thruway to an authority which then repaid the bonds the State issued to sell the Thruway to the authority.There was something about selling rights to the middle of the Hudson River, too, although I forget the details. It was published in an Albany paper.
Comparing states without recognizing the differences between their regulations does not, in my opinion, do justice to an already complicated situation. NYS, for example, has schools in such disrepair as to render the costs almost immeasurable. The state, many years ago, pronounced that it was going to introduce the "CAPP" data collection system for schools...Capital Asset Preservation Plan. After several years , it was dropped...rumor had it that it was dropped because the State recognized if it collected the data to truly know the renovation costs for its school buildings state wide (Think: NYC), it might have to do something about it. There were even draft data collection forms circulating. The state does, however, provide some assistance to its schools for construction projects. Compare that with other states. Texas, for example, is indicated as having low state debt. Perhaps that is because Texas is over 50% property tax reliant and has very limited aid to schools with capital debt. The subject of CABs is introduced in this article as if they are an artifice, but later in the article it is acknowledged that long term assets can reasonably be repaid by the beneficiaries of those assets. I totally agree that all debt should be properly measured and accounted for. This article provides a decent examination of the issues, particularly the pension liabilities and health insurance commitments that many states made, and most certainly at the local level when the workforce is unionized. However, to be fully informative, I suggest more comparisons on what each state provides funding for would be more informative. Thank you for a conscientious article.
Simply brilliant. This analysis should be sent to every household in America regardless of how each of them perceives it. The law-makers should be hauled to town hall meetings and grilled on definitive slutions. It would help if someone used the background of this article to present a 1,2,3, summary of bad, unauthorized, borrowing practices of our governing agencies and the solutions thereof.
There is only one solution but it is too painful to the politicians addicted to spending money they don't have.

Add an Amendment to the US and each State's Constitution declaring that:

"No Congress, Legislature, nor any entity connected to the State shall have the lawful authority to obligate future Legislatures or Citizens for any debt beyond ten (10) Years."

"Any future Legislature may freely renounce such obligations, thus any fool who lent money under such circumstance has no lawful claim in any Court created by or recognized by this Government."

"No debt may be rolled over or otherwise financed through new debt. Any pension or other obligation which must persist longer than ten (10) years must be fully funded through an annuity held by a private entity and fully insured against loss with present funds."
Matt Marinovich:

Since 1980, the highest incomes have paid both more in the raw dollar amount of taxes at the federal level and state levels, and a higher percentage of the total tax burden. You notion that they paid "their fair share" is delusional both numerically and definitionally.
Since this is all for government, which does good things we all want and whose employees are our employees and are unselfishly and disinterestedly working for the public good, and government workers don't get paid for all the value they produce when they're on the job and thus deserve to be paid the rest of the value for the rest of their lives after they leave government employment... well, it's all worth it to everyone who pays taxes to pay for these goods of government, regardless of how high taxes have to be to pay for it all.

And if you object you're a selfish, greedy, Republican racist.

That much is obvious.
Really, how does anyone think that all this money will ever be paid off??
This appears to be and eye opener study, however not very easily verifiable, but what it is certain is that pensions and benefits must be funded based on accrual basis. As a participant of a corporate pension in a prior year the corporation had to put in an influx of over $2 Billion shortage in the fund.
As a whole is a great article, very informative.
sounds like we all need to go Amish. and quickly.

Liberals never met a project that could not be funded by someone else's taxes or a liability or loan that could not be covered by a future generation.
Good call putting Cook County at the top of the list. Just yesterday Moody's said, under proper assumptions, the deficit for the county's own pension is 2X the official number. Here in Illinois, our media blindly use just the official numbers, which is a big part of why we don't seriously address the crisis.
Texas is a good example of spending way beyond our ability to pay. The state is 40 Billion in debt but the local government entities, cities, counties school districts and other taxing authorities are 200 Billion in debt. A great deal of this debt is is unfunded pension liabilities. What is worse though is the funded portion of these pensions are in derivatives and other worthless paper so the picture is much much worse than one can imagine.
this is of course correct but as a 57 yr old IT mid manager with 300K in a 401k and a 95k income I see a strange behavioral trait among the public. I am a parochial school parent but my daughters play in leagues with girls from many high schools. At various games, I see teachers mingling with the crowd who are unaware that the teachers are in fact their creditors. A husband/wife teacher combo(there are many)in Conn will get a 130k household retirement worth $2M(9x what I have put away- and i am better than most). Ditto public safety, and many privatesector parents feel HONORED that they can talk to their kids teachers or local fireman(I have never seen a fire) in a casual environment. I did hear a local builder grumble over a "2 pension household" with a fireman who moonlights, but by and large they are treated like gods. Companies like UTC, Pitney Bowes, etc can and do lay off hundred and the parents disappear, but the govt paid parents NEVER disappear yet are considered(incorrectly) "one of us" and "solid middle class". If me who most think is doing OK feels this, what does the 40k factory worker think? By the way when I try to prove my point by showing them the website ctsunlight.org(all public payrolls) the STILL dont believe.
We didn't have an issue before 1980 when the highest incomes paid their fair share of taxes.
It sounds as though the fed, state and local governments have to all do a thorough investigation on their debts and capital. Then the method of accounting MUST be written as a law so they cannot fudge the numbers.
The Political Commentator August 08, 2013 at 6:26 AM
Hi Steven:

I don't know if you are familiar with the Watcher's Council but I used this article as my Non-Council submission this week. Keep up the great work.

WOW: http://www.watcherofweasels.org/watchers-council-nominations-happy-birthday-mr-president-edition/

Mike

Michael Haltman
The Political Commentator
2011, 2012 Fabulous 50 Blog Award Winner
New York, New York
Twitter: @ThePoliticalCom
Nick,

Agree with your assessment that socialism's unwinding will be painful but disagree on who will feel the pain.

Please keep in mind that politicians, judges and cops are all part of the same ridiculously-lucrative retirement plan.
Congratulations on a fine, detailed article. Over decades, the political spendthrifts at all levels of government have mortgaged the future for idiotic dreams and crude corruption today, a duo sure to crush a people over time. One begins to conclude that Acton was correct, and that power always corrupts. Only in March we read, " 'We do not have an immediate debt crisis,' Boehner said on ABC News’s 'This Week With George Stephanopoulos.' 'But we all know that we have one looming. And we have — one looming — because we have entitlement programs that are not sustainable in their current form. They’re gonna go bankrupt.' Boehner’s remark that there is no present debt crisis echoed President Obama, who told ABC News last week, 'We don’t have an immediate crisis in terms of debt,' But, Boehner said, he disagrees with the president about what should be done about the debt right now'." In "John Boehner: Debt crisis not 'immediate,' but 'looming'," by Sean Sullivan, Washington Post, 17 March 2013. That's rather good proof that the politicians are still trying to kick the can down the road a notch. Cowards or fools, all of them.
Very sad what is happening to the taxpayers who are targeted by all levels of govt....in Frederick,mD we have been targeted by the gov who took a hefty contribution from an operator of garbage incinerators ( Covanta)and suddenly decided that burning garbage and old tires is Tier One Green and one of his state offices "The Waste Authority Ginned up a deal with Wheelabrator to build an incinerator in Frederick that will net the authority $25 Million over the next 30 years and Wheel. gest $3 Billion of our taxes to burn the garbage we now pay less than $8 million to get rid of and the sad truth is there will be more toxic ash left over after burning than all the garbage we create annually and that toxic ash will have to be landfilled....and finally the waste authority and county folks are telling the taxpayers they " are not on the hook to pay back the bonds" ...I wonder how Wall Street will feel about that when they fork over a half billion in construction bonds....we've got that statement on tape so I guess the county officials who made the statement are going to kick in the big bucks every month to make Wall St. whole
Excellent story about the willingness of elected officials to spend other people's money. I have another story for you that I would like to talk about. It involves a state agency in Maryland borrowing hundreds of millions of dollars to build an incinerator. They told the citizens that they were not on the hook to repay the bonds; however there is a contract which says they are. In addition this state agency receives $43,150 per month for 30 years in kickbacks from a contractor which taxpayers must repay but they are unaware of this obligation. Please contact me at my email if you are interested in another story.
Think about the low information , clueless voters who put this man in office....

They will never wise up, they like free stuff.

And we cannot afford 11 Million more of them taking our jobs, and voting liberal...

so, wise up everyone, vote Conservative. Save America.
$17 TRILLION OBAMADEBT. Enough said.
How do you get a waitress in Atlanta or a hardware store owner in Boise to bailout municipal workers who demand that someone – anyone - fund their pensions? First, your allies in America’s media must announce a startling new trend which supposedly affects all Americans. Certainly Detroit’s current problem with municipal pensions is entirely the fault of Detroit’s politicians but what if Chicago or Springfield or Philadelphia find they can’t make their pension contributions? When does that hardworking waitress in Atlanta get tapped by the Feds to “resolve a national crisis”?

Perhaps soon as the New York Times published a worry bead article today about Chicago and speculated on how long before Chicago follows Detroit down the toilet bowl. Unable to resist a little mild hysteria, the NYT dropped additional names, Springfield and Philadelphia and Charleston W. Va. were mentioned as also having trouble with pension funding.

Cities in trouble refuse to drastically raise property taxes to foot their required pension contributions, residents wouldn’t understand and might take drastic actions, like vote in a Republican mayor or something equally insane. But, ultimately, shouldn’t the state cover obligations not covered by their cities – Illinois would need to cover Chicago except Illinois is having an identical problem funding its pensions.

Will we have to call on President Obama to help – the New York Times didn’t reach that conclusion at this stage of the game, it’s much too early within this manufactured crisis to drop the federal “B” word but eventually things might come to that.

Teachers, municipal and state workers were promised generous pensions upon retirement and we can’t break our promises can we? Does that put the Atlanta waitress or the Boise hardware store proprietor or perhaps even you on the hook for Chicago’s teachers and their promise of a well-funded retirement? We’ll have to watch as developments unfold but is a federal bailout to rescue our cities beyond the realm of possibility? Remember the UAW and poor GM and Chrysler struggling to provide for their retirees? We naively believed a taxpayer bailout of current and retired auto workers was also beyond the realm of possibility. Stay tuned, watch as our media folks work their opinion forming magic and don’t forget to generously tip your waitress, she’ll need that extra money to help Chicago’s teachers once the Feds come calling.
guess people are finally finding out that there is a price to pay, and unless you can print your own money, you can't borrow yourself out of debt, and you can't get rid of debt unless you cut spending.
Politicians have demonstrated that they cannot be trusted with the power to borrow, and the power to promise future spending, on pensions, e.g. Pass a Federal Constitutional amendment that prohibits politicians from doing those things.
Excellent. Do you have a play book that would give me some instructions for calculating the debt of my community?
Some states and some cities. Generally speaking the poor southern states have not followed the trend of the wealthy states spending what they don't have. Most of the Red States have pretty good balance sheets.
In my town a suburb of Chicago in Cook county my towns high school was singled out by the IL pols in Springfield for a special H.S. academy. The funding for this 500 student academy in 2013 was TAKEN/STOLEN from the 3 H.S. that serve 2800 students. 51% of the funding was ripped out of the budget for the 2800 kids and GIVEN to the 500 student academy. This leaves only 49 % of funding for the 2800 kids.
Next year 2014 the funding for the academy will TAKE 67% of the funding and in 2015 the academy will TAKE 82% of the funding for the 2800 kids.
How do these these pols think that the old H.S. district can SURVIVE on funding of 49% in 2013, 33% in 2014 and 18% in 2015.
This H.S. district Rich Township 227 in extreme southern Cook county was singled out for extinction. NO ONE knows where the funding for the H.S. will come from.
Meanwhile the academy is hiring teachers by the busloads and even building a staff for 500 kids while the 2800 kids from the 227 get he shaft.
By the way I pay $4300 in property taxes for a 1200 sq foot house already. This is NOT a well to do area.
The dumbest thing JFK did was to sign an executive order giving government workers the right to unionize. He lit that proverbial time bomb which is now exploding.
There is only one solution: Become Energy Independent. T. Boone Pickens points out that in a 10 year period, we send 7 trillions to the Persian Gulf. The alternative? Default, Depression and War. Choose.
I wonder where all of those supporters of "free trade" are NOW?

Jobs, Jobs, Jobs were what we were PROMISED!

Where are they???
Truly excellent article. It's so rare these days to see a fact-laden article that is presented in a thoughtful way.
Thanks for this in depth review of the history. It would be REALLY helpful if it were accompanied by a 50 row table, for the biggest cities in each State, of unfunded State and local obligations on a per family basis, for the years 2006, 2010 and simple projections to 2014 and 2018. The biggest defect in news today: large numbers of words, and no decent data.
Bankruptcy of cities and states and eventually America is the ONLY way to break these illegal debts.

Sad to say but we can't afford this and never could.....
The socialists are finally running out of other people's money.

Statists sell the dream, then fail to deliver. Do I feel sorry for retirees on defined benefit pensions? No. They voted for it, they campaigned for it, they unionised for it, without ever asking the question "Is it possible? Does this conform with reality?"

It doesn't. The simple answer is to end all defined benefit pensions, which are structurally unsustainable, turn them into defined contribution pensions, and divide the pot, wherever it sits, by the level of contribution each employee put in. Bellyaching and suffering will follow, but this always follows long periods of socialism, it is part of the solution.

Indeed, in all the examples above, the healing is going to take time and be painful. Let's hope it serves as a warning for future generations of the perils of left-wing voodoo economics.
WE need lawsuits and rulings to:

(1) Default and prohibit payments on any debt contracted contrary to charters and constitutions and laws - treat it like Confederate debt, A PRODUCT OF ENEMY ACTION, and treat those who are OWED this debt as ENEMIES as well, for financing illegality.

(2) Sue every public jurisdiction in the country, and place those without enough clear and legal liquidity to fund ALL their debt in BANKRUPTCY, with no voter control until discharge.
The American Republic will endure until politicians realize they can bribe the people with their own money.

Scottish historian Alexander Fraser Tytler (1747-1813),
So how long before we admit the US will default, 60 cents in the dollar is tax payer funded public expenditure and 40 cents is borrowed.

How much debt do we want, or do we get to the point where out of options with the US $, the IMF shifts us into SDR and we max out that credit card, too.

What will inflation do to the economy gloablly, the thing will start some time soon. Oil and food is a degree are still US dollar based, the effect is inflation in both.
So you're in favor of suing the ratings agencies into bankruptcy for knowingly giving AAA ratings to CDOs they and the issuing banks knew were junk, then sold to state and local pension funds, right? You'd agree the ratings agencies cannot hide behind their :"free speech" defense of their hideously fraudulent practices right? Hmmmmmmmmmmmmmmmm?
Exhaustive catalog of government financial sins but only a few measly sentences describing the taxpayer’s options for resolving this present mess: “taxpayers may decide that it’s time for a new fiscal revolt” according to the author. Right, we citizens will all revolt “fiscally” – whatever that nonsense is supposed to mean.

But examine all the convenient rationalizations Mr. Malanga puts forth for the failure of our self-government model. Take the story’s heroine for example, Treasurer Pappas of Cook County – what an accomplished liar she is – she claims she didn’t realize why taxes were going up so she studied the problem and – big surprise – she found government employees were abusing the public trust and pursuing their own self-interest with a single minded passion. Let’s all pretend she wasn’t aware of that situation prior to her publicity seeking study and be grateful that our system produces the kind of politicians who will courageously demand honest answers to mysterious questions. Is it really that difficult to determine what government pensions and guaranteed health coverage will cost now and in future years? Not really, unless our public servants deliberately choose to ignore reality – the funding math isn’t that difficult to master – but finding the character to act responsibly is very difficult.

And how do we know this problem is rooted in a failure of a self-governing political system – why can’t it simply be government employees who lack appropriate pension arithmetic skills – a problem easily corrected with new laws, new regulations and a burst of childish optimism? We can identify the root cause because the identical problem is occurring all over self-governing Europe as well, the UK, France, Italy, etc.. This barely disguised government employee greed syndrome easily crosses political ideology as well as continents – Democrat or Republican state – California or Texas – same problem.

Can our famous constitutional checks and balances or democracy’s self-correcting mechanisms easily resolve this problem over time? Sure, it’s a very simple process to legislate basic human integrity among our elected employees, to ban self-serving greed going forward and to channel the pursuit of personal self-interest along reasonable and prudent pathways within government. Isn’t it more likely our government employees knew all along what funds were needed to support their pensions and isn’t it equally likely our government employees deliberately perpetrated a financial fraud on the public? People we trusted and voted for chose to ignore our faith and trust in pursuit of their own financial interests – which naïve constitutional check and balance failed here?

Over the past 5 years, many employees in the private sector have delayed their own retirements based on disappointing financial returns from their 401-K’s or other defined contribution retirement plans, but not our government employees, their retirement income is guaranteed by these same private sector employees – and wasn’t that their goal all along?

Municipal and county bankruptcies erupt here and there but no government employee will ever go to jail as a result – after all, bribes weren’t accepted, graft wasn’t proven under law, it was just a build-up of financial mistakes and bad estimates on the part of government employees we’re repeatedly told. Simply a regrettable series of innocent mistakes and the Treasurer Pappas types end up as folk heroes for warning us taxpayers we have a problem – but everyone has known about this problem for years so why are we applauding this silly bedroom comedy by pretending our government employees weren’t aware of and shouldn’t be held accountable for focusing solely on their personal well-being?

Under our self-government model, we’re forced to accept one of two conclusions. Either our elected employees aren’t intelligent enough to demand prudent financial policies on behalf of the people who elected them – or – our elected employees know exactly what they were doing, they consistently put their own financial interest before the public’s and they were hoping they could beat the system and collect all their fraudulently obtained benefits before the inevitable bankruptcies occurred. Not a very strong endorsement of our present political system but let’s pretend the problem is easily solved by these same government employees – it makes it much easier to sleep at night.
One of the most profound and interesting articles regarding finance and politics that I've come across. Thanks for doing such a great job....
What a story! What I find chilling is the statement that, "unless some check was placed upon this dangerous power to contract debt, representative government could not long endure."

And that's the point isn't it? When bankruptcy happens the decisions are taken out of the hands of elected officials and put into the hands of people who are not beholden to the voters. Maybe we can take that on a municipal scale, but what happens when an entire state finds itself unable to pay its bills? Or the federal government, as is inevitable?

One looks to history to discover what happens when the money runs out - think Germany, late 1920's, early 1930's. I don't know of other examples, but I do know that governments that overpsend to the point of insolvancy (usually through war) become incapable of doing great things, and become chronically disunited. A federal government unable to pay its bills, so that it imposes crushing burdens on its people, will become so unpopular that people will start thinking they are better off without an oppressive central authority. Then, of course, revolution and fragmentation.

Who to blame? The media, for making wise money policies so unpopular, for one. Democrats, for always spending other peoples money, although it is hard to say at times that Republicans, especially the national paerty has been much different.

But, ultimately it is the voter who is responsible for electing incompetent leaders, and approving, at least in my state, bond issue after bond issue. And what's the cure for voters making bad choices?

P.S. What is the remedy for places like Detroit, where local governments have spent themselves into involvency, both by chasing away prosperity and overspending? The Couts say that the city cannot avoid its obligations, but there isn't enough money to pay those obligations. To pass the burden on to the state or the feds would be to encourage others to do the same thing, plus why should a voter out of the city pay for obligations agreed to by politicians that that voter neither elected nor benefited from?
What a story! What I find chilling is the statement that, "unless some check was placed upon this dangerous power to contract debt, representative government could not long endure."

And that's the point isn't it? When bankruptcy happens the decisions are taken out of the hands of elected officials and put into the hands of people who are not beholden to the voters. Maybe we can take that on a municipal scale, but what happens when an entire state finds itself unable to pay its bills? Or the federal government, as is inevitable?

One looks to history to discover what happens when the money runs out - think Germany, late 1920's, early 1930's. I don't know of other examples, but I do know that governments that overpsend to the point of insolvancy (usually through war) become incapable of doing great things, and become chronically disunited. A federal government unable to pay its bills, so that it imposes crushing burdens on its people, will become so unpopular that people will start thinking they are better off without an oppressive central authority. Then, of course, revolution and fragmentation.

Who to blame? The media, for making wise money policies so unpopular, for one. Democrats, for always spending other peoples money, although it is hard to say at times that Republicans, especially the national paerty has been much different.

But, ultimately it is the voter who is responsible for electing incompetent leaders, and approving, at least in my state, bond issue after bond issue. And what's the cure for voters making bad choices?

P.S. What is the remedy for places like Detroit, where local governments have spent themselves into involvency, both by chasing away prosperity and overspending? The Couts say that the city cannot avoid its obligations, but there isn't enough money to pay those obligations. To pass the burden on to the state or the feds would be to encourage others to do the same thing, plus why should a voter out of the city pay for obligations agreed to by politicians that that voter neither elected nor benefited from?
Two items in this article stuck me as important as well as informative...
FTA...As in Cook County, so many different levels of government in Texas can issue debt that taxpayers, bewildered by the complexity of it all, let overlapping districts keep on borrowing.
My observation is that taxpayers do not "let districts keep on borrowing". Local, state and national governments do the borrowing on their own without any taxpayer input. So let's drop that word "let".

The following is a good example of who does and approves the borrowing......FTA..Trenton lawmakers announced a plan to borrow $8.6 billion through a bond offering—a shockingly high sum. Taxpayer groups reacted with such outrage that officials knew that voters would never endorse the move. So the legislature decided to channel the borrowing through an independent authority. The taxpayer groups sued, but the state supreme court brushed their objections aside, arguing that a clear precedent existed for such borrowing.
This example proves my point. It doesn't matter if taxpayers become involved. There's always a higher authority who overrules the lowly taxpayer.

What this nation needs is a tax revolt.
All this government debt is the result of craven promises by politicians to win the next election cycle. Lying to one's constituents and using deliberately deceptive acounting methods that would subject the private sector to criminal prosecution should also put scores of government officials in jail as well. Our whole financial system is currently set up as one gargantuan Ponzi scheme and the fiat currency we use will be doomed to failure as all other fiat currencies in history have done.
Odd: china, Japan, Europe have exactly the same problems; maybe it is something about gov't vs. the private system after all.
The Political Commentator August 05, 2013 at 12:53 AM
Terrific article about a huge problem that most Americans don't know exists.

This is a great story about Detroit: 'The Downfall of Detroit: A sad story told very well!' at The Political Commentator here: http://politicsandfinance.blogspot.com/2013/08/the-downfall-of-detroit-sad-story-told.html
Playing with the calculator 1846 - 1932 - 2018 each 86 years apart, each times of excess debt and the results.

I am not sure we will have the five years to 2018. I just fear that gold will be confiscated again, bank accounts raided. Government in Australia has just made it so they can grab an account that has been inactive for three years, was seven. Lots of (old) people have a small sum left accumulating interest untouched - my parents did, its called the "rainy day fund". Now you will have to keep an eye on it or it will be taken.







It is like the selfish first invested "SKI" spend the kids inheritance and replaced it with "SKI2", spend all the kids income, too.

If a fish rots form the heads, this heads is pretty rotten.