In Case You Were Not Depressed Enough...
I wrote the other day about restrictions in the Federal stimulus bill that substantially reduced the ability of state governments to cut spending in response to lower tax revenues. It turns out there are a myriad of other limitations, including court cases and past consent decrees, that make it nearly impossible for states to do much if anything about their budget shortfalls (except raise taxes, of course). Just about everyone except for taxpayers have a set of lawyers in courts full time preventing budget changes that affect their special interests.
If you thought elected officials in your state were running the budget show, you might be in for a surprise. Likely as not the federal courts are more powerful budget authorities than the state's legislature or executive. A few consent decrees can easily cripple any attempt to pass a balanced budget requirement in a state legislature, and overturn the act itself in federal court if it does happen to pass. Tennessee, for instance, was shacked by three consent decrees, all of which were administered by federal judges. Before even writing budget legislation, the governor of Tennessee had to persuade two federal judges, who were the de facto managers of the state's health care system, that any changes were a good idea.
The most damaging consent decrees to state budgets tend to be related to staffing levels. A number of state agencies settled all manner of employment and discrimination claims by entering consent decrees freezing staff levels. Often state employee unions were among the most active consent decree wielders. These decrees tend to lock up not only staff levels, but salaries (through "constructive termination" clauses that equate even modest pay cuts with termination and thereby trigger staffing minimum clauses) and pension benefits as well.
Explain to me again how these government officials who signed these incredibly short-sighted consent decrees just to get through their own term in office are more long-term focused than private actors? Would any of you short-term-focused capitalists sign an open-ended agreement to never cut staff or salaries or benefits for employees no matter what the future fortunes of your company were?
The only way through this is going to be a massive string of state and local government bankruptcies.
Update: Sort of related, I got this in my email today from a reader
The City of San Francisco pays for two Police Departments and two Fire Departments, less about 5%.
Both have one active-duty department and one retired-duty department.
When a cop or firefighter retires in San Francisco, he receives a 90% pension.Then, every year THEREAFTER, the retiree receives 50% of every raise negotiated by the active duty Memorandum of Understanding.
He seems to have it right, he links to this site, which does indeed show that the COLA on retiree pay includes 50% of all raises given to active duty employees. I wonder how early they are vested?
Update #2: Via Nick Gillespie, update #1 is not that unusual:
Retirement incomes for the most experienced government employees top out at 88 percent of their active-duty pay. Unlike most private-sector workers, whose retirement is driven by the strength of the stock market and their 401-k plans, the pensions for government employees are guaranteed.
In addition to higher average retirement incomes, government retirees in Ohio also enjoy government-sponsored health care, can retire as young as 48 for police and firefighters, and have the opportunity to 'retire' and collect a full pension while going back to work, often at full pay for doing the same job. Such 'double-dippers' were paid more than $741 million by the State Teachers Retirement System last year and $240 million by the Public Employees Retirement System, records show.
In Toledo, even the mayor is a double-dipper.
Since starting his current term in January 2006, Toledo Mayor Carty Finkbeiner has drawn his annual salary of $136,000 in addition to a state pension for more than two decades in elected and unelected positions. He is leaving office on Monday.
And because he is already receiving a Public Employees Retirement System pension, Toledo taxpayers have paid $75,221 into an annuity as an additional retirement fund for Finkbeiner.
perlhaqr:
How do lower level federal courts have any authority on this at all? I thought the Supreme Court was the only court with the jurisdiction to settle disputes between states, or between a state and the feds.
And why don't the states just tell the federal judge to fuck off, anyway?
January 4, 2010, 9:48 amBearster:
At every level from state pensions to federal gov't Treasury bonds, liabilities have been accumulated that cannot possibly be paid. It's mathematically impossible.
The sooner they begin defaulting in earning, the sooner we can get through this Depression and the sooner we can begin rebuilding on a more stable basis.
Sure, the Depression will be painful. But the longer we postpone it, the more debt we rack up, the worse the pain will be when we are eventually forced to deal with it.
January 4, 2010, 9:48 amDoug:
Bearster: I wish I could agree with you, but your fatal flaw is assuming that people are common sensible. They are not. Here in the Bay Area (CA), the people loves they government. When it all collapses around them and the dust clears, they will start all over again and use the very same template. They think it is us, the fiscal conservatives, who are nuts, not the other way around, and that it is we who are to blame for not readily parting with ALL of our earnings to keep their socialist utopia alive. Like every other failed socialist regime, they are filled with endless "if only" excuses to rationalize their failures, and all of them revolve around the fact that I only "contributed" 11% of my income to them. Of course they fail to acknowledge that is was "only" 6% a few years ago in the earlier days of their Ponzi scheme.
Bottom line: as long as it's not their money, it's never enough.
January 4, 2010, 11:47 amLoneSnark:
Since when can governments sign binding contracts? I thought this was a Democracy!
January 4, 2010, 12:48 pmJeff:
Perlhaqr,
There is no way any state official is going to risk crossing the public employee unions. And the judges making these decisions usually have a vested interest in maintaining the status quo, their own pensions.
As a nation, we have two choices in front of us to resolve the debt/pension/medicare/socialsecurity crisis. Inflation or default are the only two options. I'm scared the academics and politicians think they can have "controlled" inflation. Listen to the talk about how they think they'll be able to remove the liquidity from the money supply.
No one ever sets out to create a hyper-inflation economy. The economists and politicians think they can turn it on and off at will, but it's impossible. Once runaway inflation takes hold, you have to persuade millions of people daily to trust that the paper will be worth something tomorrow. If it's not, they can't buy food. How many day's of hunger does it take to teach you to spend it all as soon as you get it? How many day's will you be willing to see your kids go hungry?
Jeff
January 4, 2010, 2:06 pmIan Random:
The question is what recourse do taxpayers have? I suspect that most of this is hard to find from the internet. Maybe, mandatory web disclosures of all financial activity? What is that saying something light the light of day drives out the vermin?
January 4, 2010, 2:23 pmmarkm:
"Unlike most private-sector workers, whose retirement is driven by the strength of the stock market and their 401-k plans, the pensions for government employees are guaranteed."
And unlike private-sector employers who offered defined-benefit pension plans, governments do not have to list future pensions as liabilities on their balance sheets, nor set aside funds into investments to pay them. A businessman who treated employees' pensions the way governments do would go to prison.
January 4, 2010, 7:01 pmElamBend:
I will no longer feel smug about Italy.
January 4, 2010, 7:30 pmjma:
Most people are unaware of the pensions and other benefits our federal, state and local employees receive, In short, our children and grandchildren will not be able to afford working outside the government payroll. What is that called? Socialism.
January 5, 2010, 8:09 amBrad S:
"Tennessee, for instance, was shacked by three consent decrees, all of which were administered by federal judges. Before even writing budget legislation, the governor of Tennessee had to persuade two federal judges, who were the de facto managers of the state’s health care system, that any changes were a good idea."
Aw, rats. I guess Tennessee is going to have to give less business tax breaks to folks like Nissan and Acer. One of these days, Cuno v DaimlerChrysler (2006) is going to be overturned, and the "consent decree" issue is going to be a big reason why.
January 7, 2010, 9:01 amBrad S:
Jeff
January 4, 2010, 2:06 pm
Then how on earth did Arnold get furloughs through. And with a lot of other things, so goes California, so goes the nation: At least half the states implemented furloughs.
January 7, 2010, 9:29 am