Day by Day

Tuesday, December 11, 2012

The California Fool's Rush of 2012

Cartoon courtesy of Tom Meyer, www.meyertoons.com
The captions on the whale read:
Unpaid Retiree Pension and Health Care Obligations
Bond Obligations
High-Speed Rail Obligations

“California spends most of its money on salaries, retirement payments, health care benefits for government workers, and other compensation,” said Schwarzenegger, after he replaced Grey Davis as governor. “State revenues are up more than 50 percent over the past 10 years, but still we’ve had to cut spending on services because so much of that revenue increase went to increases in compensation and benefits.”

Still California spends it like it has it, but California is broke. However, that doesn’t stop the super-majority Democrats from looking at Proposition 30 passing as a license to unleash new spending, not to reduce unfunded liabilities.

California has 13% of the nation’s population, but 25% of the unfunded liabilities, thanks to government mismanagement, incompetence and corruption. “A new estimate from Moody’s Investor Services triples national public pension debt from $766 million to $2.2 trillion (and is based on using) an annual earnings forecast based on corporate bonds, 5.5 percent, much lower than the 7.5 to 8.25 percent forecast by pension funds.” And 5.5% is overly generous, since current return on equity is actually under 4%. By denying the truth, government adds to the unfunded liability, which will cause communities to go bankrupt to pay pensions. Already we have Vallejo, Stockton, and San Bernardino, and Detroit is following the California model.

It’s no surprise that two of the strongest public employee union states have the worst unfunded financial problems. Cities are first to feel the pain, because their revenue base is stagnant and almost all their expenses are for personnel. Counties are not far behind for the same reasons, and soon states will follow. The Liberals’ plans to solve the problems by soaking the rich and corporations are bandages on severed arteries, especially since government looks on more taxes as the signal to spend more. 

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