Posts Tagged ‘debt’

Debt Limit Deal: Maybe Not Completely Awful?

Tuesday, September 12th, 2017

There has been a lot of wailing and gnashing of teeth over the debt deal President Donald Trump made with congressional Democratic leaders that pushes U.S. debt over the $20 trillion mark.

Is it a bad deal? From my perspective, almost certainly. Debt is an existential threat to the Republic, and I believe that we should reduce spending by eliminating vast swathes of federal government programs (Federal housing sibsidies? End them. Department of Education? Eliminate it. Agribusiness subsides? End them all. Etc.) until the budget is balanced. Then you wouldn’t have to worry about hitting the debt limit at all.

Sadly, my position seems to be a decidedly minority one in D.C. Since politics is the art of the possible, it’s better to ask: How bad is President Trump’s deal among the constellation of actual debt limit deal possibilities?

The answer seems to be: Still not great, but maybe not as bad as first impressions.

It’s possible that President Trump went for the deal because he had no choice, as Republican congressional leadership was woefully unprepared on the issue:

With much of the Washington Republican establishment still grumbling about President Donald Trump’s decision earlier this week to strike a deal with Democratic leaders Chuck Schumer and Nancy Pelosi, one prominent member of the House Freedom Caucus took to the Sunday Talk Shows to deliver what sounded like the faction’s official response to the week’s events.

In an appearance on Fox News Sunday, Ohio Rep. Jim Jordan struck a delicate balance: criticizing the consequences of the president’s decision without impugning the man himself.

Jordan explained that while the Trump-Schumer-Pelosi deal wouldn’t be “good for the American taxpayer” the president can be excused for agreeing to it because Republicans in Congress failed to provide him with a suitable alternative.

And just like that, a member of the House’s most intransigent, conservative faction – the group that almost singlehandedly crushed the Trump administration’s health-care ambitions – turning the blame for Trump’s debt-ceiling can-kicking, and the powerful leverage that Democrats gained because of it, back on the president’s favorite opponents: Congressional Republicans.

Here’s Jordan:

I don’t think this was a good deal for the American taxpayer. We didn’t go anything to address the underlying $20 trillion debt but frankly what options did the president have in front of him? The first time the Republican conference talked about the debt ceiling was Sunday morning. And the Freedom Caucus had called for, nine and a half weeks ago, we said ‘don’t leave town until you have a plan on the debt ceiling’ and instead we went home for the longest August recess in a decade, longer even than in elections years.

Indeed, the deal House Speaker Paul Ryan and Senate Majority Leader Mitch McConnell wanted was actually worse for conservatives:

Trump on Wednesday agreed to the proposal of House minority leader Nancy Pelosi (D., Calif.) and Senate minority leader Chuck Schumer (D., N.Y.) to increase the national-debt limit for three months, and attach that to emergency aid for victims of Hurricane Harvey. But just days earlier, conservatives had been wringing their hands in fear that Schumer would turn the debt ceiling into the Democrats’ newest set of brass knuckles.

If not for the high-profile urgency of, in essence, stapling the debt limit to Harvey assistance, the pressing need to re-charge Uncle Sam’s credit card would have given Schumer a fresh way to beat up Republicans. Absent Harvey, Schumer and his band of toughs would have kidnapped the debt limit in exchange for something else, perhaps “DACA or death!” Instead, the debt-limit increase slid through, behind Harvey’s shield, with no last-minute hostage drama.

Trump rejected the offer of House speaker Paul Ryan (R., Wisc.) and Senate majority leader Mitch McConnell (R., Ky.) to extend the debt limit for 18 months, past the 2018 mid-term elections. This would have removed federal borrowing from the list of issues on which the GOP could have run next year. Obama hiked the national debt from $10.6 trillion to $19.9 trillion — a staggering 87.8 percent. That mess, and how to escape it, would have been a worthy GOP issue. Ryan and McConnell largely would have obviated that opportunity.

Ryan and McConnell’s 18-month proposal also would have deprived Republicans of a priceless “must pass” vehicle to which they could append items that Senate Democrats dislike. The GOP similarly handed Obama multiple long-term debt-limit extensions that prevented Republicans from sending him short-term debt-limit measures that he would have had to sign, notwithstanding amendments that rankled him. Republicans should not deploy the debt limit every month, in order to corner Schumer and Senate Democrats. But mothballing this weapon until spring 2019 smacks of unilateral disarmament.

From all reports, Ryan and McConnell were ready to drop-kick the debt-limit 18 months down the road, in return for . . . nothing. Even worse, as conservatives correctly complain, they did not tie the debt-limit boost to any structural reforms, such as a cap on federal spending as a share of GDP, adoption of the brilliant Penny Plan (which would balance the budget by cutting total spending by 1 percent every year for eight years), a private-sector audit of every federal department and sub-cabinet agency, or even converting Washington’s books from cash-basis to accrual accounting. Ryan and McConnell promised 18 months of borrowing and spending on autopilot. Trump properly rejected such fiscal brain death.

Now, in three months, fiscal conservatives can and should append reformist language to the next debt-limit increase. Ryan/McConnell would have denied them that opportunity until nearly two Easters hence.

If Schumer wanted to demand “DACA or death!” I would have seen how he likes death: no debt limit vote, cut spending until the budget is balanced, and let Schumer explain why it was necessary for welfare recipients to lose their checks so Democrats could amnesty more illegal aliens.

Like I said, mine seems to be a minority viewpoint.

There are also reports that the deal is written in such a way that McConell might get the last laugh:

Senate Majority Leader Mitch McConnell (R-Ky.) wrote in some “extraordinary” provisions to the debt ceiling bill that could mean there won’t be another debt ceiling fight in 2017 after all, he revealed on “The New Washington” podcast Monday.

McConnell insisted, in the face of Democrats’ objections, that the bill be written to preserve the Treasury’s ability to extend federal borrowing power by moving money around within government accounts. In layman’s terms, that means the Republicans can work around the December debt limit deadline and push that issue into 2018.

All this is just rearranging deck chairs on the Debtanic as long as the driving motivation for current congressional leadership is avoiding bad poll numbers rather than actual conservative governance. But short of a debt deal that includes spine replacement surgery for congressional leadership, there seems precious little chance of congress fulfilling any of the myriad conservative promises they made when Obama occupied the White House.

LinkSwarm for September 8, 2017

Friday, September 8th, 2017

It would be swell if I could stop leading the LinkSwarm off with hurricane-related news, but Irma is now a class five hurricane headed straight at Florida. If you’re in any evacuation zones, heed authorities, as this does not look like a storm you want to ride out in place unless you have to. Hsoi’s preparedness checklist is also a good thing to go over earlier rather than later.

  • One reason President Donald Trump had to act on DACA: Texas Attorney General Ken Paxton and nine other states were threatening to sue to end Obama unconstitutional backdoor amnesty program.
  • “¯\_(ツ)_/¯ Obama lawyer who worked on DACA admits it’s probably unconstitutional.” And yes, the ASCII Shrugging Emoji is actually in the headline, so it just wouldn’t have felt honest to leave it out…
  • “Trump’s Crackdown on Illegal Aliens is Driving Wage-Growth in US Construction Industry by up to 30%.” In other news: Basic economics have not been repealed by liberal talking points. (Hat tip: Borepatch.)
  • Congress passes hurricane relief bill and debt ceiling hike. Both John Cornyn and Ted Cruz voted in favor of the bill. I haven’t read the bill, but I’m hoping it’s less stuffed with pork than the Sandy bill.
  • J.J. Watt’s Hurricane Harvey flood relief fundraiser hits $29 million.
  • What it takes to keep HEB stores up and running after a hurricane.

    One of my stores, we had 300 employees; 140 of them were displaced by the flooding. So how do you put your store back together quickly? We asked for volunteers in the rest of the company. We brought over 2,000 partners from Austin, San Antonio, the Rio Grande Valley. They hopped into cars and they just drove to Houston. They said, we’re here to help. It’s shitty work. For 18 hours a day, they’re going to help us restock and then they’ll go sleep on the couch at somebody’s house.

  • The bribery trial for New jersey Democratic Senator Robert Menendez gets under way.
  • “It Appears That Out-of-State Voters Changed the Outcome of the New Hampshire U.S. Senate Race.” (Hat tip: Director Blue.)
  • Why Israel had to bomb Syria’s chemical weapons complex. For one thing, it looks like Iran, Assad and Hezbollah will all emerge strengthened from the Syrian civil war…
  • Speaking of Iran, they’re amassing new weaponry. “While all eyes are on North Korea, Iran is advancing its weapons technology. The country recently tested and announced the success of their new Bavar 373 long range, mobile, anti-missile defense system. Everything in the system is manufactured in Iran; it requires no support from outside sources.” However, since Iran has (to my knowledge) no wafer fabrication plants to produce integrated circuits, this statement is almost certainly false, at least as far as electronics goes. (Hat tip: Stephen Green at Instapundit.)
  • “Bulgaria is projected to have the fastest-shrinking population in the world.” I suspect this is a combination of communism (and its aftermath) sucking, of it wrecking disproportionately more damage on backward, mostly rural countries, and of the general trend in Europe toward a modern, unchurched, welfare state society, with its attendant population decline.
  • Betty DeVos vows to dismantle the Obama-era campus kangaroo rape courts. (Hat tip: Ace of Spades HQ.)
  • Twitter Bans Activist Mommy for Tweeting Her Dislike of Teen Vogue’s Anal Sex Guide.” (Hat tip: Ed Driscoll at Instapundit.)
  • This is disappointing.
  • Texans handled Harvey better than Louisianans handled Katrina because both their governments and societies are more functional.
  • Another day, another fake hate crime. (Hat tip: The Other McCain.)
  • The American Railway union was founded on segregation. “George Pullman famously hired African Americans to work for him. Eugene Debs infamously did not allow African Americans to join his union striking against Pullman’s company.”
  • Al Gore’s new book being outsold by scientist’s book debunking Al Gore.
  • I laughed.
  • Interview with TPPF’s James Quintero on the Texas Municipal Pension Debt Crisis

    Monday, January 2nd, 2017

    James Quintero, the Director of the Center for Local Governance at the Texas Public Policy Foundation, was kind enough to provide some detailed answers to questions I sent him about the municipal pension crisis in Dallas and other large Texas cities. My questions are in italics.


    The Dallas police/fireman’s pension fund issue is generally described as stemming from the fund manager’s risky real estate speculation. Are there any additional structural problems that helped hasten that fund’s crisis?

    When it comes to Texas’ public retirement systems, one of my greatest concerns is that there are other ticking time-bombs, like the DPFP, out there getting ready to explode. It’s not just Dallas’ pension plan that’s taken on excessive risk to chase high yield in a low-yield environment.

    Setting aside the issue of risk for a moment, the DPFP, like most other public retirement systems around the state, suffers from a fundamental design flaw. That is, it’s based on the defined benefit (DB) system, which guarantees retirees a lifetime of monthly income irrespective of whether the pension fund has the money to make good on its promises or not. This kind of system is akin to an entitlement program, warts and all, and is very much at the heart of pension crises brewing in Texas and across the country.

    One of the biggest problems with DB plans is that they rely on a lot of fuzzy math to make them work, or at least give the appearance of working. Take the issue of investment returns, for example. Many systems assume an overly optimistic rate of return when estimating a fund’s future earnings. Baking in these rosy projections is, among other things, a way to understate a plan’s pension debt. In an October 2016 study that I co-authored with the Mercatus Center’s Marc Joffe, I wrote the following to illustrate this very point:

    For example, the Houston Firefighters’ Relief and Retirement Fund (HFRRF) calculates its pension liability using a long-term expected rate of return on pension plan investments of 8.5%. During fiscal year 2015, the plan’s investments returned just 1.53%. Over a 7- and 10-year period the rates of return were 6.4% and 7.9%, respectively. Not achieving these investment returns year-after-year can have a dramatic fiscal impact.

    Even a small change in the actuarial assumptions can have major consequences for the fiscal health of a pension fund. According the HFRRF’s 2015 Comprehensive Annual Financial Report, a 1% decrease in the current assumed rate of return (8.5%) would almost double the fund’s pension liabilities, from $577.7 million to $989.5 million.

    So while risky real estate deals were certainly a catalyst in the current unraveling of the DPFP, I suspect that its refusal to move away from the defined benefit model and into a more sustainable alternative—much like the private sector has already done—would have ultimately led us to this same point of fiscal crisis.

    To what legal extent (if any) is Dallas police/fireman’s pension fund backstopped by the City of Dallas and/or Dallas County?

    Let me preface this by saying that I’m not a lawyer nor do I ever intend to be one. However, Article XVI, Section 66 of the Texas Constitution plainly states that non-statewide retirement systems, like DPFP, and political subdivisions, like the city of Dallas, “are jointly responsible for ensuring that benefits under this section are not reduced or otherwise impaired” for vested employees. Given that, it’s hard to see how the city of Dallas—or better yet, the Dallas taxpayer—isn’t obligated in some major way when their local retirement system reaches the point of no return, which may be a lot closer than people think given all the lump-sum withdrawals of late.

    Likewise, does the state of Texas have any statutory backstop to the Dallas police/fireman’s pension fund, or any other local pension funds?

    For non-statewide plans, I don’t believe so. Again, I’m not a lawyer, but the Texas Attorney General wrote something fairly interesting recently touching on aspects of this question.

    In September 2016, House Chairman Jim Murphy asked the AG to opine on “whether the State is required to assume liability when a local retirement system created pursuant to title 109 of the Texas Civil Statutes is unable to meet its financial obligations.” Title 109 refers to 13 local retirement systems in 7 major metropolitans that are a small-but-important group of plans that have embedded some of their provisions in state law (i.e. benefits, contribution rates, and composition of their boards) I’ve written a lot about this problem in the past (read more about it here).

    In response to Chairman Murphy’s question, the AG had this to say:

    In no instance does the constitution or the Legislature make the State liable for any shortfalls of a municipal retirement system regarding the system’s financial obligations under title 109. The Texas Constitution would in fact prohibit the State from assuming such liability without express authorization.

    …a court would likely conclude that the State is not required to assume liability when a municipal retirement system created under title 109 is unable to meet its financial obligations.

    So at least in the AG’s opinion, state taxpayers wouldn’t be required by law to bail out this subset of local retirement systems. But of course, the political calculus may be different than what’s required by law.

    Compared to the Dallas situation, how badly off are the Houston, Austin and San Antonio public employee pension funds?

    If you’re a taxpayer or property owner in one of Texas’ major cities, I’d be concerned. Moody’s, one of the largest credit rating agencies in the U.S., recently found that: “Rapid growth in unfunded liabilities over the past 10 years has transformed local governments’ balance sheet burdens to historically high levels,” and that Austin, Dallas, Houston, and San Antonio had a combined $22.6 billion in pension debt—and it’s growing worse!

    Using the Pension Review Board’s latest Actuarial Valuations Report for November 2016, we can parse the systems within each municipality to get a little bit better sense of where the trouble lies. Pension debt for the retirement systems in the big 4 looks like this:

  • Austin Employees’ Retirement System: $1.1 billion, Austin Police Retirement System: $346 M, and Austin Fire Fighters Relief and Retirement Fund: $93 M;
  • Dallas Employees’ Retirement Fund: $809 M, Dallas Police and Fire Pension System—Combined Plan: $3.3 B, and Dallas Police and Fire Pension System—Supplemental: $23 M;
  • Houston Municipal Employees Pension System: $2.2 B, Houston Firefighters’ Relief and Retirement Fund: $467 M, and Houston Police Officer’s Pension System: $1.2 B; and
  • San Antonio Fire and Police Pension Fund: $360 M.
  • Of course, it’s important to keep in mind that the figures use some of the same fuzzy math as described above, so the actual extent of the problem may be worse than the PRB’s latest figures indicate.

    What similarities, if any, are there to current Texas municipal pension issues and those that forced California cities like San Bernardino, Stockton and Vallejo into bankruptcy? What differences?

    The common element in most, if not all, of these systemic failures is the defined benefit pension plan. Because of the political element as well as the inclusion of inaccurate investment assumptions in the DB model, these plans are almost destined to fail, threatening the taxpayers who support it and the retirees who rely on it. And sadly, that’s what we’re witnessing now across the nation.

    As far as the differences go, California’s municipal bankruptcies as well as Detroit’s were preceded by decades of poor fiscal policy and gross mismanagement. I don’t see that same thing here in Texas, but it’s also important that we don’t let it happen too.

    California pensions were notoriously generous (20 years and out, spiking, etc.). Do any Texas state or local pensions strike you as unrealistically generous?

    Any plan that’s making pension promises but has no plan on how to make good on those promises is being unrealistically generous. And unfortunately for taxpayers and retirees alike, a fair number of plans can be categorized as such.

    The Pension Review Board’s Actuarial Valuations Report for November 2016 reveals that of Texas’ 92 state and local retirement system, only 4 of them are fully-funded. At the other extreme, a whopping 19 of the 92 plans have amortization periods of more than 40 years. Six of those 19 plans have infinite amortization periods, which effectively means that they have no plan to keep their promises but are instead planning to fail.

    As far as specific plans go, there’s no question that the Dallas Police and Fire Pension System is the posterchild for the overly generous. The Dallas Morning News recently covered the surreal levels of deferred compensation offered, finding that:

    The lump-sum withdrawals come from the Deferred Retirement Option Plan, known as DROP. The plan allows veteran officers and firefighters to essentially retire in the eyes of the system and stay on the job.

    Their benefit checks then accrue in DROP accounts. For years, the fund guaranteed interest rates of at least 8 percent. DROP made hundreds of retired officers and firefighters millionaires. And once they stopped deferring the money, they received their monthly benefit checks in addition to their DROP balance. [emphasis mine]

    It’s probably fair to say that any public program that makes millionaires out of its participants is probably being too generous with its benefits.

    There seem to be only two recent local government bankruptcies in Texas, neither of which were by cities: Hardeman County Hospital District Bankruptcy and Grimes County MUD #1. Did either of these involve pension debt issues?

    I’m not familiar with those instances, but when it comes to the issue of soaring pension obligations, I can tell you that the system as a whole is moving in bad direction.

    In November 2016, Texas’ 92 state and local retirement systems had racked up over $63 billion dollars of unfunded liabilities, with more than half owed by the Teacher Retirement System. That’s a staggering amount of pension debt that’s not only big but growing fast. And worse yet, that’s in addition to Texas’ already supersized local government debt-load.

    How we’re going to make good on all of these unfunded pension promises is anyone’s guess. But I imagine that it’ll involve some combination of much higher taxes, benefit reductions, and fewer city services.

    What limits or constraints does Texas place on Chapter 9 bankruptcy?

    The Pew Charitable Trusts’ Stateline has some good information on this, at least as far as municipal bankruptcy is concerned. A November 2011 report, Municipal Bankruptcy Explained: What it Means to File for Chapter 9, had this to say about the process:

    Who can file for Chapter 9? Only municipalities — not states — can file for Chapter 9. To be legally eligible, municipalities must be insolvent, have made a good-faith attempt to negotiate a settlement with their creditors and be willing to devise a plan to resolve their debts. 

They also need permission from their state government. Fifteen states have laws granting their municipalities the right to file for Chapter 9 protection on their own, according to James Spiotto, a bankruptcy specialist with the Chicago law firm of Chapman and Cutler. Those states are Alabama, Arizona, Arkansas, California, Idaho, Kentucky, Minnesota, Missouri, Montana, Nebraska, New York, Oklahoma, South Carolina, Texas and Washington. 

    Hopefully this is a process that can be avoided entirely, but given the fiscal condition of the DPFP and potentially a few other systems, I’m not sure that’ll be the case.

    Next to Dallas, which municipal pensions would you say are in the worst shape?

    I’m most concerned about the local retirement systems in Title 109. The reason, again, is that these 13 local retirement systems are effectively locked into state law and there’s little that taxpayers or retirees in those communities can do to affect good government changes without first going to Austin. These systems have basically taken a bad situation and made it worse by fossilizing everything that counts.

    In the Texas Public Policy Foundation’s 2017-18 Legislator’s Guide to the Issues, I cover this issue in a little more detail. In the article (see pgs. 122 – 124), I write of these plans’ fiscal issues which can be seen below, albeit with slightly older data.

    texaspensiondebtchart

    (Funded ratios marked in red denote systems that are below the 80% threshold, signifying a plan that may be considered actuarially unsound. Source: Texas Bond Review Board.)

    The fact that these systems either are in or are headed for fiscal muck is a big reason why the Texas Public Policy Foundation is helping to educate and engage on legislation that would restore local control of these state-governed pension plans. People on the ground-level should have some say over their local plans, and that’s what we’ll be fighting for next session. Encouragingly, a bill’s already been filed in the Senate (see SB 152) and there should be legislation filed shortly in the House to do just that.

    Should Texas government agencies switched over to defined contribution (i.e. 401K) plans over standard pension plan, and if so, how might this realistically be accomplished without endangering existing retirees?

    ABSOLUTELY. Ending the defined benefit model and transitioning new employees into something more sustainable and affordable, like a defined contribution system, is one of the best things that the state legislature can do. This is something I’ve long been an advocate of.

    In fact, in early 2011, I played a very minor role in the publication of some major research spearheaded by Dr. Arthur Laffer, President Ronald Reagan’s chief economist, that advanced this same reform idea (see Reforming Texas’ State & Local Pension Systems for the 21st Century). I’ve also written a lot about the need to make the DC-switch, making the case recently in Forbes that:

    DC-style plans resemble 401(k)s in the private sector and the optional retirement programs (ORP) available for higher education employees in Texas. These DC-style plans put the power of an individual’s future in their own hands instead of depending on the good fortune of government-directed DB-style plans. DC-style plans are portable and sustainable over the long term as they are based on the contributions of retirees and a defined government match.

    With DC-style plans, retirees will finally have the opportunity to determine how much risk they are willing to take. They also reduce the risk that the government will default on their retirement or fund those losses with dollars from taxpayers who never intended to use these pensions. By giving retirees more freedom on how to best provide for their family, they will be in a much better position to prosper.

    Because of their efficiency, simplicity and fully funded nature, the private sector moved primarily to DC-style plans long ago. For the sake of taxpayers and retirees dependent on government pensions, it’s time for all governments to move to these types of plans as well.

    As far as dealing with transition costs, some much smarter people than I have written on this issue and found that it’s not as big of a challenge as it’s made out to be. Dr. Josh McGee, a vice president with the Laura and John Arnold Foundation, a senior fellow with the Manhattan Institute, and Chairman of the Pension Review Board, had this to say about the matter:

    Moving to a new system would have little to no effect on the current system. State and local pensions are pre-funded systems, and unlike Social Security, the contributions of workers today do not subsidize today’s retirees. Future normal cost contributions are used to fund new benefit accruals that workers earn on a go-forward basis and are not used to close funding gaps. Therefore, it matters little whether the normal cost payments are used to fund new benefits under the current system or a new system.

    (Source: The transition cost mirage—false arguments distract from real pension reform debates.)

    Another pension expert, Dr. Andrew Biggs with the American Enterprise Institute, published research that found that:

    In this study, I show that if a pension plan were closed to new hires, over time the duration of liabilities would shorten, and the portfolio used to fund those liabilities would become more conservative. However, the effects of these transition costs are so small as to be barely perceptible.

    (Source: Are there transition costs to closing a public-employee retirement plan?)

    I’m confident that with the right plan in place, Texas’ state and local retirement systems can make the switch to defined contribution and we’ll be all the better for it.


    Thanks to James Quintero for providing such a detailed analysis!

    And since we’re on the topic, here’s a roundup of news on the Dallas Police and Fireman’s pension fund crisis:

  • The Texas Rangers have launched a criminal probe into the shortfall.
  • City Journal offers details on the unreasonable generosity of the Dallas plan (which covers some of the same DROP issues Quintero mentions):

    Dallas created the police and fire plan in 1916. The system’s trustees eventually persuaded the state legislature to allow employees and pensioners to run the plan. Not surprisingly, the members have done so for their own benefit and sent the tab for unfunded promises—now estimated at perhaps $5 billion—to taxpayers. Among the features of the system is an annual, 4 percent cost-of-living adjustment that far exceeds the actual increase in inflation since 1989, when it was instituted. A Dallas employee with a $2,000 monthly pension in 1989 would receive $3,900 today if the system’s annual increases were pegged to the consumer price index. Under the generous Dallas formula, however, that same monthly pension could be worth more than $5,000. No wonder the ship is sinking.

    The system also features a lavish deferment option that lets employees collect pensions even as they continue to work and earn a salary. Moreover, the retirement money gets deposited into an account that earns guaranteed interest. Governments originally began creating these so-called DROP plans as an incentive to encourage experienced employees to keep working past retirement age, which in job categories like public safety can be as young as 50. In Dallas, the pension system gives workers in the DROP plan an 8 percent interest rate on their cash, at a time when yields on ten-year U.S. Treasury notes, a standard for guaranteed returns, are stuck at less than 2 percent. According to the city, some 500 employees working past retirement age have accumulated more than $1 million in these accounts—on top of the pensions that they will receive once they officially stop working.

  • The Dallas Morning News says that there’s plenty of blame to go around:

    Over the years, the Dallas Police and Fire Pension System fund has amassed $2 billion to $5 billion in unfunded liabilities, the result of bad real estate investments and blatant self-enrichment from prior management. Coupled with a possible setback in ongoing litigation over public safety salaries, Dallas is in the most financially precarious position in its history.

    City officials are openly uttering the word bankruptcy, not just of the pension fund but the city itself. As Mayor Mike Rawlings told the Texas Pension Review Board this month, “the city is potentially walking into the fan blades that might look like bankruptcy.”

    The state Legislature created this mess by not giving the city a meaningful voice in the fund’s operation and allowing the former board of the pension fund to unilaterally sweeten its membership’s promised benefits without concern to the overall fiscal damage being done. Now it must help the city clean up the mess.

    Dallas already provides nearly 60 percent of its budget to support public safety services and recently contributed $4.6 million to increase its share of pension contributions to 28.5 percent — the maximum allowed under state statute. However, if Dallas loses the lawsuit over salaries and no changes are made to the pension fund, the city could take an $8 billion hit. That is roughly equal to eight years of the city’s general fund budget.

  • That said, the bond market doesn’t seem to think Dallas is near bankruptcy.
  • And it’s not just Dallas:

    Austin, Dallas, Houston and San Antonio collectively face $22.6 billion worth of pension fund shortfalls, according to a new report from credit rating and financial analysis firm Moody’s. That company analyzed the nation’s most debt-burdened local governments and ranked them based on how big the looming pension shortfalls are compared to the annual revenues on which each entity operates.

    “Rapid growth in unfunded pension liabilities over the past 10 years has transformed local governments’ balance sheet burdens to historically high levels,” the report says.

    Chicago had the most dire ratio on the national list. Dallas came in second. According to the report, the North Texas city has unfunded pension liabilities totaling $7.6 billion. That’s more than five times the size of the city’s 2015 operating revenues.

    Both those cities may turn to the public to partially shore up their shortfalls. Houston Mayor Sylvester Turner wants to use $1 billion in bonds to infuse that city’s funds. Dallas police officer and firefighter pension officials also want $1 billion from City Hall, an amount officials there say is too high.

    Meanwhile, Austin ranked 14th on the Moody’s list with unfunded pension liabilities of $2.7 billion. San Antonio ranked 22nd with a $2.3 billion shortfall.

  • Puerto Rico Defaults

    Tuesday, August 4th, 2015

    While not unexpected, this certainly isn’t good news for the global economy. “The commonwealth paid a mere $628,000 toward a $58 million debt bill due Monday to creditors of its Public Finance Corporation. This will hurt the island’s residents, not Wall Street. The debt is mostly owned by ordinary Puerto Ricans through credit unions.” That’s like Johnny Boy paying $10 on his $2,000 debt in Mean Streets.

    It doesn’t help that Puerto Rico has the U.S. minimum wage and relatively generous welfare benefits. “Less than half of working age males are employed, [and] 35 percent of the island’s residents are on food stamps.”

    There are plenty of free market solutions to Puerto Rico’s problems, but those are precisely the ones the Obama Administration won’t let be enacted…

    Not Just Greece

    Wednesday, July 22nd, 2015

    Via ZeroHedge comes renewed information of a point I’ve hit home again and again: Thogh Greece is an extreme outlier on unsustainable welfare state spending in Europe, it’s also the canary in the coal mine, as toxic debt continues to rise all across Europe, with several countries exceeding a debt-to-GDP ratios of over 100%, including “Greece (168.8%), Italy (135.1%) and Portugal (129.6%).” Post-bailout (and bail-in) Cyprus is still over 100% as well, as is Ireland, though Eurostat didn’t have Irish DGP numbers, though supposedly the ratio should be trending down. And Spain and France are hovering just under 100%.

    To my mind the great mystery is how Belgium’s debt-to-GDP ratio now tops 111% with such a fat cushion of Brussels Eurocrats to sit on.

    The problem is not Greece’s only. The problem is that the western liberal welfare state, as currently constituted, is economically and demographically unsustainable.

    I’m sure I’ve driven this point home to regular readers of this blog, but I’ll continue driving it home until our leadership class is actually willing to do something about it…

    Animation on the Greek Debt Crisis

    Sunday, June 21st, 2015

    Even though this whiteboard animation is from 2012, it’s still mostly accurate.

    My only quibbles would be:

  • It doesn’t mention how Greece lied about it’s finances to get into the Euro in the first place.
  • It doesn’t discuss what that debt was spent on, i.e., mainly an overly generous and unsustainable welfare state.
  • Because it was made in 2012, it overstates how exposed European banks will be to a Greek default. By now, banks and insiders have managed to offload the vast majority of their default exposure to Greek default onto the European taxpayer (which, of course, was the real primary purpose of the bailout).
  • But it gets the big picture right, namely how out-of-control debt destroys nations…

    Texas vs. California Roundup for April 30, 2015

    Thursday, April 30th, 2015

    Time for another Texas vs. California roundup, albeit a somewhat smallish one:

  • UC-Berkley misused nearly $2 million in National Science Foundation funds on staff salaries, travel expenses, and booze.
  • How California teacher’s unions indoctrinate children with left-wing propaganda.
  • Thanks to overly generous pension rules, Vallejo may be headed for a second bankruptcy. (Hat tip: Pension Tsunami.)
  • Eureka, California will be laying off police to pay for pensions. (Hat tip: Pension Tsunami.)
  • Farmer Brothers coffee roasters is moving from California to Denton. (Previously.)
  • Jerry Brown has ordered a radical cut in California’s greenhouse gases. Evidently he wants all of California’s manufacturing to move out of state…
  • Though Texas does a vastly better job than California managing statewide finances, local debt is close to California’s:

    Among the top ten most populous states in the nation, local debt in the Lone Star State was the second highest overall, at $219.7 billion. Only California’s local governments had amassed more, at $269.2 billion.

    On a per capita basis, local debt in Texas ranked as the second highest ($8,431 owed per person), with only New York in tougher shape ($10,204 owed per person). The average local debt burden among all mega-states was $5,956 owed per person.

  • So California may use drought bond money to pay for water not for people, but for the Delta Smelt?
  • West Coast truckers strike over alleged millions in wage theft. You may have gathered that I’m not exactly a pro-union guy, but from what a relative has told me about the trucking industry, I wouldn’t be at all surprised if the strikers were fully justified in this instance…
  • LinkSwarm for December 5, 2014

    Friday, December 5th, 2014

    Let’s jump into it:

  • IRS cites taxpayer confidentiality in defying a federal judge by refusing to hand over documents showing it violated taxpayer confidentiality by sharing that information with the White House.
  • By 2020, some 90% of Americans will be forced onto ObamaCare exchanges.
  • So left-wing stalwart magazine The New Republic just let several long-time editors go, reduced their publishing schedule from 20 issues a year to 10, and put a former Gawker-person in charge as editor, which is just short of putting up a sign reading “Dead Magazine Walking.” John Podhoretz traces their decline to the age of Obama:

    I think the answer is that there never was any Obamaism to champion; there was no serious vision of America and the world being laid out by the administration that provided fertile ground out for intellectual cultivation, for voices on the outside to make sense of that serious vision and help it cohere into an argument. (In the 1980s, ironically, it was the New Republic‘s own Charles Krauthammer who did just that in explicating the “Reagan Doctrine,” though even more ironically, he did it in the pages of Time Magazine rather than in TNR.)

    What there was, instead, was the increasing reliance on the cheap-shottery of the Internet era—in which TNR and others were driven more by a kind of grinding loathing of the Right than by an effort to create a more effective and serious Center-Left. The magazine foundered because liberals foundered, because Obamaism was a cult of personality that demanded fealty rather than a philosophy that demanded explication.

    Also: I was unaware that The Weekly Standard had twice the circulation of The New Republic. And you should check out the rest of that piece, not least for the perfect title…

  • And speaking of Podhoretz, his New York Post piece on why Hillary’s supposed cakewalk to the Democratic nomination is a sign of party weakness is well worth reading: “Hillary Clinton has no natural claim to her party’s nomination. She’s not even an especially gifted politician. Aside from the spectacular incompetence of her 2008 campaign, she is as gaffe-prone as Dan Quayle and as awkward as Bob Dole.”
  • For the left, the truth no longer matters. “For the Left, this is all tribal, white hats vs. black hats. Fraternity members and police officers are, in their view, by definition on the wrong side of every dispute.”
  • Mary Landrieu isn’t just going to get beat in Saturday’s runoff, she’s primed to get slaughtered, trailing in the latest polls by 24 points.
  • European “austerity” isn’t.
  • The European economic crisis has gotten so bad that traditional left-wing and right-wing parties are thinking of teaming up to thwart newly ascendent Euroskeptic parties.
  • Fracking is kicking Putin’s ass. (Hat tip: Instapundit.)
  • Battles with jihadists kill 20 in Chechan capital of Grozny. I guess December is rerun season in Russia as well…
  • Wisconsin might be getting ready to pass right-to-work legislation. Hey Wisconsin unions: How’d that whole “recall” thing work out for you? “You come at the king, you best not miss.”
  • Evidently teenage boys have too many cooties to be taken in at the Salvation Army. (Hat tip: Instapundit.)
  • How PBS lied about Ferguson.
  • The Rolling Stone story of an alleged gang rape at a University of Virginia fraternity continues to unravel. If there was an actual gang rape, the perpetrators should be arrested and tried. If not, Rolling Stone has some editorial house-cleaning to perform…
  • Breitbart demolishes Lena Dunham’s “raped by a Republican” story. Plus this nugget from a liberal college administrator “‘Asking whether or not a victim is telling the truth is irrelevant,’ Ms. Hess proclaimed. ‘It’s just not important if they are telling the truth.'”
  • On the same theme:

  • Andrew Klavan on #GamerGate and the immense gozangas on display in Soul Caliber. Nice shirt! (Hat tip: Instapundit.)

  • The UK announced they’re finally going to pay off their World War I debt. Governments come and go, but sovereign debt is almost immortal…
  • Another day, another 36 people killed by jihadists in Kenya.
  • In Denmark, “27 percent of male descendant of immigrants from non-Western countries aged 20-24 years were convicted of an offense in 2013.”
  • Shakespeare First Folio found.
  • Newly discovered Ayn Rand novel to be published.
  • And speaking of Rand, her longtime disciple/lover Nathaniel Branden died at age 84. I’m sure he would be deeply offended at the suggestion he’s gone on to the afterlife…
  • Detroit man steals ambulance to go to a topless bar.
  • I have no joke here, I just like typing Vegan Strip Club Riot.
  • Spain IS Beyond Doomed, But It’s Not Practicing Real Austerity

    Tuesday, April 30th, 2013

    Take a look at these charts. Unemployment in Spain is up over 25%, and most have been unemployed more than 2 years. Matthew O’Brien is correct when he says that Spain’s inflexible labor laws contribute greatly to the unemployment, but errs when he says that “austerity hasn’t been the path to prosperity. It’s been the path to perma-slump.”

    Austerity hasn’t failed in Spain. It hasn’t been tried.

    Spain last ran a budget surplus in 2008, and since then it has engaged in deficit spending. In 2012, Spain’s budget deficit was 9.4% of GDP, and this year it will be 10.6% of GDP.

    Remember, real austerity isn’t trying to tax-and-spend your way to prosperity. Real austerity is cutting budgets until outlays match receipts. Estonia bit the bullet and balanced its budget, and its economy is now growing at a steady clip. Meanwhile, governments all across Europe continue to try the same deficit spending Keynesian pump-priming, and keep having the same recession. In most of Europe, “austerity” has meant digging their own graves more slowly rather that stopping digging.

    And European elites refuse to stop digging because their power and perks all stem from swaddling voters in an unsustainable cradle-to-grave welfare system.

    If all this sounds familiar, that’s because it is. Europe makes the same mistakes, gets the same results, and keeps doubling down on stupid, content to keep the farce running as long as they possibly can. Instead actually of solving the interrelated problems of debt, unsustainable entitlements, and the Euro, the Euroelite seem content to preside over the world’s slowest, most boring train wreck. Yes, it’s a pity the train is sliding inexorably toward the chasm, but there’s such fine vintages to be had in the saloon car, and it offers such a magnificent view of the coming crash…

    If You Do One Thing Today, Write Congress to Support Budget Cuts

    Monday, December 31st, 2012

    Write your senators and congressmen to let them know you oppose any “Fiscal Cliff” deal that doesn’t include substantial entitlement reform and real spending cuts, not dummy out-year cuts that will never happen. Write them now, because they will come under tremendous pressure to cave into big spending, big taxing Democrats desperate to keep that deficit spending heroin flowing.

    Deficit spending will destroy our economy. The problem is not that we’re undertaxed, the problem is that the federal government spends insanely more money than we have in order to fund a vast array of crony capitalists, special interest groups, and permanent dole underclass for Democrats to milk for votes. If we continue down the current road, we will end up like Greece. There’s time to avoid going over the falls, but it’s getting shorter all the time.

    Without spending reform, there’s a good chance that this nation of the people, by the people and for the people may very well perish from this earth.