September 5, 2011
Rhode Island Pension System Collapsing
Walter Russell Mead,
Sept 1, 2011
Rhode
Island is one of the bluest states in the country, and one where public sector
unions have long worked with sympathetic politicians to create a true blue
system of well paid public employees retiring comfortably on generous pensions
with cost of living raises automatically thrown in.
The only problem is that the state could never afford the beautiful
utopia it was crafting, and so politicians and union leaders chose the path of
systemic deceit. Taxpayers weren’t told what the bill for the system
would be; public service workers weren’t told that the pension guarantees
they’d been sold were worthless because taxpayers would not and could not foot
the bill.
An economic crisis is nature’s revenge on those who make and those who
accept false promises; it is a holocaust of lies when the dross is burned away
and only what is real and true remains. Think of cotton candy melting and
charring in the flame of a blowtorch; that is what is happening to the secure
retirements that “caring” blue politicians and “committed” blue union leaders
promised gullible state workers. From the Washington
Post:
An ongoing pension reform effort is likely
to result in reduced benefits for 51,000 public workers and retirees. Officials
are pondering lowering retirement payments, replacing part of the guaranteed
pensions with 401(k)-type accounts, and sharply reducing generous
cost-of-living increases enjoyed by retirees. The Rhode Island legislature is expected to
consider changes next month during a special session.
Rhode Island turned its pension program into a Ponzi
scheme with the same basic technique that is being used in cities and states
all over the country to bamboozle workers and taxpayers alike: it projected
unreasonable rates of return on the money the state set aside to pay the
pensions when the bills came due. When those rates of
return failed to materialize (in part due to the financial crisis), the gap between
what the state had promised to pay and what it had on hand exploded.
Nationally, state and local government face something like $3 trillion in
accumulated lies and deceit; tiny Rhode Island has the highest per capita
amount of systemic dishonesty on its books — I don’t know if the Ocean State is
unusually rich in both knaves and fools or if some other factor is at work.
Anyway, when the bills come due and the money just isn’t there,
something has to give. Again from the Post:
Pension systems generally finance
themselves in three ways: with annual payments from the government;
contributions from public employees; and investing in stocks, bonds and other markets.In Rhode Island, as those investments have failed
to live up to predictions, the yearly burden being borne by state and local
governments is growing and is beginning to crowd out public services in ways
that experts say could soon take hold in other parts of the country.
The cost of funding pensions is one of the
fastest-growing items in the Rhode
Island budget. The tax dollars going to state
pensions more than doubled between 2003 and last year, and the amount is
projected to again double to about $615 million by 2013, according to a state
report.
The Ponzi-scheme quality of the retirement
system is becoming more and more obvious: current employees have to pay more
and more into the system but instead of being set aside to pay their pensions,
the money is going to current retirees.
The burden is also heavy for participants
in Rhode Island’s
pension system. Teachers contribute nearly 10 percent of their salaries to
pensions, and other employees contribute slightly less. But the generous
benefits promised by the government and the huge unfunded liability mean that
most of that money goes to keeping up with payments to current retirees. That
leaves little for future retirees and endangers the system overall.
How bad is it?
In Cranston,
pension costs are pushing the city toward insolvency. A locally managed pension
plan for firefighters and police is underfunded by
$245 million — nearly equivalent to the city’s entire annual budget. Meanwhile,
coming increases to pay for local workers enrolled in state-run pension plans
would cost an additional $14 million next July — the combined cost of core
services such as trash removal, parks and recreation, and libraries, Fung said.
Rhode Island’s blue paradise was built on lies — and
for a while it worked. But yet again that horrible Thomas Carlyle has the
last word: in the end, bankruptcy rules.
Great is Bankruptcy: the great bottomless gulf into which all Falsehoods, public and private, do sink,
disappearing; whither, from the first origin of them, they were all
doomed. For Nature is true and not a lie.
No lie you can speak or act but it will come, after longer or shorter
circulation, like a Bill drawn on Nature’s Reality, and be presented there for
payment, — with the answer, No effects. Pity only that it often had so long
a circulation: that the original forger were so seldom he who bore the final
smart of it! Lies, and the burden of evil they bring, are passed on;
shifted from back to back, and from rank to rank; and so land ultimately on the
dumb lowest rank, who with spade and mattock, with sore heart and empty wallet,
daily come in contact with reality, and can pass the cheat no further.
A lot of people who believed Rhode
Island’s lies will now be looking for part time work
in what they were told would be a secure retirement. As far as I can tell
the union leaders and politicians who concocted this disaster between them have
no plans to suffer any cuts in their own pay or pension plans — and intend to
go on “serving the public” without any accountability at all.
http://blogs.the-american-interest.com/wrm/2011/09/05/rhode-island-pension-system-collapsing/