Tag Archives: public employee pensions

The Bureau of Economic Analysis on State and Local Government Pension Funding

A couple of years ago, I did an analysis of government finances data from the U.S. Census Bureau over the decades, to measure the extent to which each state’s future had been sold out with regard to (among other things) underfunded public employee pensions.

https://larrylittlefield.wordpress.com/2018/12/16/sold-out-futures-by-state-public-employee-pensions-in-fy-2016/

The worst off state when I did this analysis for FY 2012 was Rhode Island, where FY benefit payments equaled 13.3% of pension assets that year. In FY 2016 that had increased to an even worse 13.6% in Rhode Island, but that state was nonetheless only the second worst off state.  The worst off state in FY 2016 was New Jersey, where pension benefit payments equaled 13.8% of pension fund assets in FY 2016, up from just 11.8% in FY 2012. New Jersey only had enough pension fund assets to pay for 7.2 years of benefits.  The third worst off was Kentucky, with benefit payments equal to 13.5% of pension fund assets, followed by Alaska at 13.4%, Pennsylvania at 12.2%, Illinois at 11.8%, Connecticut at 11.7%, South Carolina at 10.8%, Massachusetts at 10.5%, and Michigan at 10.4%…For the City of New York pension funds, soaring taxpayer contributions and another stock market bubble increased pension fund assets to the point where benefit payments were 9.1% of assets in FY 2016, up from 8.8% in 2015 but down from 11.8% in 2009.  That is still less than half the assets those pension funds required.

At the time I speculated that a more sophisticated analysis, one that took into account that fact that states with rapid population growth might have relatively few retired public employees from a less populated past, but could still be underfunding the pensions that the large number of public employees on the job today were currently earning, might be heading down the same road that has caused pension crises in the states listed above.

The more sophisticated analysis has arrived, from the U.S. Bureau of Economic Analysis.  And it in fact shows massive public employee pension underfunding not only in the states generally associated with bad fiscal practices, but across the board.

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Federal Reserve Z1 Data for 2019: The Debt-Driven Party Had to End Eventually, Coronavirus or No Coronavirus

“If something cannot go on forever, it will stop,” Herbert Stein

“Markets can stay irrational longer than you can stay solvent,” John Maynard Keynes

Federal Reserve Z1 data for 2019 was released on March 12, and it shows a continuation of the post-1980 trend.

https://www.federalreserve.gov/releases/z1/default.htm

For the past four decades businesses have paid most Americans less and less, working its way up the income and education scale.  With progressively lower pay and benefits by generation, and Millennials paid 25 percent less, on average, than Baby Boomers had been at the same point in life.  But for most of that period Americans still spent more and more, with the difference between lower labor costs and higher sales showing up as higher profits, converted to higher executive and financial sector pay, and inflated asset values.  That difference was bridged by more household members in the labor force, then by reduced retirement savings, then by soaring personal debt, then by soaring government debt. The result has been a global crisis of demand, and an unsustainable debt-driven economy.

It would have collapsed in 2008 without massive government intervention. That intervention meant the fundamental problems were never solved. Instead, asset prices were re-inflated, to the benefit of older asset holders and the rich, and to the detriment of younger people saving for retirement or seeking to buy a home. Even as most people became worse off, and U.S. life expectancy began to fall.  The global economy has been poised at a precipice ever since, with only interest rates near zero and soaring public debts deferring collapse, even as aging populations seemed sure to cause the whole thing to deteriorate eventually.  In 2019, total non-financial U.S debt increased 4.8%, and federal debt soared 6.7%, but nominal GDP increased just 4.1%, and inflation-adjusted GDP increased just 2.3%.  Not the 3.0% to 8.0% real growth The Donald has claimed yet another tax cut for the rich and corporations would produce.  The question for 2020 is whether the coronavirus will change eventually to immediately.

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The Executive/Financial Class, The Political/Union Class, Generation Greed and the Serfs: Wherever You Look It’s Getting Worse

I think people who read this blog would agree that I follow U.S. public finance issues pretty closely, including those related to taxation.  But I recently found out something I had never heard of before, that was never publicly debated in any news source I follow, that no “progressive” politician has objected to as far as I know, and frankly I’m shocked.

https://www.marketwatch.com/story/heres-the-formula-for-paying-no-federal-income-taxes-on-100000-a-year-2019-11-22

In a country with a median household income of less than $62,000, you can get more than $100,000 a year while not working and pay no federal tax at all, because $80,000 in investment income (dividends and capital gains) is tax exempt!  Even as work income for the less well off is taxed twice, by the payroll tax, and the income tax.   It turns out that for married couples, while other income might be taxable if it is higher, that $80,000 in investment income is fully exempt from taxes even if total income is as high as $184,250 — with other deals up to $200,000.

How could this possibly be thought of as fair?   After all, a working couple with half that income from work would pay $7,500 in payroll taxes (or $15,000 if they were “gig” workers) and federal income taxes – at a higher rate – on top of that.  Why hasn’t a single pundit or politician raised a loud objection?

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Generation Greed: Away from New York, Is Omerta Starting to Crack?

You have to believe in facts. Without facts there’s no basis for cooperation. If I say this is a podium and you say this is an elephant, it’s going to be hard for us to cooperate.” — Barack Obama

It is amazing the way effect of decades of public policies and economic and social trends, all to the benefit of some generations at the expense of others, stays out of the news.  Even as, anything, everything else is blamed for the situation so many people find themselves in.  For the most part what you get is silence, and an attempt to change the subject to anything, everything else.   People and groups who on the surface are at war with each other, and unable to cooperate, somehow all agree to keep certain facts out of the public discussion.

If you look closely enough, however, some cracks are beginning to appear in the Omerta.  The fact that Generation Greed is leaving those coming after so much worse off hasn’t gone viral, but it is beginning to bubble up under the surface.   The rest of this post will quote from some examples I’ve come across.

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The Executive/Financial Class, the Political/Union Class, and the Serfs, Redux

Two kinds of people have been getting richer. The top executives who sit on each other’s boards of directors and vote each other a higher and higher share of private sector pay, to the detriment of investors, consumers, and other workers. And retired and soon-to-retire public employees in places like New York City, who cut deals with the politicians they control to retroactively increase their already rich pensions, to the detriment of public service recipients and taxpayers. There is the executive/financial class, the political/union class, and the serfs.

The serfs continue to become worse off, adjusted for whatever point we are in the economic cycle. Today they may be a little better off than the were in 2010, but they will still end up worse off than they were in 2007, at the prior peak, which was worse off than they were in 2000, the one before, which was worse off than they were in 1987, etc. The next bottom can be expected to follow the same pattern. And the serfs continue to be lied to and manipulated by the executive/financial class, the political/union class, the media, and “truth telling” professions such as public employee pension actuaries, city and state comptrollers, certified public accountants, stock analysts, bond raters, and executive pay consultants.

This post uses recently released Local Area Personal Income data through 2016, from the Bureau of Economic Analysis, to document the trend. We had better use it while we have it, because the falsification of federal statistics in the interest of the entitled over-privileged is the logical next step in the direction of our society. And if you are a serf who rides the subway who really wants their blood to boil, be sure to read through to the commentary at the end of this post.

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Generation Greed’s Last Economic Orgy: Federal Reserve Z1 Debt Data for 2016, Rising Housing Prices, Census Bureau data on Worse Off Young Adults, Falling Life Expectancy, Etc.

The problem with socialism is that you eventually run out of other people’s money” – Margret Thatcher in 1976

The problem with capitalism is that given enough inequality, eventually businesses trying to sell things run out of other people’s money” — Larry Littlefield, 2016

For 35 years, generations of Americans born after 1957 or so have been paid less but sold more, with the difference covered first by more household members in the workforce, then by inadequate requirement savings, and then by soaring public and private debt. The richest and most entitled generations in U.S. history worked hard and were very creative, but they over-consumed what even they were able to produce and expected too many years in retirement with too little in savings, at the expense of the poorer generations that have followed them. With some members of those generations grabbing far more than the others. With too much money in too few hands, the whole world economy has become dependent on Americans spending more than they had. And since America finally started to go broke with millions retiring into poverty, the world economy has faced a global crisis of demand.

When you put all the trends together, as I have below, it adds to a shocking picture that puts every current debate in context. Today’s young adults paid less than Generation Greed was paid at the same age in 1975, and forced by government policy to pay more for housing. Life expectancy falling. Personal and federal debts once again soaring, all the mistakes of the 2000s being repeated. Topping it off, we now have Donald Trump as President. Does this mean that the U.S. is finally prepared to admit, face and tackle its problems? Or does it mean that the most over-privileged and entitled members of the most over-privileged and entitled generations in U.S. history are just grabbing more, in one last economy orgy before the final collapse?

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Overview of State and Local Government Expenditures: FY 2014 vs. FY 2004, Census Bureau Data

State and local government public services and benefits are getting squeezed. There is less money available for them because of rising costs from the past, notably under-funded and retroactively enhanced pensions for public employees who are already retired or soon to retire. In some places, as noted in the prior post on taxes, this squeeze has been exacerbated by falling taxes as a percent of personal income. The total wages and salaries of those public employees who are still working are falling as a percent of taxpayer personal income just about everywhere, as is spending on services for the needy (other than those associated with health care). And the anecdotal evidence suggests that since FY 2014, the latest year for which data is available, the squeeze has gotten worse. Despite the third biggest stock bubble in history by one measure,

https://www.bloomberg.com/view/articles/2017-03-03/what-to-make-of-these-twice-in-history-s-p-500-valuations

which makes public employee pensions seem better funded than the really are, years of zero percent interest rates, which reduce state and local government interest costs, and a long-running economic upcycle, which has boosted tax revenues.

http://www.eastbaytimes.com/2017/03/03/borenstein-despite-booming-economy-oakland-finances-deteriorate/

Whatever this data shows, things have gotten worse since in most of the U.S.

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