Author Topic: A Cautionary Tale From Texas About How Cities Hide Debt And Deflate The Economy  (Read 1302 times)

0 Members and 1 Guest are viewing this topic.

Offline corbe

  • Hero Member
  • *****
  • Posts: 38,072

A Cautionary Tale From Texas About How Cities Hide Debt And Deflate The Economy

Politicians can make promises without having to worry about transparency or its consequences, like honesty and effectiveness. Thus, America is drowning in state and local debt.


By Leslie Loftis
May 4, 2017

 
Federal issues tend to suck up the news cycle, thus, readers likely know more about federal debt than state and local debt, even though state and local debt drag the economy down at least as effectively. This is all the more ironic because local debt should be easier to control. In theory, local voters should have more knowledge and could have more say in state and local budgets.

Alas, the ratings draw to national news wins. Local issues should get most of our attention but do not. In the case of public debt, politicians are able to make promises without having to worry about transparency or its consequences, like honesty and effectiveness. Thus, America is drowning in state and local debt.

How the Local Debt Explosion Happened

A few decades ago, retirement plans were defined benefit plans. At retirement, the plan would pay for specified benefits, such as a percentage of salary and medical coverage. But as life expectancy rose and medical care became more involved, defined benefit plans became astronomically expensive and completely unpredictable. (Long-term care insurance provides an excellent example. See second half.)

To the extent it was possible to figure out how much money to invest to sustain the retirement benefits, the amount could smother the underlying company. Cogswell Cogs couldn’t make cogs or even hire new cog makers if they had to send a large and growing chunk of their income to sustain retirement plans for former cog makers.

Hence, most private companies moved to defined contribution plans back in the ’80s. In defined contribution plans, most commonly known as 401(k)s, the employee and company pay a specified — and tax exempt — amount into an employee’s retirement fund. Then, at retirement, the employee gets that account to use as needed.

Cities and states, however, stuck with defined benefit plans for their employees because politicians could offer luscious benefits to entice union voters but wouldn’t likely still be in office when the bills for those benefits came due and the public discovered that they didn’t have the money to pay. It is a classic case of moral hazard. The politicians lied to the public employees and bought their votes with theoretical funds.

In my hometown of Houston, the big bump was under Mayor Lee P. Brown in 2001.


<..snip..>


http://thefederalist.com/2017/05/04/cautionary-tale-texas-cities-hide-debt-deflate-economy/
No government in the 12,000 years of modern mankind history has led its people into anything but the history books with a simple lesson, don't let this happen to you.

Offline driftdiver

  • Hero Member
  • *****
  • Posts: 9,897
  • Gender: Male
  • I could eat it raw but why when I have fire
Lets see, work 20 years and retire with a pension thats equal to your highest pay during those 20 years.  For the rest of your life.

What a bargain@@@@!!!!!!!
Fools mock, tongues wag, babies cry and goats bleat.

geronl

  • Guest
Lets see, work 20 years and retire with a pension thats equal to your highest pay during those 20 years.  For the rest of your life.

What a bargain@@@@!!!!!!!

pure insanity