The municipal pension time bomb - only thing uncertain is how long the fuse

Here's the key paragraphs from a  NY Times article from 11/12/14 on how even with bankruptcy settlement in Detroit, the Pension Risks Linger

Last month, the president of the Society of Actuaries, Errol Cramer, sent a letter to the Actuarial Standards Board expressing concern over “a misperception” on the part of the public. People have the idea, he said, that actuarial funding schedules were designed to produce enough money to pay for the pensions, “which they are not.”

All those eye-glazing board meetings, the bewildering calculations, the talk of “required contributions” and research on whether cities are paying them or not — those things have apparently confused the public into thinking that as long as an actuary follows the standards, and a city or state follows the actuary’s advice, a solvent public pension system will be the result.

Not So!

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Here was my comment I submitted on line: 

In California, like most states and cities, probably all of them for reasons I will describe, the projected rate of return on pension funds is at the 6 to 7% level. 

With the Fed giving money to banks at 0%,  safe insured investments now pay far less than 1%,  throwing those retiring with  a million dollar nest egg into poverty.

This has caused assets, such as real estate and stocks to balloon in value, great for the investing class, but bubbles do burst.  Houses  become unaffordable, as will rents, so eventually there will be a collapse of our "neoliberal" economic system - how and when I can't predict.

Because all city employees are remunerated based on this illusory system, the city that pays what is affordable will not get competent staff or police, which is the immediate problem.  When police are paid what a city can truly afford, in the NY City attempt in the 80s, they found ways to issue trivial citations to the vulnerable to increase O.T. to make a reasonable wage- resulting in great injustices.

Government unions have consequences such as these, yet now they are the bedrock of the Democratic Party, which is as close as we come to a party representing the have-nots.   And Ironically, if you buy this explanation, it is the Democrats who have ended up promoting policies that require asset bubbles that make homes unaffordable and ruin those with only nest eggs to retire on.

Detroit was the canary, but were are all down in the mine with them.

AlRodbell.com

I'll add this here, as I was out of space on my Times comment:  This is a problem that is at the least at the national level, and maybe beyond.  Voters can be mislead, and such obfuscation to some degree is required to get elected, which is a type of race to the bottom.  We want optimists, and don't care too much about the pits are falling into by ignoring reality.

The NY Times article boils down to a reality that our defective democratic system has fostered policies that if done by private companies or investment entities would land them in Jail, well it would have, but that's another story.  No one could win an election by telling the public that it must cut benefits to all government employees or raise taxes dramatically.  He/she would be competing with candidates who deny the underlying reality, and will claim that the projections of returns are realistic.

Of course there could be one national bailout by the U.S. Government, as we did to private companies in 2008, and then those cities that were realistic would have denied their citizens the services of the best employees.  Yet, such a bailout will be vast, and there will be winners and losers.  But this will all happen in the future, so we don't have to worry about it now, do we?

Note: 

One more thing since I started to write my comment above and this essay, is the list of comments that appear in the N.Y. Times, which is, of course, a liberal newspaper.  There is overwhelming anger for Municipal Unions that have "extorted" such budget breaking non- competitive total compensation.