orca: What a laugh.Every single Red State receives far more in federal monies than they pay in. California and New York are lucky to get get 40 cents on the dollar back from all the federal tax money they pay.

Not true. CA and NY get $.79 for every dollar they send to the feds. Also, Texas (Red State) only gets $.94 for every dollar and yet NM (Blue State) gets $2.00 for every dollar they send. Vermont, Maine, Penn. and Iowa (all blue states) also receive more than they give and Indiana, Georgia and Colorado (all red states) give more than they receive.

Next time, check your facts before spewing your B.S.

http://www.trackforum.com/forums/printthread.php?t=115285

http://en.wikipedia.org/wiki/File:Red_state,_blue_state.svg

public_defender: I’m not sure partners are as immune from personal liability as you say, but as to customers, my point was that a business or government is not insolvant if it has untapped revenue sources, and that includes taxes.  But it seems that this whole point is moot. From what I’ve read, federal law does not permit states to file bankruptcy. States might try to “repudiate” debt unilaterally, but that would probably be both a Fifth Amendment taking and a Fourteenth Amendment deprivaton of property without due process.

As I understand it, it’s not that the Bankruptcy Code “forbids” states to declare bankruptcy, it’s that they are not currently included in the list of debtor types that the Code is set up to handle. It would be as if a Martian showed up at the State department and requested a visa: the USG doesn’t have diplomatic relations with Mars, nor recognize the Martian government, but if Mars does in fact have a government, it wouldn’t really be proper to process the Martian as a stateless individual. So really there might not be any current way forward even though it’s not the case that Martians are “forbidden” to get visas.

Your takings argument is interesting, but I don’t see it working because this particular “property” is one the state has the power to define away legally. If the state provides a benefit, it must do so within the Constitution’s framework, but IIRC no state can create an entitlement it can’t later take away. The fact that this entitlement is framed within a contract of employment is a sound point upon which to attack, but given the reality of the situation and the cost to the general public, to whom the state bears the highest responsibility, I think it would fail even if it were found that sovereignty were not a good defense generally. Likewise the due process argument – if the state can legislatively repudiate the debt, there can be no failure of due process. If they can’t, it doesn’t matter anyway.

I read a story recently that said that the population of California increased in 2008 and 2009 due largely to the influx of foreign immigrants and due to the fact that some specific ethnic minorities have higher birth rates, but that the white population is leaving at a rate of around 800,000 per year.

I have to admit, I’m one of the 800,000 who left recently and moved to Texas as I sincerely believe that Los Angeles county and the state of California have no possible way of avoiding bankruptcy. Before they do, taxes will go way up (on a temporary basis – ha ha ha) and the unions will make minor concessions. But in the end, bankruptcy is the only way out for California because it’s the only way that the union contracts will be torn up.

Mark Field:
I’m not sure what this means. The official census numbers show CA gained population through 2008. I can’t find a number for 2009, but Wikipedia gives a number which is higher than 2008. Do you have another source?
Plural? Is there a city other than Vallejo which has declared bankruptcy due to pension obligations?

public_defender: Pensions are payments that taxpayers bargained for. Taxpayers got work and services from employees, and the employees got salaries and a pension. Taxpayers may want to renegotiate going forward, but they should not be allowed to escape their contract by refusing to exercise their taxing authority or by choosing to use the tax money they have on other things. If you want to get out of paying the pensions you promised, you shouldn’t be allowed to spend current money on roads, cops or the like.

Any taxpayer who has driven over 30 potholes to get to work, sent their kids to public school, waited in line at the DMV for hours or had their dog executed by the police know that they are not getting the services they paid for.

In fact I submit that a large factor in the declining value of state services is that the states are directing a larger portion of the budget to supporting the pension system.

Interesting, in the past year, I had been JOKING around that NJ passed a law that no resident could move their legal residence from the state without paying his/her share (about $3,000 per person if I recall correctly) of the public debt (debt, plus unfunded pension & retiree healthcare for Civil Servants).

Personally, I don’t believe this to be legal, but its scary that the situation is SO desperate that such possibilities are now seriously being put on the table.

Of course the BETTER answer is to reduce pensions for FUTURE years of service for CURRENT (not just NEW) employees. This is routinely done in the Private Sector and should one of the fist (serious) options to pursue.

Wow ….. just what I’ve been saying for years …. that these promises simply can NEVER be met, but since politicians never address anything until its a true crisis, under the current structure, public service (recreation, transportation, libraries, infrastructure, etc.) will suffer tremendously until TAXPAYERS DEMAND change. Soooooo … isn’t it a BETTER idea to address it NOW (even if through a preemptive bankruptcy) to prevent this crisis scenario ?

If creditors could garnish taxes, could they also prohibit the State from continuing to pay current employees? Obviously, state employees would get paid for current work, but the state doesn’t have to keep them on staff. What if that meant firing all prosecutors or cops?

A state default could help enact a libertarians dream, but it would not likely hurt state pensioners, who could continue to take state property and assets to cover the debts they are owed.

But it seems that this whole point is moot. From what I’ve read, federal law does not permit states to file bankruptcy. States might try to “repudiate” debt unilaterally, but that would probably be both a Fifth Amendment taking and a Fourteenth Amendment deprivaton of property without due process.

public_defender: Another key question is whether bankruptcy law treats state taxpayers as shareholders of a corporation, general partners, customers, or some combination of those.

Why does it matter? Bankruptcy judges cannot touch shareholders, general partners, or customers to pay for debts of the corporation, general partnership, or business. The only assets the judge can touch are those belonging to the business entity which is the subject of bankruptcy. Any debts which cannot be paid out of the assets are discharged.

Under no theory of business would a bankruptcy judge be empowered to decree tax increases to pay for acquired but unfunded debt.

You appear to take the position that certain liabilities acquired by the state are unable to be discharged. I’m not sure of what your basis for this position is, because it’s at odds with bankruptcy law.

Pensions are a contract entered into between the employee and (in this case) the state. The employee took the risk upon entering into the agreement that the state would be solvent and able to pay when the pension comes due. It is a risk that the employee took, and I don’t see why other citizens should be obliged to guarantee that risk.

If I invest all of my retirement savings in the stock market, I’m taking the risk that the companies I choose to invest in will have value when it comes time to retire. If they aren’t solvent, then I have to accept that my money is gone.

If you don’t want risk, or want to minimize risk, then take part of your salary and place yourself as a secured creditor or bondholder. At least that way if the investment tanks, you’ll be first in line to get paid.

Peter,
If the lawful actions of the elected legislatures and executives (Governors, Mayors) don’t constitute obligations of those units of government, what does? You’re hair-splitting trying to distinguish “the people” from those the voters have elected to act on their behalf.

The real inequity is the shifting of costs from one generation on to the next. People in the 1990s and 2000s got the benefit of govt services they did not fully pay for because their governments did not fund the pension liabilities that were accruing, and people in the 2010s and beyond are going to be asked to either pay the bill (with interest), renounce the obligations or most likely some mix of the two. Many of those are different individuals. Plus, future employees will receive lower pensions for higher contributions, helping pay annuities to their predecessors.

If I could change one thing in the US and State Constitutions, I think I would require all units of government to use accrual accounting. Governments typically use a version of cash accounting where unfunded liabilities (pensions, Social Security, Medicare, loan guarantees) are invisible. On an accrual basis, many “balanced” state and local budgets actually had/have large, persistent deficits even during the good years, and the Federal deficits have been several hundred billion $$$/year worse than anyone officially recognized.

First, state wages have been on autopilot for years. That means we have some grossly underpaid and overpaid employees. What’s the problem with “underpaid” employees? Can’t they just leave? Well, many do. We could probably fill every attorney opening in our office for $30K a year and no benefits, but the attorneys who would work for that can’t do the job, won’t do the job, would quit soon after they got up to speed, or a combination of all of those.

Another impact of below-market compensation is that employees who remain are often the employees you least want or the ones with their own agendas. You take pretty much all power away from managers (and the political leaders) if they can’t hire and retain replacements (and the “retain” part is key) for the same money. For an employee, it’s pretty darned empowering to figure out that your bosses can’t effectively replace you.

On that note, every ten years or so, government needs to take an across-the-board look at compensation. Compensation for positions with excessive turnover should be increased. Compensation for positions that people never leave should be frozen or cut. Union contracts are a big impediment to this, but so are efforts of anti-government types who don’t want any government employee’s pay to go up. So we get the status quo.

Second, my experience is that less skilled employees are overpaid in state government, and higher skilled employees are underpaid. That’s partly because state compensation is highly weighted with fixed benefits. It’s also partly because in lean year after lean year, government puts a wage cut off–people below that point get raise X, people above that point get no raise or a fraction of X. Year after year that over weighs salaries at the bottom. It’s politically difficult to cut pay for lower wages for lower-paid workers and raise them for higher-paid workers.

Third, often at the demand of newspapers and the public, governments insist on paying all workers wages, not salaries for “accountability” purposes. That hamstrings the ability of government to demand more time from employees. WalMart can demand that its salaried workers put in 80 hour weeks, but public accountability zealots want to make sure we government workers are paid hour for hour. Well, you get what you ask for.

Peter: The pension payments are not debts that taxpayers bargained for–they constitute abuses that were perpetrated at the taxpayers’ expense by agents of the taxpayers–state legislatures. There is nothing wrong with modifying these egregious ‘contracts.’ Taxpayers didnt agree to these contracts anymore than they agreed to pay the average social security recipient three to five times what the average retiree paid into it.

What’s your evidence of that? I provide honest work for my pay and pension. Part of the reason I have not sought jobs with higher paying base pay rates is the pension. Many others have made similar decisions. How is that contract an “abuse”? I worked. I didn’t pursue other options in reliance on the contract. Now I want paid? Could I unilaterally decide that I’m being underpaid so I’m entitled to use my government office as a base for a private business on government time? After all, under your logic, if I think my contract is an “abuse,” I can just refuse to honor my part of it.

Another question is whether a bankruptcy judge basically a super-legislator with the power to repeal, amend, and enact legislation? A state constitutional convention of one with the power to effectively amend the state constitution? Or something else? That would affect the extent to which the judge could overcome other state obligations on both the spending and taxing side. If state law limits income and property taxes, must a bankruptcy judge respect those limits? If state law mandates spending on something, must a bankruptcy judge respect that?

Could a bankruptcy judge say that state spending on prisons is too high? A lot of research shows that prison is a waste of money for a lot of offenders. If the bankruptcy judge finds that the state would save money imposing shorter prison terms, could the judge order the early release of prisoners? Could the judge force the state to close a few prisons, fire a bunch of guards, and hire probation officers (who, overall, would be less expensive)? Could a bankruptcy judge effectively re-write a state’s criminal code to make it more cost-effective? If not, could the judge limit prosecutions of minor offenses?

I’m lucky in one sense. Under the US Constitution, the state can’t send people to prison without me. The state can’t even pursue charges that MIGHT lead to more than a short jail term without paying someone like me. When workloads get too high, public defenders can point to ethical rules about accepting more cases than we can handle competently. And since the state can’t prosecute without us, that means that they can prosecute fewer people, and the state generally doesn’t like that result, so they work hard to avoid it.

That raises the question of whether a bankruptcy judge could override state ethical requirements and require that states only pay for counsel that meets the minimal federal constitutional standard for the effective assistance of counsel. Could a bankruptcy judge bar disciplinary authorities from enforcing disciplinary codes? If so, would state disciplinary authorities have authority to decide when counsel was constitutionally ineffective, or would those cases go to the bankruptcy judge?

Of course, you can raise taxes so high that they start to recover less money, but that’s not always the case. A 2% income tax will bring in roughly twice as much as 1%. Where’s the point that taxes become revenue reducers? What about a one-time levy on incomes and homes in the state? That would be a burden on all taxpayers, but why should people who provided services to the State bear a disproportionate share of the cost? Impose that in December on that year’s income and property, and it’s effect on future behavior will be limited. Give people the right to pay over time, and it will have the effect of spreading the pain evenly. That also prevents people from leaving the state to avoid payment. IF they leave the state, they still have the debt to pay.

Here’s a legal question not a policy question. Does a bankruptcy court have authority to order a state to raise taxes? What if those tax increases would violate the state constitution? Does the court have authority to force a state to stop spending on things that state statutory or constitutional provisions require the state to spend money on?

To avoid pension debts, the state should have to prove that they are maximizing tax revenues and that any additional taxes would bring in less revenue. A private company would not be allowed to use bankruptcy if it were voluntarily leaving its prices below what the market would accept. “We know the market would let us charge twice as much for our widgets, but we think it’s just bad policy to charge that much, so please let us refuse to pay our creditors.” State governments and state taxpayers shouldn’t get any special treatment.

Originally, DB plans were supposed to invest in only govt bonds and maybe top-rated corporates; it was safe, steady, not volatile, and not a lot of room for crookedness. But in the late 1970s they couldn’t keep up with inflation, so the investment rules were gradually loosened until by ca. 1990 pension funds were going into derivative pools and all sorts of crazy speculative things, and politicians all over the country directed their Funds to hire certain investment managers or invest in certain corporations or real estate.

Not just that. Politicians chose to underfund pensions in favor of current spending and used market-based returns as a justification.

I should enlarge on what I wrote above.

In the time I’ve been working on the problem of underfunded pensions I’ve come to believe the DB structure is simply unworkable in our culture… the actuarial math can work, but leadership types whether in government or private sector just cannot resist the urge to raid the kitty. And it’s a VERY big kitty.

Corporate shenanigans led to ERISA and creation of the Pension Benefit Guaranty Corp (PBGC) and the IRS had to get increasingly tough in dealing with firms that kept raiding their funds and abusing the intent of the tax preferences such funds had been granted. The upshot of all that was that most private-sector DB plans have closed—the steps the Feds took to make them honest made them unattractive to the sponsors… what does that tell you about the sponsors?

The Feds stayed away from public sector Funds as a matter of federalism—no PBGC insurance but also little oversight, and the freedom to get into really serious trouble. Public agency sponsors are non-taxpayers, so IRS issues are much less. But the urge to short-change the Funds and use the money for short-term things, to play games in naming investment managers and advisers (e.g., Obama’s car task force guy, Ratner, indicted or facing indictment for steering pension investment business), directing investment assets to favored recipients, and to buy labor support by sweetening benefits, are just irresistable. Not to mention the junkets for pension board members.

Originally, DB plans were supposed to invest in only govt bonds and maybe top-rated corporates; it was safe, steady, not volatile, and not a lot of room for crookedness. But in the late 1970s they couldn’t keep up with inflation, so the investment rules were gradually loosened until by ca. 1990 pension funds were going into derivative pools and all sorts of crazy speculative things, and politicians all over the country directed their Funds to hire certain investment managers or invest in certain corporations or real estate. And the Funds could make up fairy tales about what their assets would earn (higher earnings mean lower direct contributions from employees and governments), and assets meant to fund people’s retirements bounced up and down with the stock market. At this point the whole thing stinks.

BUT, there are still millions of employees and retirees who, despite what some posters here have written, did their jobs honestly and as well as they could, in expectation of receiving a pension annuity when they reached the eligible age, and they have to be treated fairly. “Fairly” may require a haircut to their expectations, given everything, but the idea that they’re all useless, toss ‘em on the street and the problem goes away (you didn’t write that, Dan, but some others pretty much did) is just not reasonable.

Noted by Nick Gillespie, Editor in Chief, Reason.com and Reason.tv

Peter 10:34am—My state has that same constitutional provision. It declares a Fund member to have an enforceable, contractual right to their benefits, which may not be reduced. It’s never been tested in court, but there are 3 extant interpretations:

1. Centrist–Once someone is hired, or in a variation, becomes a Member of a Pension Plan if that happens after a probationary period, their benefit package cannot be decreased; i.e., the rules under which they accrue benefits must stay constant or can be changed in their favor, never to their disadvantage.

2. Softer interpretation– the guarantee applies only to benefits already accrued; future benefits can be earned under new rules that are less beneficial to the member.

3. Hard line– not only does #1, above, apply to bebefits, but you cannot increase the member’s requird contribution (usually a 5 of his pay) because that reduces the net value (after contributions) of his membership in teh pension fund.

1 or 2 strike me as reasonable readings, 3 seems crazy but I understand several unions in my area have legal opinions to that effect and an attorney of my acquaintance who strongly believes # 2 should apply, said he can see how one could come to #3, although he disagrees with it.

The political possibility of the State legislature taking on the unions even in legislation (i.e., # 2), let alone constitutionally, is a whole ‘nother thing, of course.

A. Zarkov:
Indeed it does. I would have guessed Louisiana. Of course one does not live in state the way one lives in his city or town. Living in New Orleans or Detroit is much more dangerous than living anywhere in SC.

I hear there’s some nice places in Gaza to live, too.

Perhaps oddballs like DeMint are formed by places like South Carolina with its violent crimes and heavy dependence on welfare from the federal government?

What some people would call conservatism is really just self-loathing…