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Archive for December 30th, 2010

When will state pensions bankrupt your state?

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There seems to be a high likelihood that future generations will have to bear the substantial burden of making up pension benefits for previous generations of state employees. While citizens of states that are particularly hard-hit by the pension crisis may be able to escape to other states, an acceleration of this demographic phenomenon would leave a dwindling taxpayer base behind in the states facing the largest liabilities.

This would increase the likelihood of a federal taxpayer bailout in which taxpayers in all states would bear the burden of the states in default. The problem of state and local pension liabilities is therefore a problem for all US taxpayers, not just those in the states with the largest deficits.

Perp Walk

What happened in Bell City 14 miles south of Los Angeles would be entertaining if it was not so, well – “revealing”. You can read more about what happended at Bell at the ABC News link given at the end of this posting.

But, the essence of the thing is that Bell City Manager, Robert Rizzo, was being paid a salary of $770,000 per year.  Bell City is primarily a blue-collar town of about 40,000 people. A typical salary of a Bell City resident is about $28,000 per year.  About 17% of the town lives in poverty.

The Bell City Council worked it out so that Rizzo would get a near 12% raise each year and they themselves – the City Council – paid themselves about $100,000 per year for part-time work.

Rizzo got fired. But that does not mean he will lose his pension of $709,607 per year. Depending on how long Rizzo lives, the total payout of pension benefits could be close to $30 million dollars.  And that $30 million dollar pension for one person is on the backs of the taxpayers.

The Ruthless among us

There are a couple of interesting things going on here. First, we may have spotted a high density of what Dr. Martha Stout calls “The Ruthless among us – those without a conscious” (read).  According to Dr. Stout, one in twenty-five people lack a sense of what is right and wrong as judged by the standards of the “rest of us”.  So, it looks like we found a cluster of “the ruthless” on the Bell City Council along with the City Manager. 

Does a red flag go up in the minds of these City Council people when they pay themselves $100,000 per year and the City Manager $770,000 per year knowing that this City Manager salary also presents a $30 million dollar pension liability for the city for a single person?  Do you (as part of the “rest of us”) see something wrong with this?  Residents of the city average only $29,000 per year.  It seems that this is the new standard of moral and ethical behavior by the City Council and the City Manager as  “city servant” – at least in Bell.  How many other places is this going on?  Is Bell unique or just the tip of the iceberg?

Trajectory of financial collapse

Second, how many other cities (and states) are on the trajectory of financial collapse under the burden of pensions in general? Cities and states have taxing authority so the folks managing these budgets never have to earn money in the same sense as a private sector business.  What they need they simply take from the taxpayers – if they dare to do so.  The fox is guarding the financial hen-house.

Check out the report below and see where your state ranks in the pension runout.  Some brief statistics below,  Read the full report at the link in the resources section at the end of this posting.

Read the rest of this entry »

Written by frrl

December 30, 2010 at 10:09 am

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