The Wall Street shysters and their mouthpieces on CNBC have gleefully ripped Meredith Whitney and her prediction of thousands on municipal bankruptcies. Her timing was early. She didn’t realize that Bernanke would bow down to his masters and produce a 100% stock market gain by pumping $2.5 trillion of free money into the veins of the Wall Street addicts. His actions have solved nothing. Municipalities across the land have unfunded pension and health benefits in excess of $4.5 trillion. And this calculation is based upon annual investment gains of 8%. That’s hysterical when long term bonds yield 2.5% to 3.5% and stocks are priced to deliver 3% over the next ten years. Using a true investment rate of 3% to 4% reveals a true unfunded liability in excess of $6 trillion.
It seems Pennsylvania is ground zero for unfunded pensions and my Township is one of the worst examples of governmental incompetence in the state. How could one state account for 25% of ALL the public pension plans in the entire country? I guess we’ve cornered the market on dumbass public officials, greedy government union drones, and a delusional populace that can’t understand basic math. The Governor and the legislature know that government pension obligations are a looming fiscal disaster. What actions did they take when they passed the 2014 budget last week? NOTHING!!! There are elections coming up in November. You can’t get re-elected by telling voters the truth or getting government union employees mad. This is why we’re doomed. No politician has courage. Greedy government drones will never willingly give up what was promised them by slimy politicians. The average voter thinks money grows on trees. When the next financial crisis hits and wipes 30% to 40% out of these pension plans, accounting fraud and underfunding of these pensions will come home to roost. Meredith’s predictions will come true as municipalities declare bankruptcy and government workers end up with 20% of what they were promised.
My township of Towamencin is singled out in this article as an example of a municipality that has screwed its 17,600 residents by promising its police, firemen and other government workers more than they can ever deliver, without jacking up taxes significantly on the citizens. I pulled up the details of the Towamencin pension plan and annual budget at these links:
http://www.auditorgen.state.pa.us/Reports/Pension/munTowamencinTwpPPP071012.pdf
http://www.towamencin.org/documents/finance/2013_Proposed%20Budget.pdf
According to these reports the Towamencin pension plan is only 61% funded. A township with a $16 million annual budget owes $9.5 million to its workers. It’s assets have an actuarial value of $5.8 million. Of course, all of these figures are complete bullshit because they are based on an 8% annual return on the invested assets. Using the 3% they will actually achieve, the plan is underfunded by $5 to $6 million. That is $800 per household in the township. What is it with politicians and promising public employees gold plated benefits that far exceed what people in the real world receive? In the early 2000’s the annual pension payments for Towamencin were in the $100k per year range. Then Tom “code red” Ridge and the idiots in Harrisburg passed the “No Government Drone Left Behind” law and set in motion a future fiscal disaster of epic proportions.
The population of Towamencin has not budged since 2000. The annual pension payment has gone from less than $100k per year to over $900k per year. It now accounts for 6% of the annual budget and 11.5% of the general fund budget. It is on automatic pilot and will exceed $1.2 million in three years. This is before the inevitable stock market implosion. After the 30% to 40% losses, the annual required contribution will ramp up to $1.5 million as their tax revenues contract. The politicians that run this township have a history of delusional fantasies. They borrowed millions and used eminent domain to build a $500,000 bridge to nowhere. They wiped out five baseball fields and a quaint antique mall with the delusion of a retail paradise. The bridge is beautiful. It leads from one massive vacant weed infested parcel to another vacant parcel. They did build a massive brand new municipal building for the government drones. They poured millions into a pool that losses patrons every year and operates at a loss. These brilliant financial moves have led to annual debt service of $1.7 million, or 11% of their budget. By 2015 the pension and debt service costs will account for over 20% of the annual budget.
Math is hard. Politicians are toadies. Government union employees are greedy. The taxpayers are on the hook for the promises made by toadies to greedy government drones. Reality will smack all of these delusional morons. The obligations cannot be honored because it’s mathematically impossible. Taxes would need to double in order to honor the unfunded liabilities. If the government drones don’t accept large cuts in their pension and health benefits, municipalities will go bankrupt and the drones will be screwed even worse. The parable of the scorpion and the frog will play out because unions NEVER accept reductions in their benefits. It’s their nature.
