Can it be the New York Times worries it may lose the fact-free deficit hysteria propaganda market to the Washington Post? Today’s Times has its leading front page article suggesting public employee retirements benefits are so out of control and breaking the backs of state budgets that we may need a Constitutional Amendment to push States into bankruptcy. That way, the poor states can renege on their promises to public employees, defy their own state constitutions, and just for giggles, break the backs of employee unions.
The two-column, front page headline hides the responsibility for this propaganda hit piece in the passive voice:
A Path is Sought for States To Escape Debt Burdens
. . . which is followed by the subheading, “Traditional Bankruptcy Is Not an Option, but Versions of It Gain Support.”
The editorial viewpoint in this “news” is then reinforced by the first five paragraphs, all above the fold, making it appear that responsible policy makers are hard at work trying to solve this very hard problem before it forces defunding of essential public programs. Just marvel at the dishonest journalism:
Policy makers are working behind the scenes to come up with a way to let states declare bankruptcy and get out from under crushing debts, including the pensions they have promised to retired public workers.
Unlike cities, the states are barred from seeking protection in federal bankruptcy court. Any effort to change that status would have to clear high constitutional hurdles because the states are considered sovereign.
But proponents say some states are so burdened that the only feasible way out may be bankruptcy, giving Illinois, for example, the opportunity to do what General Motors did with the federal government’s aid.
Beyond their short-term budget gaps, some states have deep structural problems, like insolvent pension funds, that are diverting money from essential public services like education and health care. Some members of Congress fear that it is just a matter of time before a state seeks a bailout, say bankruptcy lawyers who have been consulted by Congressional aides.
Bankruptcy could permit a state to alter its contractual promises to retirees, which are often protected by state constitutions, and it could provide an alternative to a no-strings bailout. Along with retirees, however, investors in a state’s bonds could suffer, possibly ending up at the back of the line as unsecured creditors.
So who are these heroes, these responsible “policy makers” and unnamed “proponents” and “members of Congress” who are quietly thinking about ways to save the Republic? Well, it’s the same gaggle of budget deficit hysterics who have systematically lied about the debt and the “crisis” in Social Security. The article eventually cites Sen. John Cornyn, House Republicans, and the paragon of fiscal virtue, Newt Gingrich! Those would be the same budget arsonists who gave us two unfunded wars ($1-3 trillion), an unfunded drug benefit (another trillion), Bush tax cuts (more trillions) and want extensions of the same (trillions and trillions) . . . forever!
It is not until we get inside the paper that the Times bothers to ask an employee rep what he thinks about this nonsense. And buried in a later paragraph, the Times barely mentions a report by the Center on Budget and Policy Priorities, but with little about what the CBPP says that might rebut the deficit/pension hysterics. It’s doubtful most readers will bother to check, even if they’ve read this far.
Enter a certain Nobel economist, who, unable to post much because he’s traveling, gives us this short note:
Probably no posting, unless we get stranded in some airport somewhere.
If you want something to read, look at Iris Lav’s debunking of myths about state and local finances
Huh. So what does the economist want us to read? Well, only that same CBPP report, where honest folks have politely but utterly debunked the entire premise of the Times front page and pension hysteria propaganda. The CPBB report is well written and should be read from beginning to end, but here are a few highlights:
A spate of recent articles regarding the fiscal situation of states and localities have lumped together their current fiscal problems, stemming largely from the recession, with longer-term issues relating to debt, pension obligations, and retiree health costs, to create the mistaken impression that drastic and immediate measures are needed to avoid an imminent fiscal meltdown.
The large operating deficits that most states are projecting for the 2012 fiscal year, which they have to close before the fiscal year begins (on July 1 in most states), are caused largely by the weak economy. . . . [i.e., the US could easily fix that, as they did partly in the stimulus act]
Unlike the projected operating deficits for fiscal year 2012, which require near-term solutions to meet states’ and localities’ balanced-budget requirements, longer-term issues related to bond indebtedness, pension obligations, and retiree health insurance — discussed more fully below — can be addressed over the next several decades. It is not appropriate to add these longer-term costs to projected operating deficits. Nor should the size and implications of these longer-term costs be exaggerated, as some recent discussions have done. Such mistakes can lead to inappropriate policy prescriptions.
What follows is a point-by-point debunking of all the fact-free gibberish from deficit hysterics that’s repeated on the Times front page. Samples:
Some observers claim that states and localities have run up huge bond indebtedness, in part to finance operating costs, and that there is a high risk that a number of local governments will default on their bonds. Both claims are greatly exaggerated. [followed by further historical data and rebuttal] . . .
Some observers claim that states and localities have $3 trillion in unfunded pension liabilities and that pension obligations are unmanageable, may cause localities to declare bankruptcy, and are a reason to enact a federal law allowing states to declare bankruptcy. Some also are calling for a federal law to force states and localities to change the way they calculate their pension liabilities (and possibly to change the way they fund those liabilities as well). Such claims overstate the fiscal problem, fail to acknowledge that severe problems are concentrated in a small number of states, and often promote extreme actions rather than more appropriate solutions. [followed by more factual rebuttals, including an explanation how misrepresenting or manipulating the assumed discount rate can make a more manageable $700 billion deficit look like a scarier $3 trillion deficit ]. . .
– States and localities have managed to build up their pension trust funds in the past without outside intervention. They began pre-funding their pension plans in the 1970s, and between 1980 and 2007 accumulated more than $3 trillion in assets. There is reason to assume that they can and will do so again, once revenues and markets fully recover.
– States and localities have the next 30 years in which to remedy any pension shortfalls. As Alicia Munnell, an expert on these matters who directs the Center for Retirement Research at Boston College, has explained, “even after the worst market crash in decades, state and local plans do not face an immediate liquidity crisis; most plans will be able to cover benefit payments for the next 15-20 years.” [5] States and localities do not need to increase contributions immediately, and generally should not do so while the economy is still weak and they are struggling to provide basic services. . . . [more follows]
Once again, the same intellectually dishonest deficit hysterics who have been conning the public and the media into believing we face imminent financial crisis that can only be solved by cutting Social Security, are pulling the same con about public pensions. The con is to get states to renege on commitments, some embedded in state constitutions (so much for conservative reverence for the 10th Amendment!), to fund public pension/retirement programs that employees worked, paid, and bargained for, while claiming we have no choice. It’s a lie.
It’s shameful that the New York Times is not reporting this straight but has instead published a blatantly misleading propaganda piece on the front page of its news section.



51 Comments

Typo alert: “The editorial viewpoint in this “news” is then reenforced by five paragraphs”… should be reinforced.
thanks. Fixed.
Scarecrow: Generally love your work, but I think this is a classic case of truth on both sides of the issue. Yes, the conservative low-tax union-busters are using this problem as an excuse. But there are also at least three very big states (CA. IL, NJ), and probably ten overall, that are in serious trouble regarding unfunded pension liabilities. And the scope of those liabilities is simply beyond the ability of those states to cover even if the economy rebounds tomorrow.
The only way that CA Gov. Jerry Brown and Former Assembly Speaker/SF mayor Wille Brown could get farther in the pockets of the public employee’s unions would be if they were sewn into the pockets when the pants were made. Yet both of these hard-left Dem politicians have publicly admitted that the public employee’s retirement system in CA, as now constituted, is “unsustainable”.
There will have to be changes. The key will be finding solutions that protect existing retirees and those who are largely vested but at the same time prevent a reoccurence of the problem in the future. (No more “kicking the can down the road” because in some states, we’ve reached the end of the road.)
Appreciate your comment. You might want to read through the CPBB report, which address part of this and acknowledges some states in more dire conditions that others. But as they note, the level of benefits for retirement systems is usually a state statutory matter, not constitutional, and the states have options about what they want future benefits to be, especially for new/future employees. That doesn’t require California to go into bankruptcy or renege on promises it already made to past employees. Those decisions may have been wise or not, but until the devastating recession and the financial collapse hit Cal PERS, it didn’t have a problem. It was held up as the model, IIRC. (Full disclosure: I’m a former, long-term state employee, left many years ago.)
As they note, there’s a difference between current underfunding, which is driven by short-run recession conditions, and long-term future gaps that can be resolved over time in various ways, and may disappear under reasonable assumptions of investment returns — see their tables on how that shakes out over time.
I don’t believe the advocates of bankruptcy are interested in these real solutions or the facts. I suspect they’re after the unions and trying to kill the pot of money that the trust funds make available via lending for funding state expenses. it’s the state equivalent to the SS battle at the federal level. This is not about fiscal responsibility. Just my opinion.
BTW, I started state service under the first Jerry Brown regime — he was, uh, interesting, but his regulatory commission appointees, for whom I worked, were generally solid, and I advised several.
There’s no reason why the US govt cannot help states in their current budget crisis via federal spending — that’s why we have a federal government with its own currency, so we don’t have to pretend we’re Greece or Ireland inside the Euro zone.
Very interesting. Thanks.
The War on Poverty is over and the Rich won…! 8-(
What follows is a point-by-point debunking of all the fact-free gibberish from deficit hysterics that’s repeated on the Times front page. Samples:
I remember the back when the supreme court appointed bush and later on the full count of votes were tallied
the new york times printed on front page that the re-count showed bush was the winner
however buried deep in the paper we read the recount showed no such thing, gore clearly one the ballot count, however in one limited re-count scenario bush would come out the winner, the nyt printed that one scenario for front page even though every single other scenario gore won
very interesting. i clicked on the mary williams walsh link on the NYT story and she has written story after story in this same vein each accompanied by startling headlines. she is clearly working this. i have to think her sources are guiding her. the whole series is too one-sided to believe that there isn’t a hidden agenda.
and it’s working:
#1 most e-mailed business story
#2 most e-mailed NYT story
Can it be the New York Times worries it may lose the fact-free deficit hysteria propaganda market to the Washington Post?
Not as long as Marion Posts the Times Columnists in the morning if the Times loses Marion if she ever thinks they are unworthy of our Snark then the Times is finished.
Oh and I think this NYT story explains why states need to reneg on pension commitments:
http://www.nytimes.com/2011/01/22/business/22yachts.html?ref=business
They want to upgrade to a new bigger yacht, but they can’t sell the old one. The horror!
bingo
The entire Republican Party, but especially its leaders and financial backers, are one Big Lie.
And the New York Times is playing the role of Republican Party pawn just like they did before the start of the Iraq War in 2003, with Judith Miller’s Iraqi WMD fantasy given front-page coverage, while any dissenting views (you know, the realistic ones) were buried inside, if they even got coverage at all.
I used to get the NY Times locally on a daily basis, then only on Sundays (for the crossword puzzle and NY Times Magazine), but now I don’t bother, not after the Judith Miller fiasco and other disingenuous reporting involving other Big Lies by the Republican Party.
Isn’t it sad when the crossword puzzle is about the only true value that the Grey Lady has…? Will Shortz for Prez…! ;-)
Me thinks the congress is going to pit people against their states. Wonder who will work on the water and sewer lines?
When the banks lost so much (imaginary) money that they were threatening to fold, and the insurance company they had hired to cover the bets they had placed and lost (AIG) couldn’t bail them out, it was said that if the government did not take money out of the treasury and pay off the loans, the world would end or something, there was no question that it must be done — by Friday!!!
Literally they said the disaster was no close that if this was not done by the end of the week the financial system of the whole world would melt down and collapse. And of course it was done. The congress did persuade them to wait until Tuesday.
But when it is state governments in over their heads, governments that employ and provide life supporting services for hundreds of millions of people, well then, it would not be a good idea to help them out and encourage their “irresponsible behavior” and “bad choices”.
I don’t understand this. Can someone tell me what I am overlooking that will help me make sense of it?
Today’s Times has its leading front page article suggesting public employee retirements benefits are so out of control and breaking the backs of state budgets that we may need a Constitutional Amendment to push States into bankruptcy.
Banks are doing record business so is WallStreet why can’t the States tax them?
Its not like they are using their profits to create jobs in America anyway.
whoever has kids to feed
Not to mention that the reason pensions are a problem is that the state govts, NOT the employees, did not act responsibly in the past.
So it’s a perfect moral hazard. I promise you X. I behave irresponsibly so that I cannot pay you X. Then I scapegoat you for being such a greedy bastard as to expect me to live up to my promises.
I’ll second both sentiments!
nobody is telling the real story in main stream, the fact that these laborers paid for their retirement, this is not a gift, this is not state money” and it’s not our money
it’s stealing if they follow the plan of eliminating these laborers investments
*heh* Knowing Marion, TCU, she’ll slog on through the muck and mire for us all… Being the trooper that she is…! ;-)
Wouldn’t this also mean that the State would have to place all of their other debt on that same sacrificial table. Contracts that have given their contributors. All contracts owned by the State would need to go before the bankruptcy judge. This is another one of those new rules the Repubs knee jerk enact and then freak when it hurts their buddies and party. A State bankruptcy would not just affect union contracts and pensions. It would affect all debts, revenues and assets. There are also constitutional questions. Companies that have been forced to go bankrupt are sometimes put under the control of a conservator to make sure that old management does not further damage the assets. In Ohio, could we appoint a conservator to replace Repub John Kasich.
“until the devastating recession and the financial collapse hit Cal PERS, it didn’t have a problem. It was held up as the model, IIRC.”
But CALPERS did have big problems, VERY BIG PROBLEMS, before the recession. The recession didn’t occur until 2007. Between 1999 and 2009 California’s total pension liabilities rose 2,000 percent.
CA is a classic example of what happens when you reach the end of that road everybody has been kicking that can down. Back in the heydey of the dotcom bubble the state authorized pension plans to change the retirement benefit calculator from 2% of earnings x years served to 3%, and made it retroactive for people already in the system, including those close to retirement. This made it possible for many people to retire at 90% of their final salary, plus COLAs, and plus health care coverage from retirement age until they reached 65 and qualified for Medicare.
In addition, for decades CALPERS had been avoiding calculating true future unfunded liabilities. Up until Jan 1 of 2006, government entities did not have to use accrual accounting. They only had to account in each FY budget for that year’s CALPERS’ assessment. CALPERS also projected a ROI of 8% a year, compounded, and continued to use that model long after it became apparent that aside from a truly exceptional year here and there, there was no chance to achieve anywhere near that kind of ROI.
All this was designed to avoid the pain of either having to divert money from current services or raise more revenues (taxes) or to limit the growth of pensions. The goal was to give the unions what they wanted while concealing from the taxpayers the true future costs. This approach also deluded future retirees into thinking their pensions were fully funded, guaranteed, and otherwise unassailable. Anti-union conservatives and some neutral academics have been warning about the coming “pension tsunami” for decades. Unforunately, much the same way that a broken clock is still right twice a day, being a union-busting conservative doesn’t mean that you’re automatically wrong. The conservative’s motives were, of course, anti-union and anti-tax, but their numbers were correct.
The blame for this falls on the politicians (overwhelmingly Democrats) and union leaders who dominate the CALPERS board and have been complicit in the deception. The rank-and-file members deserve some blame, for not being informed and not heeding the warnings, but their responsibility is minimal compared to that of their union leaders.
“nobody is telling the real story in main stream, the fact that these laborers paid for their retirement, this is not a gift, this is not state money”
Actually, that’s only partly true and any analogy to SS is not really accurate. In SS, both the employer and the employee contribute to their retirement fund. With many public employee retirement systems, either the employee’s don’t contribute to their retirement, or have only had to start doing so recently. In addition, with SS the employer has to pay the money into the “Trust Fund” but with public employee’s the government entity only had to promise to pay the money in when it came time to pay out the benefits.
Here’s another way of looking at SS versus public employee pensions: with SS, employers and employees paid into the “Trust Fund”, then the feds “borrowed” most of that money and promised to pay it back later. With public employee pensions, government entities only paid in a small fraction of their real, long-term future obligations. Some states may have raided those funds, but many (like NJ and, I believe, Il) simply had years when they didn’t pay in anything. (Or paid in a paltry fraction of what they should have, had promised to, etc.) It doesn’t take very many years of this kind of underfunding for the effects to multiply and eventually metastize.
“Wouldn’t this also mean that the State would have to place all of their other debt on that same sacrificial table.”
That’s one of the landmines with this state bankruptcy idea. Among the biggest consequences is in the muni bond arena, where bondholders would likely take a huge hit and if the market didn’t collapse entirely, rates for future borrowing would go through the roof. (Of course, I’m not a fan of the muni bond sector and favor a lot of pay-as-you-go financing for many state and muni projects.)
Maybe eCAHN can weigh on the muni bond issue. (Love to know what she thinks of the market as a whole, problems, abuses, solutions, etc.)
“In SS, both the employer and the employee contribute to their retirement fund.”
I have a problem with this interpretation. I know technically this is true but any employer who is considering hiring someone factors in the cost. So the employer share of SS is really part of the salary/benefits of the employee.
it;s entirely true, they were lobbied into taking the job at lower wages (at the time) becuase of the benefits, this is entirely their money
O/T: Holy fucking shit. Keith Olbermann just ended tonight’s show with his resignation from MSNBC!
Leaving before Comcast? Because of Comcast? To find a better place where he can be less constrained?
mine was a response to beech
Any chance KO might be thinking of mounting a challenge to Obama? I mean, it sounds far-fetched, but a lot of us think that what we really need is someone outside of elected office and outside the constraints of the party apparatus.
Who the f____k does anyone think the NYTimes works for? It’s not the “people” it’s the plutocracy.
Yup.
At what level are the real services delivered anyway? It’s at the city and county levels depending upon the area. It’s not like the other levels of government are actually doing anything for We The People. The State of Ken-turkey has turned stark raving mad and looks like it’s outright trying to kill people by putting up so many putative barriers to the services citizens have already paid for.
Exactly what ECAHNomics said. The people I know in NJ are baby boomers who spent their careers working for the state. Now the state is going to say it can’t pay the pensions they were promised and that they contributed to? This is not a surprise, several administrations, GOP & Dem, have allowed the pension liabilities to mount up.
I saw this headline today but I was so disgusted I did not even attempt to read. So glad Krugman is debunking.
Stay on it, propensity. Nice catch.
Warren Mosler says the States’ problems could be handled with $150 B in bailout money in the form of person grants. Much less than it took to bail out AIG, and far less than was given to the banks.
This Administration has been aiding and abetting huge control frauds since it took office. That’s high crimes and misdemeanors.
See: http://www.moslereconomics.com
Let me suggest the obvious:
Why not have poor people make direct payments to rich people, without the inefficiency of an intermediary (govt)?
Picture this: Rick Perry has to declare bankruptcy, and the only terms the Feds will give is complete control of the state. And actually, wouldn’t being able to tap into the CA and TX revenue stream do wonders for the Fed budget? Is this the overreach that topples this scurrilous wave of the minority suborning the wishes of the majority (yes, that was a lot of metaphors)? Sort of knocks the “State’s Rights” argument on its ass if they are declared no longer sovereign-they would then have to be buying insurance for vehicles and coverage for the actions of state employees, specifically law enforcement. That’s a lot of insurance! Because now they can be litigated against.
You are exactly right. During negotiation with the unions, larger contributions to pension funds was accepted many times over wage increases by the state. This strategy was also effective in states without unions, but funded their own plans. The contributions to pensions were considered tax deferred income in the employees compensation package. The total value of this package for state workers is currently estimated to be less than 90% of the compensation of a comparable worker in a non-union setting.
I have a friend who was late paying his quarterly payroll taxes because his business was failing, and they closed him down right quick. How did these states get away with not paying their bill when it was due, and year after year we’re talking here. Bush was quick to amend bankruptcy laws to eliminate many of the protections the middle class used to have, like easy elimination of credit card debt and student loans. And now they are trying to make laws that would let these guys be forgiven for not paying wages? This would definitely result in Greek style riots. We can only hope the senate would stand firm against THAT crap.
He’s got my vote!
But that’s the new Obama/Republican, Deficit Reduction/Tax Reform
Plan!
The big picture is being missed. The GOP intends to ultimately take back the pension fund assets. You think that’s too radical? OK, maybe it is. Try this on for size. By laying off workers and or de certifying unions and terminating the pension programs the number of people attaining full vestment in the plans will be slashed and presto, the deficits disappear.
The ‘solution’ will probably be more of #2 than #1 but after a couple of more years of demonization of public workers in many states the public that matters will be howling to steal the pension fund assets because it’s ‘their money’.
“In SS, both the employer and the employee contribute to their retirement fund.”
Unless you are self employed, and then YOU contribute the entire amount yourself. Should be the same for everyone..self employed or not. Then, everyone sees and understands the true costs of these never ending budget busting entitlement programs..
So true..and why Govt. run retirement plans are so risky. You have no control over your retirement fund and it’s future. Wouldn’t it be better to have personal 401K’s?? Then the individual has skin in the game and is in control of his/her future.
Bingo!
My “Bingo!” below was supposed to be a reply to “letsgetitdone” above at January 21st, 2011 at 10:32 pm, but it ended up down at the bottom of the page once I signed in. I tried to write “Bingo!” again, but the moderator said “uh-uh.”
Of course this problem is getting blown entirely out of proportion to what’s really happening on the ground, all for spin, fraud, and confusion purposes. It is perfectly and simply solvable without bankrupting or restructuring anything, dissolving or even weakening unions, or eliminating hoards of state’s programs.
Funny, how all the “blue” states are getting the biggest “bad greedy state workers” reputations during Democratic Senate and Democratic WH tenures. With friends like this, who needs enemies?
True, but everybody seems to be missing the point I was making: yes, these government entities promised pension benefits in lieu of current salary. But they didn’t pay the contributions they promised. So, yes, you have the workers expecting pensions that they worked for, but you also have pension funds without the money and — unlike SS — no IOU’s either. It may seem like a subtle difference, but with SS you have the need to redeem T-Notes (IOU’s) but with state pension funds there is NOTHING to redeem. Both require general fund tax transfers, but the state pension plans that are in trouble are in proportionately bigger trouble than SS and the freight train is much closer.
For example, without a modest reform like raising the ceiling on withholding, SS will run into trouble 27 years from now. But certain state pension funds are likely to go broke in a few years. One prediction by the NW Univ Kellogg School of Management estimates that the Ill TRS (Teacher’s Retirement System) will go broke in two years…EVEN IF THE STATE MEETS ALL OF ITS CURRENT AND FUTURE FY OBLIGATIONS AND THE FUND HITS ITS ROI PROJECTIONS. That’s why the ILL legislature has just passed some whopping state income tax increases. Ill needs money, it needs lots of it, and it needs it NOW. (How much money? Projected pension fund payouts in 2018 equal MOE THAN HALF of the state’s current total revenues prior to passage of the aforementioned tax increases.)
(Sorry for the CAPS but without tools for italics or bolding, there’s isn’t really any other way to express emphasis.)
Will check out Mosler’s article later, but for now I question his $150 bil figure…unless it’s based on using that $150 bil to buy time for the states to make up for years (in some cases, decades) of underfunding pensions. For example, just three of NJ’s five pension plans could be a combined total of as much as $145 bil underfunded, and that’s just one state. The true extend of CA’s pension liability crisis is unclear because it varies according to which experts you listen to and what ROI projections they employ. However, even lowball estimates put the figures at $130-$180 bil, with high-end estimates (perhaps scare tactics, perhaps just the most pessimistic) running to $500 bil (half a trillion).
401(k) plans are a huge fraud, and not just because of stock market fluctuations and potential manipulations. The core reason that 401(k)s are a fraud is that they depend on there being that the number of investors willing to buy stocks matches the number of retirees who wish to sell stocks. If ten people retire and want to see stocks but there are only four people with sufficient discretionary investment dollars to buy those stocks, the price of the stocks is going to plummet.
The only real solution is defined benefit pension plans where the state and municipal entities are limited in their ROI projections and locked-in to making annual contributions that they can’t avoid.
And so did poverty….
Is that what they call a win-win? >:-|