patrick.net

I think governments should not be allowed to borrow money at all, ever. And I count future liabilities such as pension payments as borrowing.

They should fund the current year out of the current tax income, and if they want to fund a large project, they should save up for it first.

HowdyThere says

Illinois has $2.3 billion in debt, and a population of 12.8 million people. That's close to $16,000 per person.

Fuck! And we don't even have any aircraft carriers, jets and the like! $16k per person vs. $60k per person. Think about that. Just one state.

Patrick says

They should fund the current year out of the current tax income, and if they want to fund a large project, they should save up for it first.

The tricky part is how to budget when one doesn't* know for sure how much tax is going to be collected. Governments are notoriously bad for being overly optimistic. Given that economies tend to grow over time, I thought the best method wold be to limit budgets to actual receipts from, say, 3 years previous. That way governments would tend to run surpluses most of the time. Some of the retained earnings would get used up during downturns or used for large projects.

Thoughts?

* had to change to 'one doesn't' from 'U don't' due to the new filter.

WookieMan says

HowdyThere says

Illinois has $2.3 billion in debt, and a population of 12.8 million people. That's close to $16,000 per person.

Fuck! And we don't even have any aircraft carriers, jets and the like! $16k per person vs. $60k per person. Think about that. Just one state.

Well then there is the additional 200 + billion in state and local retirement benefits.
https://www.illinoispolicy.org/reports/203-billion-and-counting-total-debt-for-state-and-local-retirement-benefits-in-illinois/

HowdyThere says

That way governments would tend to run surpluses most of the time. Some of the retained earnings would get used up during downturns or used for large projects.

The logic is sound in my opinion. Problem is getting government to run a surplus. Government and surplus in the same sentence is like a Nazi and a Jew having a beer in 1939. Not happening.

If they get money, they got plenty of friends to give it to.

He’s right, government has no incentive to save... spending other people’s money with no accountability is frivolous. And in one party CA, they don’t have to worry about competition.

WookieMan says

HowdyThere says

That way governments would tend to run surpluses most of the time. Some of the retained earnings would get used up during downturns or used for large projects.

The logic is sound in my opinion. Problem is getting government to run a surplus. Government and surplus in the same sentence is like a Nazi and a Jew having a beer in 1939. Not happening.

Apparently there are a bunch of state debt clocks that have per capita numbers. A few random choices, with some rounding:

New York is close to $18K
Wisconsin is a mere $7.7K
Colorado $10.6K
California, a surprisingly low $10.8K
Texas $10.4K
Virginia $7.8K
Michigan $7.8K

I checked Illinois as well, to see how my back-of-the-napkin calculation compared, and the clock said $11.6K. Not sure why there's such a difference.

Figured I better check Federal as well in case there was a similar discrepancy, but it shows at $64K. My calc was 2017 numbers I believe, while the debt clock is supposed to be real time, so no big surprising difference.

I'm from Ontario Canada, where one source says it's $21.5K per person in Provincial debt. Fortunately it's in Canadian dollars so not as bad as it seems /snark.

Canadian Fed debt is only $17.6 per person, which sounds like a real bargain.

socal2 says

Basically existing employees and retirees keep everything they have already "earned" in their pension to date

That's unfair, becasue the pension funds are in place of social security, the employees and the state all pay in. You don't know how much of a royal fucking over you are suggesting they take.

Are you going to do that for social security too ?

socal2 says

There is no digging out of this abyss unless existing employees already in the system accept some reform too.

THat's easy for you to say. Yeah, haha, lets fuck over the government employees. Many stayed in those jobs for decades, knowing they could make more elsewhere, in part becasue of the pension they were promised. Why should I care ? I don't have a pension !"

Yes you do. It's called social security !

The cost of these "extravagant" pensions is only the difference between what is paid for them (or was supposed to be), and what is paid for social security. I consider that difference part of the compensation. Worth perhaps 10K per year for me. Maybe. Yes I've done the arithmetic.

One difference is the government is two of the payers in, rather than one for social security. SOcial security is funded by you, your employer and the federal government. Where as a governemt workers pension is funds by the employee, the the employer, and the state. In this case the employer is the government, so you guys feel like its you.

WookieMan says

HowdyThere says

Illinois has $2.3 billion in debt, and a population of 12.8 million people. That's close to $16,000 per person.

Fuck! And we don't even have any aircraft carriers, jets and the like! $16k per person vs. $60k per person. Think about that. Just one state.

Unlike the federal government, the states cannot print their own money.
Thank God.

socal2 says

Those "reforms" from Moonbeam are hardly making a dent into California's pension liabilities.

So far. But the changes to the teachers pension are substantial. And they will work. THe teachers and their employers are paying a lot more into the funds. Give it time.

marcus says

That's unfair, becasue the pension funds are in place of social security,

No they're not. Never have been. Pensions generally pay out more then SS by a long shot. Non-pension W-2 employees pay into SS, but to have a living wage at retirement age, likely have to put in another 10% of income during their working years into a 401K if they ACTUALLY want to retire around the same time as public sector workers. There's not much of an argument around this.

Pension benefits are MASSIVELY unrealistic in most places. IL it's a complete shit show.

HowdyThere says

The tricky part is how to budget when one doesn't* know for sure how much tax is going to be collected. Governments are notoriously bad for being overly optimistic. Given that economies tend to grow over time, I thought the best method wold be to limit budgets to actual receipts from, say, 3 years previous. That way governments would tend to run surpluses most of the time. Some of the retained earnings would get used up during downturns or used for large projects.

Thoughts?

Sure. The solution is just don't pay your pension obligations when the taxes revenues are less than you anticipated. Problem solved right ?

WookieMan says

No they're not. Never have been. Pensions generally pay out more then SS by a long shot.

I didn't deny this. Maybe I should have said these employees, their employers and the state all three pay into those pensions instead of them, their employer and the fed paying into social security.

PEople are talking about lowering govt workers pensions from what's promised, but it's what they have instead of social security.

LEt's reduce your social security you receive in retirement, as a solution to the fed meeting those unfunded obligations. Sound good to you ?

WookieMan says

Pension benefits are MASSIVELY unrealistic in most places

Again, the real cost and the real value is the net difference between what it costs to fund these benefits and what it costs to fund social security. This is substantially offset by lower wages in many cases, compared to what they would otherwise need to be paid, to attract the same quality of people.

I'm all for better prevention of pension spiking, and perhaps putting caps on pensions, or perhaps a sliding scale, such as say more complicated formulas based on one multiplier for the first say 80K of income and a sliding lower multiplier for income above that (for calculating pension income)

Basically existing employees and retirees keep everything they have already "earned" in their pension to date - but pension formulas will need to be adjusted going forward - especially for existing employees.

Uhh many state legislatures have tried to iron out the details of this statement to no avail. Where do you draw the line? Who gets "ponzied"? I'm not going to type out actuarial tables but if I retire in 2030 with 30 years service and start collecting in 2038 who or what is paying me? In your world no pool of payors (active contributors) exist at this point, correct? Oh, and there are thousands of me.

marcus says

Sure. The solution is just don't pay your pension obligations when the taxes revenues are less than you anticipated. Problem solved right ?

Wrong. You or U ignored the last meaning of the last sentence.

HowdyThere says

Some of the retained earnings would get used up during downturns or used for large projects.

marcus says

PEople are talking about lowering govt workers pensions from what's promised, but it's what they have instead of social security.

LEt's reduce your social security you receive in retirement, as a solution to the fed meeting those obligations. Sound good to you ?

In IL at least, government workers pension aren't being touched. While it's the easiest pickings for reducing the debt, it ain't happening here. My Mom is a retired teacher so I have a bias against reducing benefits, but it's ultimately the best solution here that will never happen.

I'm 30ish. My SS benefits will almost for certain be reduced. That's why I max out my 401K. IL pensions won't be touched, EVER. If SS is so glorious, get on board, join the private sector.

The problem is, my sister in law is a teacher. 6 years younger. Based on IL law, her pension is now locked in based on her amount of time working. If she works the minimum amount of years she'll likely walk with about $60k a year in pension (conservatively). Even with SS accounted for, private sector workers would have to put in at least $10k/yr MINIMUM into a 401K to hit that amount. That $10k is in addition to the SS they paid into and the employer paid. There's not a teacher putting in $12k/yr or so out of their pocket into the pension fund.

The SS argument by pensioners is one of the worst arguments I've ever heard. Work in the private sector and you'd understand. I've seen the pay stubs and have multiple family members in the public sector and understand what it's about.

marcus says

First, just an observation. Even with the attractiveness of a defined benefit pension, there's plenty of room for improvement in the quality of the pool of people applying to go into education and law enforcement. After all, a pension is just something with monetary value. It's part of compensation. But it doesn't work if the government doesn't pay into it as they should. I guess it could be argued, if the money is paid up front (higher salaries for cops and teachers), and then have them use 401ks, it would prevent the govt from underfunding the compensation expenditures. I guess they still might be able to postpone their part of payments in to the 401ks. Would they then pay in to social security too, instead of the pensions ? Wouldn't they have to ?

The pensions of government employees are so ridiculously high, changing it to higher salaries and letting them have 401K's won't even come close to what they get now.
With 401K's you won't be able to retire at 55 with 100% of your highest earnings for life.
The government pensions are nothing but a ripoff that burdens the hard working middle class. Disgraceful at best.

marcus says

Booger says

They are blown up by the luxurious pension benefits.

It's not like you read or understood my comment.

He read it, understood it, and accurately stated what they were, even though he failed to mention ripoff.

marcus says

PEople are talking about lowering govt workers pensions from what's promised, but it's what they have instead of social security.

LEt's reduce your social security you receive in retirement,

Hmmm... In many cases, when a person retires with a pension, they can take the complete pension as a lump sum, instead of a monthly payout. Plus there's a death benefit to the heirs if that person dies.

Can that be done with social security when retired, will they pay out a lump sum? Does a heir get the full amount paid into SS if the person dies?

No pension should be no higher than the median household income. By 55-65, your house should be paid for, your kids grown, etc.

$60k/year for a retiree is plenty. I feel like all government pensions ought to be capped at the national median household income. And to reach that cap you need at least 35 years of service.

The household income is a gift, it should actually be median individual income.

marcus says

PEople are talking about lowering govt workers pensions from what's promised, but it's what they have instead of social security.

LEt's reduce your social security you receive in retirement, as a solution to the fed meeting those unfunded obligations. Sound good to you ?

How about making your pensions same as our social security? Sound fair to you? I doubt it.

marcus says

LEt's reduce your social security you receive in retirement, as a solution to the fed meeting those unfunded obligations. Sound good to you ?

We are already essentially losing retirement money by paying higher and higher taxes for less and less government services. For instance, my wealthy school district doesn't even offer bus services, so I have to take turns with my wife schlepping our kids to school. This takes time away from my work and leisure time.

Look - everyone is going to have to take a bite of this shit sandwich. Taxpayers will pay higher taxes. Taxpayers will get reduced services. Bond holders are getting pennies on the dollar.

Don't see how it is fair to totally inoculate government workers from any pain. Even if you lost 10-20% of your pension value or raised the retirement rate, it is still going to be far more generous than about 80% of the US workers who rely on their 401K's and Social Security for retirement.

Sniper says

Can that be done with social security when retired, will they pay out a lump sum? Does a heir get the full amount paid into SS if the person dies?

That's just it. THE first argument I hear from every public sector worker getting a pension is the SS argument. My own mom makes the argument with me, but I think I've gotten her in line. If SS is sooooooo glorious, why did you decide to teach and get a pension if it's such a rough route? Private schools pay the same as public, just without the pension, but you get awesome SS. You should teach at a private school then since SS is so A mazing! Right?

CPS (Chicago Public Schools) teachers pay 2% of their salary towards their pension. People need to think about this. A 25 year teacher making $100k (this is what they make in CPS) is paying $2k out of pocket towards their pension. There's not a sane person on patnet or on this planet that can tell me that's sustainable. That teacher retires and gets $60k/yr sitting on their ass. Even at the max amount of $2k they only paid $50k into the pension fund.

And yes, the total is 9% of their pay. The other remaining 7% is covered by your local tax payer (me). Either way, do the math at $100k salary for 25 years. 9% per year. That's $225k put into the system. No teacher is averaging that amount of salary over a career. How the fuck can $60k/yr retirements be sustainable? Someone needs to answer that question when only $225k was put in over 25 years, most of it being on the regular tax payers dime.

Again, IL is fucked.

socal2 says

80% of the US workers who rely on their 401K's and Social Security for retirement.

You could have committed decades of your life to a government job if you thought it was such a sweet deal.

WookieMan says

And yes, the total is 9% of their pay.

I looked this up, that's the total teacher contribution, but the district "picks up" seven percent of that. But the district then must contribute at least another 10% and the state probably contributes something as well. So the total amount that's supposed to be put aside for the employer is something along the lines of 20 to 25%

With social security, employees pay 6.2 % of their salary and employers match 6.2%, and then of course the government picks up the rest thorough bond issues or whatever is necessary when it comes time to pay all that dissability and retirement income.

So if the total contributed (or should be contributed is say 20 to 25%) for a teacher pension, verses 12.4 % for social security, then the actual luxurious cost of teacher pensions is in the neighborhood of 8 to 12%. But probably less, becasue if they didn't get pensions and did get social security, surely they would probably do some level of "matching" contributions even if small for 401ks. So 10% of salary is a reasonable assessment of the cost. (compared to the social security route)

Seems way worse, becasue government is behind on funding it. AS for that pick up of the 7%. I don't know what's up with that. That's bizarre.

IT is a mess though. https://www.huffingtonpost.com/entry/chicago-teachers-pension-fund-nearly-200-in-payouts_us_593b13f5e4b0b65670e56a4f

Interesting explanation of how they go where they are. Teachers are going to have to up their contributions a lot, and the state and the district too. Maybe you're right that it wont be enough.

marcus says

But the district then must contribute at least another 10% and the state probably contributes something as well. So the total amount that's supposed to be put aside for the employer is something along the lines of 20 to 25%

I'm going to come across as a dick, but I have zero idea what you're talking about here. I believe you're in CA, so forgive me if I'm acting like an ass.

For a CPS teacher, 9% goes towards the pension fund, total. Of that 9%, 2% is paid from the teachers salary and then the remaining 7% is paid by the tax payer. So 9% total of their salary when added up. Either way, a teacher making $100k, is only putting in $9k into the pension regardless of who is actually paying whatever portion. Is that sustainable? My answer is no.

Let's then account for the fact that CPS teachers are only putting in 2% of their income into the pension. I keep throwing out $100k, but the reality is, over a 25-30 year career the average is probably, what, $70k? We're talking $1,400/yr contributions or $35k over their teaching careers "invested" in the pension. A CPS teacher, even with the earliest retirement, is going to get $50k/yr pension. Over their career, most CPS teacher barely pay in enough to cover one year of their own annual pension at retirement. I get the money is invested and grows, but you have to think about this. CPS teachers literally have not invested in their retirement and get inflated wages to do a shit job in Chicago. There's not much of a dispute on this on the ground here.

Going back to the SS point of view. Do you realize what SS is? Do you realize what most people will get from it? If you don't own your home outright AND live in a high property tax state, SS isn't a living wage. Yet we HAVE to pay into it. SS is shit compared the what a CPS teacher here in IL will get when retired. They didn't even have to put in half of what people collecting SS did yet they'll collect triple the benefits of a SS person.

This is why IL and many other states are in (or will be in) shit shape.

marcus says

Interesting explanation of how they go where they are. Teachers are going to have to up their contributions a lot, and the state and the district too. Maybe you're right that it wont be enough.

I was posting my comment below while you posted this.

This isn't a I told you so, but admittedly it kind of is. I have no problem with teachers (my mom being one), cops and the like. IL and specifically Chicago is uniquely fucked up. You found the link you posted. Check out the recent ruling on the Chicago Park District. (FUCK the Chicaog Tribune - Easiest link to get) http://www.chicagotribune.com/news/local/politics/ct-met-park-district-pension-court-ruling-20180402-story.html

IL is a dumpster fire. Not sure the fire department can put it out, either way their pension debt is doomed. We're the definition of waste and corruption. This is why I have an enormous amount of cynicism for ANY type of government. IL has scarred me for life.

WookieMan says

Let's then account for the fact that CPS teachers are only putting in 2% of their income into the pension

Well if you're trying to see the cost of what they get on the other end. It's 9% of the teachers Salary. Plus I have to assume some other contribution by the district and an additional contribution from the State. There things together make up what is supposed to be put into the fund per year. Not just the 2% (yes, the teachers essentially get a bonus equal to 7% of their salary that goes toards their contribution. That "give back." You've got to know that there are actuaries, that put together the planned contributions (NOT JUST THE TEACHER's) that will fund the plans - but yes with overly optimistic assumptions, and probably errors about the percentage of people that are retired versus contributing.

Yes, some teachers and Union leaders really are stupid. I'm not going to argue with you on that. THe crazy thing is that they fuck themselves over by negotiating deals that won't be sufficiently funded. It's almost as if the union is run by some 70 year old guy that's only worried about the next 10 to 15 years.

What I was doing was comparing the cost of pensions in general to what the situation would be without the pension, where employee pays 6.2%, employer pays 6.2% in to SS and then presumably some level of matching 401K or IRA type investments.

It's the difference in cost between the govt pensions versus a social security plus matching 401k which is the cost to the public of govt worker pensions. But it gets exacerbated by under funding, for example when Illinois took a holiday from contributing it's obligations to the pension funds, I'm quite sure under republican governance. They're probably laughing their asses off about it now. "haha ha, fuck those teachers !"

marcus says

But it gets exacerbated by under funding, for example when Illinois took a holiday from contributing it's obligations to the pension funds, I'm quite sure under republican governance.

This is true. But what was a Republican governor supposed to do at the time? What Rauner just did with the budget for 3 years digging our hole even deeper? I did vote for Rauner and he's been a disaster. Problem is it would be a disaster either way I voted last time or the next time around this year. IL is a dumpster fire that can't be put out.

The problem is EVERYONE in this state has to take some sort of a bath in this mess. You can't just legislate a graduated income tax and magically the problem goes away. We have income tax reciprocity with Wisconsin for Chicago area residents (or anyone in IL, but obviously Chicago due to location). So income earned in IL, if you moved to that state, is taxed at that states rates (and goes to them), not IL (This include KY, MI & IA as well). The exodus "dam" so to say will break if a graduated tax is implemented. Downtown workers can move to Wisconsin in a heartbeat and have a commute similar to Aurora, IL to downtown Chicago that thousands already make. So it's not a big deal. Any YES, WI income taxes are higher now. But that won't be the case for long. Plus property taxes are marginally to significantly cheaper in WI. Plus housing would initially be cheaper for the first wave.

For the sake of the rest of the nation, every sector in IL is going to HAVE to make sacrifices. Otherwise we end up in some form of state bankruptcy. I know a state technically can't do this, but once taxes are raised to what they should be to cover the current liabilities, along with the necessary cuts, people won't want to live here anymore and people will flood out of the state (as is already happening). My opinion, this is going to happen no matter what, as leadership here is too soft to take their lumps on the necessary measures to correct this. They're rich anyway, so can just cut and run.

And like I said, I'm okay paying some more in taxes if it rights the ship. What government entity has ever cut though? I'm not talking about cuts when revenues are down, because they have to cut. I know it's happened, so I'm being a bit hyperbolic, but REAL cuts are the exception, not the norm. And in IL, the necessary cuts require an impossible constitutional amendment because retirees (all of them including private 401K's) don't pay state income taxes on those retirement distributions and get automatic COL increases (not the 401k's on the COL). Why would those voters voluntarily shoot themselves in the foot? Future retirees won't vote for it either since it's such a good deal for them. Again shooting themselves in the foot to vote for change. Hence, the solution in IL is impossible without oppressive income tax increases and massive service and pay cuts.

marcus says

It's 9% of the teachers Salary. Plus I have to assume some other contribution by the district and an additional contribution from the State. There things together make up what is supposed to be put into the fund per year.

It's IL. Don't assume anything about this place. For CPS, the state doesn't do a damn thing (although they did get a bit of a bailout in the last budget). The district (taxpayers) are that 7%. Teachers are 2% (taxpayers still). That's it. Nothing else besides borrowed money to dump into the black hole (taxpayers as well). That's far less then SS and the additional 5-10% that anyone with a brain HAS to fund into a 401k to ACTUALLY retire like an IL pensioner at 59-1/2 (they can do it earlier). 9% vs. say 17-20% (SS and 401k contributes) for a private sector job of gross pay to retire. There's not a chance in hell public sector workers (at least CPS) will change a thing. And they threaten to (and have) strike on an annual basis because it's not good enough. Give me a break.

And yes, it's a zero sum game, the 7% is getting paid no matter what whether it's directed to the teachers first and then a pension fund or directly to the fund. Problem is both sides of the aisle (including the unions as you mention) wanted votes so they could get their own pensions and voted on pension "holidays" so we're in the situation we are now. It literally is probably not reversible. I've made my contingency plan for what I'm pretty sure will happen and have told anyone else I know to do the same.

Fuck, I really hate this state after reading this.

marcus says

You could have committed decades of your life to a government job if you thought it was such a sweet deal.

The lavish pensions in California didn't really start until 2000 when Gray Davis retroactively went an increased the formulas for State workers.

I was already working for the private sector and still remember the day back in 2000 when one of my clients that works for San Diego Water Utilities was crowing in a meeting about how he was going to now be able to retire in his 50's.

Government unions never consider that cost of their pensions is astronomical.

WookieMan says

This is why I have an enormous amount of cynicism for ANY type of government. IL has scarred me for life.

I was born in Chicago and have lived in Kommie Kalifornia for about 25 years working in the water business watching our infrastructure crumble as much needed taxpayer funds diverted to pensions and stupid shit like high speed rail.

Needless to say, I have gotten more Libertarian and Conservative and skeptical of government the longer I have been exposed to it.

WookieMan says

The problem is EVERYONE in this state has to take some sort of a bath in this mess.

Yep. Just amazes me how some can argue that the vast government bureaucracy shouldn't have any skin in the game and only the tax payers should suffer to keep these gold plated pensions in place. People are really suffering and going to such extremes of moving out of the State because they can't afford the taxes and dysfunctional government services.

WookieMan says

And like I said, I'm okay paying some more in taxes if it rights the ship. What government entity has ever cut though? I'm not talking about cuts when revenues are down, because they have to cut. I know it's happened, so I'm being a bit hyperbolic, but REAL cuts are the exception, not the norm.

This always amazes me too. How come technology can make about every industry in the private sector more efficient where we are producing much more for much less - but we rarely see the same efficiencies flow through in the public sector?

Can we never ask our government for better services with our tax money? Why is the Democrat argument only about raising taxes higher and making government even bigger?

socal2 says

Yep. Just amazes me how some can argue that the vast government bureaucracy shouldn't have any skin in the game and only the tax payers should suffer to keep these gold plated pensions in place. People are really suffering and going to such extremes of moving out of the State because they can't afford the taxes and dysfunctional government services.

Government workers are taxpayers too. It's seems like the above is arguing that they should have MORE skin in the game.

The problem is how do you legally change the terms of their contract without going through bankruptcy?

HappyGilmore says

The problem is how do you legally change the terms of their contract without going through bankruptcy?

With the current rules in places like California and Illinois, even when a City goes bankrupt - they still can't renegotiate the pension "contract". Everyone else suffers with higher taxes, reduced services and bond holders getting shafted - but not the government workers.

How is that fair? Where is the "contract" for tax payers to not let their cities implode with junk bond status while the politicians and the government bureaucracy to pad their nests using our tax dollars?

All we are asking is for the government workers and their unions to compromise a bit too.

socal2 says

HappyGilmore says

The problem is how do you legally change the terms of their contract without going through bankruptcy?

With the current rules in places like California and Illinois, even when a City goes bankrupt - they still can't renegotiate the pension "contract". Everyone else suffers with higher taxes, reduced services and bond holders getting shafted - but not the government workers.

How is that fair? Where is the "contract" for tax payers to not let their cities implode with junk bond status while the politicians and the government bureaucracy to pad their nests using our tax dollars?

All we are asking is for the government workers and their unions to compromise a bit too.

Correct. Well put. Guaranteed pension appreciation should be illegal.

mell says

Correct. Well put. Guaranteed pension appreciation should be illegal

Yup and also salaries. I posted this before-but these village/city managers in IL make more than every GOvernor in this nation-how did they give themeslves these salaries and I am pretty sure the salaries of those downstream will also be above amrket.
https://www.forbes.com/sites/adamandrzejewski/2016/03/28/the-big-dogs-of-illinois-municipal-government-2016/#34c754775c5b

These are pensionable salaries too-I mean you want to raise income taxes on top of the highest property tax rates-cut their salaries in half and problem solved-but hey you can't -public unions.