George Rebane

Here all along I thought that California was going to be the first state to cancel its payment to its government employees pension fund CalPERS.  And now that uppity model of eastern fiscal responsibility, New Jersey, beat us to it.  NJ has lost so much in the collapsing markets this year that its unfunded liability (UL) is currently about $60B.  Not to worry, with its portfolio slated to earn 8.25% annually, New Jersey will be in there again in 2012 making its regular payments.  Yeah, right.

But the most interesting part of the report (here) is what it quietly highlights.  The state government considered raising property taxes as an alternative.  Every taxpayer should know that government unfunded liabilities are exactly that, financial liabilities that the government has to ultimately pay with monies of last resort which come out of our pockets as additional taxes.

Yesterday I had lunch with one of our elected leaders and we discussed the way that governments pile up financial obligations that follow-on governments are saddled with.  An alternative, of course, would be for a jurisdiction to adopt a ‘pay as you go’ policy for compensating staff.  Under such a policy the government agrees to pay out ALL of its known financial obligations to an employee during the employee’s term of employment.  When the employee leaves –quits, retires, … – then that employee’s account is paid up.  Both of us thought it would be a breath of fresh air if, say, a city council passed a resolution stating that it would henceforth proceed on a ‘pay as you go basis’ with current and new employees; or instead resolve that they would adopt a ponzi policy so as to pile on debt obligations to their successors.  Either way, just make the policy explicit so that it can be voted on and then strapped to the wall of the council chambers.

Today almost every government (federal through local) has an unstated ponzi policy in place – we’ll take our takings now and let someone else pay for it tomorrow.  Mike McDaniel is continuing to cover the details on the local UL scene (here) and Russ Steele brings UL into perspective with the self-inflicted financial impact of the climate change fiasco (here).