States Are Underestimating Budget Crisis By Trillions

From the interview with Jeffrey Miron:

The problem is pension liabilities are not being accounted for in state budgets. The results: states across the country, he estimates, are underestimating their liabilities by $1-2 trillion.

See here for more that I’ve written regarding state pension plans over the past years.

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Maine Madness – Government Retirees Receive 17:1 On The Dollar Contributed reports Taxpayer-Funded Government Pensions to Turn Thousands of Retirees into Millionaires:

The 25,000-plus individuals currently enrolled in the Maine Public Employees Retirement System will received a combined $15,383,315,649—an amount equivalent to $11,834 for every man, woman and child in Maine. Of that nearly $15.4 billion total, retirees have paid in a combined $882,274,785—less than six percent of the total pension cost.

On average, for every $1.00 withheld for their paycheck while working, government retirees will get back $17.00 in lifetime pension benefits. For some government retirees, for every $1.00 paid into the retirement system, they will get back more than $300.00.

2,101 – number of government retirees set to receive lifetime pension benefits of $1 million or more

• 9,193 – number of government retirees set to receive lifetime pension benefit of $500,000 or more

• 50 percent – percent of current government retirees who worked for government 25 years or less

There are 25,000 people, 8% of which are about to be millionaires, 36% of which are going to retire with 500k+. There are about 1.3 million residents of Maine.

This is one of the core and insoluble problems of the concept of government, right before your eyes :)

I have explained it before:

A small number of people each individually have a huge marginal interest in the growth of specific programs, while the majority of people who fund this growth, each of them at a marginally small percentage, have very little vested interest in the elimination of particular individual programs. This creates a mismatch in incentives that brings about the inevitable.

When very few people have such asymptotically higher incentives in a single program than the majority, then every single one of them will be fighting tooth and nails and with ferocious tenacity for his money, while everyone out of those in the majority who is, at the threat of imprisonment or violent seizure of property, forced to pay for this particular program has little to no to even negative incentive (time, opportunity cost, etc.) to do something about it.

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California’s Looming Public Pension Crisis

Other state pensions are in a similarly bad shape. The choices for them will be one of the following, or a combination: raise taxes, cut “services”, lower pension payouts, or raise pension contributions.

As far as I know the only one who has actually started confronting public sector unions, teachers, and the like is governor Christie of New Jersey. I doubt he’ll succeed in the long run, but it’s interesting to see someone try.

Of course a good sign that he is taking steps in the right direction is that Paul Krugman, who is of course as always incapable of predicting any government induced crises in time, has nothing better to do but to bitch about governor Christie’s cancellation of a tunnel project.

Yes, this is not a joke. There are state governments passing budgets on one junket after another, making outlandish pension promises, putting future taxpayers on the hook for billions upon billions of dollars, paying public union workers outrageous wages, and Krugan’s really big concern is the cancellation of a tunnel project … he never fails to amaze me! :))

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