Impending Doom?

Most people are not aware of a financial crisis which may be even worse than our Federal Government issues with the budget deficit and unfunded liabilities for Social Security and Medicare. The local and state unfunded pension crisis is something that you should care about because it is big and it is coming soon. Many cities pensions are just a few years away from running out of money.

From a the report, The Crisis in Local Government Pensions in the United States by Robert Novy‐Marx, Univ of Rochester and Nberjoshua Rauh, Kellogg School of Management courtesy of the Heritage’s Foundry. full report

Chicago takes first prize in underfunded city pensions, and this in a state that already has such seriously underfunded state employee pension plans that each household in the city already owes $29,000 just for the state plans. The authors estimate that the combined underfunding of the two jurisdictions equals about $71,000 per household.

However, other city pension funds are so underfunded that they could run out of money in the next few years regardless of the amount owed per household. In order, the first 10 to run out of money unless they do some major reforms quickly are as follows:

1. Philadelphia: $9 billion underfunding ($16,700 per household) in 2015
2. Chicago: $45 billion underfunding ($42,000 per household) in 2019
3. Boston: $7.5 billion underfunding ($31,000 per household) in 2019
4. Cincinnati: $4 billion underfunding ($15,700 per household) in 2020
5. St. Paul, MN: $1.4 billion underfunding ($13,700 per household) in 2020
6. Jacksonville, FL: $4 billion underfunding ($13,000 per household) in 2020
7. New York City: $122 billion underfunding ($38,900 per household in 2021
8. Baltimore: $3.7 billion underfunding ($15,400 per household) in 2022
9. Detroit: $6.4 billion underfunding ($18,600 per household) in 2023
10. Fort Worth, TX: $2 billion underfunding ($7,200 per household) in 2023

The paper goes on to report that the total of State and Municipal unfunded liabilities is over $3 trillion. California alone has a $500 billion unfunded liability.

The time has come to reform these pensions. Contributions by public union members must increase. The retirement age to receive a full pension must be raised (with the possible exception of Police and Fire pensions due to the physical demands of these jobs). Pension benefits have to be reduced for younger workers and those who are not immediately dependent upon the benefits.

I suppose we could continue to ignore the problem and assume that the states can punt and ask the Federal government for a bailout. Yes, the Federal government with a $14 trillion debt and near $100 trillion in unfunded liabilities. No, that is not workable and it just shifts the burden. Or we could raise taxes, but given the size of these liabilities the increase would have to be so large that they would depress the economy (I would prefer that we grow the economy in order to increase tax revenues).

Promises have been made that could never be kept in order to garner votes and political contributions. Reality has set in and it is no longer a future problem that we can delay, but a pressing current issue that has to be addressed. The reaction of the Wisconsin public unions, over the proposed increases in pension and health care contributions and limiting collective bargaining to just wages, tells me that this is going to be a long and difficult battle. I hope that the American people arm themselves with the facts and press our political leaders to make the hard choices that are necessary to get ourselves out of this mess.

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Posted by on February 19, 2011 in Pensions


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Time to face the music

I have been working on a post about the looming state pension crisis that exists for many state and local unions.  The amount of unfunded liabilities are frightening and must be addressed and not ignored because it will not go away.  But the drama taking place in Wisconsin sheds light on the situation and serves as an example of what is yet to come.

The situation in Wisconsin is just the tip of the iceberg of what is yet to come.  I felt compelled to post an article about the situation there because of the vitriol and hyperbole.  The language coming from the unions and being repeated by those who don’t apply critical thinking to the message are examples of what is wrong with our country.

So first, let me state that I am not fundamentally opposed to unions.  I believe there was a time a place for unions, particularly for trades and unskilled laborers that were treated unfairly by their employers in the past.  However, I will say that I do not understand nor do I believe that there is a need for unions for teachers, state employees or other white collar professionals, so I am making my bias clear.  The primary issue is that unionized civil servants create a conflict of interest.  The politicians that negotiate agreements with the unions agree to terms that are not in the best interest of the state in exchange for votes from the union members.  This is a topic for another post, but the pension and benefits crisis is an example of politicians making long-term promises that the could not possibly keep in exchange for short-term votes .  The auto industry suffered the same issue, committing to pension and benefits packages that they cannot afford to pay.

So, let’s look at what is being proposed in the legislation and then compare that to what the unions are saying and you decide for yourself if the Governor of Wisconsin is Hitler or Mubarak (I’m not kidding, see here) .

This summary is from a Daily Caller artical by Matthwe Boyle Why the Wisconsin Hype

Walker’s proposal, which is part of his plan to address the $137 million deficit in Wisconsin’s current budget and projected $3.6 billion shortfall over the next two years, would allow public sector unions many of the collective bargaining privileges they enjoy now.

Some key points:

  • Public sector employees would still be allowed to collectively bargain on wages, but not on health-care or pension plans.
  • Raises would be tied to the inflation rate, unless the state’s voters deemed the employees worthy of larger raises.
  • Public sector employees would have to pay slightly higher rates for their health care and other benefits, but those rates would remain lower than those of the average private sector employee.
  • Public sector employees would be required to pay 12.6 percent of their health-care premiums; they currently pay about 6 percent.
  • Public sector employees would have to contribute 5.8 percent of their salaries to their pensions under Walker’s plans; currently some pay nothing. From 2000 to 2009, public sector employees paid $55.4 million into a pension system that cost $12.6 billion.

Walker promised not to lay off or furlough any of the 170,000 government employees in the state, saying about 5,500 state jobs and 5,000 local jobs would be saved if the unions give in to this plan.

So, to summarize, the state has a huge deficit problem and rather then layoff 10,500 state employees, he has asked them to pay 6.6 percent more for their healthcare premiums and 5.8 percent to their pensions.  He is also reducing their collective bargaining power to just wages and not benefits.

So what are those opposed to these changes saying. Are they addressing the issue at hand or are they trying to change the message.

From the former Speaker of the House Nancy Pelosi, “workers must have a seat at the table to fight for good wages & a safe workplace-I stand in solidarity” So, the issue is worker safety, no. Does the bill eliminate the ability for the unions to bargain for wages, no. Thanks for your continued wisdom and insight Rep. Pelosi.

Former WI Senator Russ Feingold has weighted in, in an obvious attempt to get his job back. “This state is one of the originators of many of the workers’ rights and protections on child labor, unemployment compensation, and almost all kinds of workers’ rights. The fact that our governor is trying to destroy those rights is something worth fighting against.” So the legislation outlined above is going to re-instate child labor and get rid of unemployment. Thanks for adding common sense to the debate, ex-Sen Feingold. He couldn’t stop there, he added “It’s a very meaningful and very difficult effort against one of the most mean-spirited things I’ve seen in a long time.” Perhaps you haven’t bothered to look at the signs of those union protesters Sen. Feingold.

This from a teacher, yes a teacher at the protests “He’s putting all this money into education and expects the best for his children and our children, and he has to understand that we can’t work for less, and we can’t get sick and have no health insurance to cover us,” said Bitto. “And when our children get sick and lose their BadgerCare, what’s going to happen to them? What’s going to happen to the system? What’s going to happen to our future?” Increasing your pension and healthcare contributions translates to working for less and no insurance for the kids. Don’t forget dog food for the old people. I suppose you would prefer to raise the taxes of those who pay your salary than have to pay a bit more for you own benefits.

From the Congressional Progressive Caucus, “ Wisconsin’s Republican governor, Scott Walker, seeks to slash the benefits and collective bargaining rights of workers in Wisconsin.” I don’t see anything about reducing benefits, let alone slashing, only asking workers to pay for more of them, at a rate significantly less that the private sector. I expect nothing less from the Progressives, as they rely on millions in contributions and votes from the Unions.

I have been a bit sarcastic in response to the hyperbole and vitriol from the unions and the left but the point is, their responses have nothing to do with the reality. They are intentional exaggerating the reality because they hope the average person is only going to listen to the sound bites. They hope you are stupid and will react to the misleading rhetoric rather than looking into the facts. It is very frustrating when we cannot discuss the real issues at play and we resort to outright fabrications in order to prevent the inevitable. The pending fiscal disaster awaiting not only our nation but many of our states will not go away. It is not better to have a job with better than average benefits than no job at all. Taxpayers are paying enough and are struggling to make ends meet and will not pay more taxes so that the unions can continue to get pay increases and have better benefits than the average taxpayer.

The unions need to wake up to the new reality. The gravy train is over. In a time of over 9.5% unemployment (more realistically, 18% resulting in significant decreases in government revenues) record foreclosures, increased usage of food stamps and welfare you would think that accepting reasonable increases, or what our liberal friends like to say, ‘paying their fair share’ would be done so in a gracious manner. Instead the unions have decided to double down and not only not accept the changes, but become belligerent and vitriolic.

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Posted by on February 18, 2011 in Deficit


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Sorry it turns out this contest was over on 2/16 so the videos are no longer available.

If you read this blog, by now you know I am passionate about the ‘deficit’ issue.  Check out these video’s submitted for a National Debt Video Contest Voting. They help demostrate the problem visually.  Also you can vote for the video you like best and the winner gets $5,000.
Y-Care? video contest

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Posted by on February 16, 2011 in Deficit


Budget Freeze, wow that sounds impressive.

OK, his stuff is just so good, I have to share another one of 10000Pennies videos from YouTube.  This one is about the proposed budget freeze President Obama mentioned in his SOTU speech.

Billions and Trillions are such big numbers, people have no idea of the scale.  These visualizations help bring perspective and make it easy to spot rhetorical BS when you hear it.  The proposed spending freeze is so trivial as to be meaningless.  We need across the board cuts to get out of the mess we are in.

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Posted by on February 7, 2011 in Reckless Spending


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New definition for Draconian

Dra·co·ni·an [drey-koh-nee-uhn] rigorous; unusually severe or cruel

Harry Reid defined the Republicans plan to cut the budget by $74 billion as Draconian.  I don’t agree, when I think about a $74 bil cut in light of a $1.5 tril deficit, I’m reminded of a lawyer and bus joke with the punch line, ‘A good start’.

I can’t explain how ludicrous Senator Reid’s statement is any better than YouTube’s 10000Pennies.

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Posted by on February 7, 2011 in Uncategorized


When a decrease in the unemployment rate is not a good thing

The unemployment rate dropped .4% from 9.4% to 9.0% in January.  After first glance this appears to be great news.  But only 36,000 net jobs were added, so why was there such a large drop?  It is because the number of people dropping out of the labor market increased.  People are just giving up looking for jobs and they are no longer counted.  The full picture of unemployment if you account for those who are underemployed is around 18.9%.  I wonder what it would be if we counted those who have just given up.  It is hard to fathom that nearly 1 in 5 people who want to work are not working or are working part-time.  I can’t image how hard it must be for them.  I am sure they had great hope in the promises of the stimulus.

The graph below compares what the current administration promised us in order to justify the $900 billion stimulus plan vs. what they actually delivered.  When I see how well the ‘experts’ in Washington are at predicting outcomes, I realize that we really can’t trust any of their predictions.  Think about the promises this same administration has made in light of the impact of ObamaCare will have on our deficit and economy.

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Posted by on February 6, 2011 in Unemployment


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Is the ‘Affordable Health Care for America Act’ the best we can do?

We really can’t do any better than this?  The 2,000 page Affordable Health Care act passed last year is the best our country can do?  Creating more regulations that we can’t possibly understand, an Individual Mandate (evolving into the Individual Responsibility provision now) and giving more control over our health care into the federal governments hands, is the answer to the problem?  I am continually amazed at the desire of so many to put our health care into the hands of our government.  I am among the first to admit that we need to reform our health care system.  But turning it over to the government is not the answer.  We don’t have to follow other countries examples to solve our problems.  We are an innovative, creative country that has always found free market ways to solve hard problems.  This does not mean that the government does not play a role in the reform, it should provide the framework to allow a free market solution to prosper.

Let me begin by saying that any reform needs to address pre-existing conditions and expand coverage to those currently not covered.  I am not a cruel and heartless conservative schilling for health insurance companies.  I just want a system that continues to provide the incentives for innovation and creativity while addressing some of the major flaws in our current system.

We also need to be realistic about reform.  Turning our system over to the government does not mean there are limitless funds available to pay for everyone’s healthcare. Creating entitlements does not work some strange magic that creates money to fund them.  Someone has to pay the bill, there has to be real money paid by real people to fund the program.

Government is not really very good at running anything

Why anyone would use medicare and medicaid as examples of successful government programs is beyond me. They are broke and creating huge unfunded liabilities.  Why do we want our government to make promises that can’t keep, which cause huge deficits and in the end can’t deliver?

The 2009 Social Security and Medicare Trustees Reports show the combined unfunded liability of these two programs has reached nearly $107 trillion in today’s dollars!  That is about seven times the size of the U.S. economy and 10 times the size of the outstanding national debt.

The unfunded liability is the difference between the benefits that have been promised to current and future retirees and what will be collected in dedicated taxes and Medicare premiums.  Last year alone, this debt rose by $5 trillion.  If no other reform is enacted, this funding gap can only be closed in future years by substantial tax increases, large benefit cuts or both.

We want more of this?  This is logical and reasonable?  We think that this makes sense?  To learn most about this disaster of an entitlement, read here, or here The Forbes article indicates that all taxpayers would need a permanent 81% tax increase to cover the unfunded liabilities.  I’m sure all of you would have no problem with that.  All the wishful thinking and emotional handwringing will not make this go away and no matter how compassionate you are you can not justify making things worse by adding another entitlement.

New attitudes are needed

We need to examine our attitude towards paying for our health care.  I find that we expect our insurance to pay for all of our health care expenses.  We don’t want to pay for anything out of our pockets.  Insurance is not and should not be a replacement for personal responsibility.  Insurance should cover catastrophic expenses, not normal checkups, colds, flu, prescriptions, etc.  Think about our auto and home insurance.  We purchase this type of insurance to cover the big ticket items or the major accidents.  We don’t expect insurance to cover oil changes, tune ups or tire changes.  But when a tree falls on the house or our car, we expect our insurance to handle this.  Our premiums could be reduced if we had larger deductibles and planned for and expected to pay for routine medical expenses.

A large part of the problem with health care is the exorbitant cost.  Even the most basic out-patient procedure is more costly than most people can afford.  Any solution to the health care issue must address the problem with cost.  The current insurance system offers no incentive for health care providers to lower cost and improve efficiencies to attract customers.  We don’t ask how much a test or procedure is going to cost.  We don’t shop around for the best price, we just go wherever our doctor tell us.  We don’t operate this way for other services.  Most of us take pride in getting the best price we can.  Lasik is an example of how competition and removing artificial cost constraints can drive cost for health care down.  Lasik is not covered by insurance yet it is a popular procedure.  The cost of Lasik has not gone up like other medical procedures, rather is has decreased by more than 50% from a cost roughly $4,000 per eye in 1997 to an average of $1,800 per eye today.  We can’t always shop for price in health care, but if we were incentivized  to do so, prices would certainly drop making it more affordable (insurance premiums would also decrease).

Government regulations are part of the problem

Part of the problem with our current system is too much Government intervention.  Now before you accuse me of the desire to abolish all government regulation, let me explain.  I believe there is a place for regulation to protect consumers, I just think that we need to periodically examine these regulations to ensure that they are providing the value that was intended.  Often regulations create unintended consequences.  For example, the cost of providing insurance continues to increase because of government mandates for what must be covered in policies offered by insurance companies.  This is not necessarily a bad thing (although I disagree with some of the elective procedures required to be covered) but the unfortunate side effect is that the cost to buy these policies becomes prohibitive.  I’m not advocating the removal of these mandates, but rather more choice for the consumer regarding what coverages they include in their policy.  What I would like to see is more flexibility in the types of coverage one can purchase similar to auto insurance.  A simple example, I’m 45 years old, so is my wife, we don’t plan on having any more children, so I would like the ability to buy a policy that does not cover obstetrics so I could save money.  If people want to pay more for a policy which covers addiction counseling, sex changes, cosmetic surgery, etc. more power to them, just give me the ability to opt out so I can save money.

I won’t go into too much more detail on regulations, but I would like insurance companies to be allowed sell across state lines to have greater economies of scale (requiring cooperation by the multiple state dept. of insurance).  Also, allowing people to join together and purchase insurance as a group, much like a large employer, so they can negotiate discounts with the insurance carriers would provide two benefits.  First, the insurance would not be tied to your employer so it would be portable and second it would provide opportunities for those that do not work for large companies.  As an example, I am in the Software Development industry.  If a group of developers, testers, managers could join together to purchase insurance, potentially be hundreds of thousands of buyers, would result in significant discounts.  Current state and federal regulations prevent these ideas from becoming a reality.


The CEO of Whole Food offered some practical and in some cases ideas that are being practiced by his company.  It is unclear to my why he was vilified by some on the left, but here is a link to his WJS editorial;

Nathan Sass does a nice job covering and alternative proposal that I think is pretty novel.  Please take a look here;

Tort reform was left out of the AHCA.  While I think that people who have been a victim of negligent medical care should be made whole and deserve monetary compensation in many cases the settlement is about punitive damages.  Punitive damages are meant to punish the perpetrator of the offense so they won’t do it again.  The problem in our current system is that health care providers can buy malpractice insurance which covers punitive damages awarded to a plantiff.  They build the cost of the malpractice insurance into the the amount they charge for services, so it is the consumer who is punished not the doctor.  I think that the best punitive action that can be taken against a negligent health care provider is to take away their license to practice.  That is real and effective punishment that is not passed on to the consumer.  It is no surprise that trial lawyers are against tort reform, they have everything to lose and nothing to gain.

I am interested in learning about other ideas about how the health care issue can be solved.  Please feel free to post comments with ideas and links to others ideas.  As much as I hope that the AHAC will be repealed, I also hope that we can quickly move forward with creative and novel ideas for solving the problem.

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Posted by on February 6, 2011 in Health Care


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