A Fiscal Time Bomb in the Bailout Bill?

Andy McCarthy writes:

Orwell must be having a good laugh today. Nancy Pelosi yesterday released a summary of the bailout. Under the heading of “Protection for Taxpayers …” Madame Speaker includes this whopper (my italics): The scheme “[a]llows the government to purchase troubled assets from pension plans, local governments, and small banks that serve low- and middle-income families.” So in addition to rewarding irresponsible lenders and borrowers, we taxpayers are now to be “protected” by buying the toxic debt of states, cities and municipalities. It’s one thing to throw a life-line to the credit industry; local governments, by contrast, have the ability to cut spending drastically or raise taxes if their inhabitants want government services.

To get an idea of just how disastrous this policy is, read Stephen Moore’s article from March 24 issue of THE WEEKLY STANDARD. Moore takes a look at the mountains of debt facing local governments and sees “the next great financial bubble in America–a fiscal time bomb that could cause your local and state tax bills to double or even triple in years to come.” At the time, Moore noted that the city government of Vallejo, Calif., had narrowly averted filing for bankruptcy because it could “no longer afford to pay the extravagant salary and retirement benefits of its public employees.” In fact, Vallejo went on to declare bankruptcy two months later in May, and unions are now locked in a legal battle with the city government. Moore observed that “Part of the problem is that the real estate crisis is especially pronounced in California and, as housing values fall, so do city property tax collections…. With hundreds of thousands of public employees in California, you have the potential for catastrophic long-term financial distress.”

There are several other cities in California that are contemplating the bankruptcy option thanks to multi-billion-dollar public employee pension and health care obligations that have become effectively unpayable. “Vallejo’s fiscal problems aren’t unique. They’re just the tip of the debt iceberg here in California,” says Keith Richman, a former state legislator and now president of the California Foundation for Fiscal Responsibility (CFFR). The California Public Employees’ Retirement System has $26 billion of unfunded liabilities. The teachers’ retirement system is $20 billion in the red–health benefits add another $48 billion to its shortfall.

Would it be “very unpatriotic” for Congress to pass a measure that potentially saddles the federal government with many billions of dollars of debt incurred by irresponsible local governments and benefits Nancy Pelosi’s California congressional delegation in particular? I suppose it would be unfair to single out Pelosi, since this boondoggle is sure to benefit lots of other governments who have conceded far too much to union bosses … like, say, Barack Obama’s Chicago:

Plenty of cities outside California are facing a similar tsunami of debt thanks to years of super-generous labor agreements. The ten largest Chicago-area cities face a combined $18.7 billion in unfunded pension liabilities, according to a new report by the Chicago Civic Federation. The city of Chicago has less than 50 percent of the money it needs to pay the benefits promised to Chicago police and firemen. Philadelphia was forced to issue a $4.5 billion bond in February to cover unfunded pension liabilities for 33,000 retirees. The total cost to states for paying for all teacher retirement health and pension obligations is now estimated at $3 trillion, and growing each year [emphasis mine].

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