State, City, and other local governments have set up pension plans that imitate the federal government’s, but they’ve done so without the tools exclusively available to Uncle Scam.
Specifically, local governments across the country have established lavish retirement programs for police and fire department employees, teachers, and other public employees without the ability to print and issue “nonmarketable bonds” and establish debit accounts labeled “trust funds” that are really nothing more than demands on the taxpaying public.
In other words, these local governmental bodies went ahead on the simple premises that if big brother can do it then so can they.
Pushed by union demands, and without a huge portion of the national debt that could be rationalized as “Intragovernmental Holdings (IH)” or the ludicrous idea that a not-for-profit organization completely dependent upon taxpayer support can “owe itself,” these local governments went ahead and established pension plans with as much as eight-to-one in matching funds that must someday, somehow, come from somewhere.
It only takes a few decades for these unrealistic ideas to reach the point where a great deal of real money must be paid to people retiring from the workforce and there’s no place to get that money without seriously raising taxes, borrowing (which is nothing but a future tax), or backing out of the promises – promises that were part of the incentive to attract good people to a life as public servants.
What’s more, these local governments are not permitted to participate in the federal government’s Pension Benefit Guarantee Corporation (PBGC) that, for an annual fee, promises to insure (to about 60%) private sector retirement programs, but has no investment policy of its own other than “nonmarketable bonds” and is itself part of the nation’s debt that depends on taxpayer redemption (read).
Unable to leave the country for cheaper labor in nations with a lower standard of living, these local governments are slowly beginning to realize that there’s something wrong. Snapped out of their doldrums, they’re starting to realize that they can’t live up to the commitments they’ve made. Nor can they blame it on the “baby boomer” myth that isn’t even supposed to have an effect until 2009 when the first boomers might elect to retire early. Troubles are rising to the surface already.
Having turned their backs on fiscal responsibility by accepting the propaganda that “it’s a complex issue” or childish ideas that “inflation will solve things” or “the Fed will just print up more money,” or sidetracked by distractions and disinformation ranging from petty theft to wars, they’ve failed to notice that what they imitated involves forty-three percent of the national debt and that it's completely fraudulent. Local governments do not have the mechanisms to set up such a scam for themselves.
Many of these local governments have set up Municipal Investment Funds to offset the tremendous amounts due their employees upon retirement. All employee contributions are turned over to these investment houses, but there’s no way in the world they can produce enough return on investment to make much of a dent in the promises. Instead, the local municipalities are finding themselves with “unfunded liabilities” that seriously eat into their annual budgets.
Some, like Judy Barr Topinka, Treasurer for the State of Illinois, had a glimmering of what was going on at the federal level when she recommended that “we’ve got to set up trust funds,” but quickly dropped the subject when she realized that she did not have the wherewithal to do so, at least not the way the federal government does it.
Briefly, ninety seven percent of the federal government’s IH “holdings” are represented by 32 entitlement trust funds that were established because the government took all or part of their money and spent it on invasions, nukes in space, and other things important to the dreams of Empire building. Then, pretending that the same money can be both spent and saved, they deposited “special” nonmarketable bonds in debit accounts they called “trust funds” but have little resemblance to the activity of preserving property.
The nonmarketable “special” bonds in these so-called “trusts” can be redeemed only with taxpayer money. The Beltway Bandits even confess to this inevitability. In particular, notice the very last statement by Thomas Saving, one of the trustees to the Social Security trust fund, who says; “We can make that trust fund anything we want to. If we want to change the interest payments, which is a suggestion that’s been made, change the rate of interest, make it 100 percent a year, we can make this last forever, but we can never actually find the real resources because retired people, as I say, drive real cars, eat real food, and live in real apartments and use real medical care, and that’s real output in the country and that’s the only thing we have. We can’t change it with writing numbers on a sheet of paper.”
The federal government is not printing more money. Who needs to put more currency in circulation when you can print nonmarketable bonds or chits that are demands on the Treasury’s general fund of taxpayer dollars?
Alan Greenspan, the former Chairman of the Federal Reserve, summed it up nicely when asked about “fictitious” trusts and “bogus” bonds. He said: The only thing that matters is that they’re enforceable.”
Local governments do not have that option or that power.
PS
In a somewhat related matter, and because local governments are also dealing with problems in their health care programs and promises, they might well look into a solution that's being used by private corporations. That solution is to "outsource" health care to countries like India by flying their employees there for less expensive treatment (read). Countries like Costa Rica have long offered "vacation operations" and recuperation. Offshore health care may even come to the point where larger companies provide standby emergency jet ambulances to quickly get their employees to these less expensive and very efficient services. It's also something local governments can outsource.