Ferg's Fiscal Insight
Jul. 30th, 2012: - johnlocke.org Manage Subscriptions

No Pension Bailout!
By Fergus Hodgson

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A Travesty to Federalism and Loss for North Carolina

Unfunded pensions for state employees have reached such a magnitude -- $2.5 trillion nationally -- that a Euro-style bailout is becoming a possibility. Not only would that be fiscal lunacy and undermine the United States' federal system, North Carolina would be one of the big losers.

The solution to these vast and growing promises without sufficient financial backing is to stop making them. Otherwise, a default is inevitable. As Tom Palmer said when here at the John Locke Foundation, "What can't happen won't happen."

A federal bailout, though, would allow states to continue paying overly generous pensions for longer and prolong the irresponsibility. If you think the United States Constitution does not grant the federal government such authority, you are correct (see Article I, Section 8), but that hasn't stopped federal officials from already taking ownership of many formerly private institutions. And you can guarantee the money would come with strings to undermine state sovereignty.

Like other bailouts, federal money for pensions would be a wealth transfer -- one of the largest transfers in the history of the United States -- in this case from responsible to irresponsible states. That's according to a new initiative, NoPensionBailout.com, sponsored by the Illinois Policy Institute. (I attended their presentation at the latest ALEC meeting in Salt Lake City, Utah.)

The implication is most severe for North Carolina, since the authors assert that the state's unfunded pension liabilities, of $3.1 billion (pp.178-180), are the least burdensome in the nation. The study does not address the fact that North Carolina's retirement health benefits are only 2 percent funded with an unfunded liability of at least $32.8 billion, but let's stick with straight pensions this week.

The associated website allows one to adjust the approach to the bailout, whether it is achieved via tax increases, spending cuts, or a combination of the two. Consider the consequences of a mixed approach. North Carolina would go from being a net-recipient of federal aid --  $1.14 for every dollar paid in taxes -- to being a net-payer, receiving only 89 cents for every dollar paid. All the more reason to oppose the idea before it gathers steam.

Image of the week

This one is gentler than the other I had in mind, but the message remains. If individuals benefit from particular items, more than the associated cost, they will voluntarily buy them. The need for coercion, such as the mandate of the Health Care reform of 2010, demonstrates the opposite, that the transaction is not in the interests of the involuntary participant.

Notes

  • Recently, the staff of the John Locke Foundation hosted candidates for a policy briefing, and my focus was a Taxpayer Bill of Rights for North Carolina. While I've touched on this in an earlier newsletter, here is a video of my presentation with new insights from my latest research.

  • If you have not tried the website, Reddit.com, you are missing out. Here is a blog post from me that explains its benefits, and I have just added a page for pro-liberty content in North Carolina. Don't hesitate to subscribe and submit content of your own!

  • I am highly active on Twitter and glad to engage with more people through that medium. If you would like to follow me, my username is @FergHodgson (si prefiere espanol @Fergusito).

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